Nigeria: What We're Doing to Increase Interest of Nigerians in Capital Market - SEC DG

16 December 2019

At the end of the 3rd Capital Market Committee (CMC) meeting recently, the Acting Director-General of the Securities and Exchange Commission (SEC), Mary Uduk, spoke to journalists on how the capital market regulator is grappling with its challenges.

Excerpts:

QUES: The issue of unclaimed dividends by investors is growing by the day and constituting a huge burden. What is the Commission doing to tackle this problem?

UDUK: Unclaimed dividends are legacy issues. They happened way back in the past. Right now, one will not get unclaimed dividends from new issues.

Part of the problem of unclaimed dividend has to do with identity management. We are doing all we can to educate the public on it and engaging the various interest groups to be able to get a lot of the information we require.

The capital market is taking advantage of the bank verification number (BVN) to help in identity management.

The Central Securities Clearing System (CSCS) and the registrars are working together to ensure that more information from the legacy shareholders are updated to enable them to claim their dividends.

Of recent, there has been a lot of engagements with shareholders on this issue. The registrars don't have direct interface with shareholders, they deal directly with stockbrokers.

But, there is a committee comprising of SEC, the registrars, the stockbrokers, the issuing houses, the CSCS and the Nigerian Stock Exchange (NSE) working on that in addition to the e-dividend management.

The committee has come up with a resolution that was adopted at the last CMC meeting. Part of the resolutions is that stockbrokers will update information in respect of their clients.

Before 2008, we had a lot of Nigerians who bought shares in the capital market. At that time we did not have BVN numbers. Even some of them did not provide their account numbers.

What was agreed was that we would update information of such shareholders. That information will be transmitted to the CSCS who will update their own information and send them to the registrars.

Which means we will not address the legacy issues by the time brokers update that information.

What the CMC also agreed was that there will be no transaction in respect of any account that information is not updated.

We also talked on the issue of compliance and enforcement which has to do with conduct of capital market operators. It was agreed that there will be zero tolerance and the brokers will be given a time frame.

We hope that by the time that information is updated, the issue of unclaimed dividends will be resolved.

Also, going forward, the Commission has approved the rule in respect of electronic offering and we believe that by the time we commence that, it will address that.

Before you can complete the application, the system will validate your account number, the system will not accept incomplete application.

We believe that in addition to the e-dividend mandate, these other initiatives that the Commission is doing with other stakeholders will address the issue of unclaimed dividends.

QUES: What is the SEC doing to attract retail investors to deepen the market?

UDUK: We have various initiatives in place, all geared towards attracting retail investors to the market.

We are interacting with them in a lot of ways, like the social media, educational materials, excursions to the Commission, enlightenment campaigns among others.

We are also interacting with them through the new curriculum that we are coming up with for Capital Market Studies in secondary schools.

Of recent, we interacted with the army on the issue. Even for us, it was an eye opener. They came out in their numbers and we intend to do more. We have a department in the Commission where students from all over the country come to the Commission for interactions.

We try to engage all sectors of the country. We believe that we need to develop this market. That is why we have both short term and long term plans. What we are doing with the universities are research-based conferences, issues that will be very key to the market are brought to the fore.

We just completed one with the University of Lagos and other universities have indicated their interest in such programmes too.

People are aware that there are safety nets in the capital market when one invests in funds because risks are diversified.

For all the northern states, we look at ethical funds and we are going to do roundtable discussions there in collaboration with the state governors.

In the coming months, we will see a high growth in the capital market with all these sensitisations.

The shareholders' associations can be a force for good, and we recognise their importance.

But we want to see them play positive roles in good corporate governance of the companies that they invest in. We want to see more positive contributions from them.

QUES: Delisting is a huge problem in the market. What is the Commission doing to curb it?

UDUK: We look at the issue around delisting in two perspectives: voluntary delisting and regulatory delisting.

What are we doing as regulators to influence and encourage more listings in the market is to set up a committee that has made recommendations we are currently implementing.

What we are doing is to look at how to encourage listing based on sector approach.

What one sector needs, may be different from what another sector needs. We are engaging with them and have itemized issues and now implementing them. We are trying to see that we encourage listing via incentives.

We are also trying to address the issue of time to market so that they are not discouraged as they are converging to come to the market, so that they are able to raise the funding within the shortest time possible.

We are still having engagements with them, we are getting more companies listing, you are aware of all the listings we have had this year.

QUES: Securities lending is another strategy to support retail investors. How does this work?

UDUK: We have a committee which has been engaging all institutional investors that have a substantial holding of equities.

The essence of having this securities lending is to actually deepen our market. All of us are contributing to our pensions accounts.

These are being invested in equities. What they do is to buy and hold. They don't sell.

So, the essence of securities lending is to give room for them to make money so that the profit can then be added to what contributors would get.

We have an approved framework. We are encouraging them to go into securities lending. They are being encouraged to lend out these securities. They make money out of it.

We are encouraging the market players to go into securities lending by meeting these institutional investors.

PENCOM is the largest local institutional player in our market. They will lend out these securities and make money out of it. At the end of the contract, they get their money back. Instead of holding on to their securities, they are making money out of it.

We are engaging PENCOM and discussing to see how they can come up with their guidelines for it to happen.

Another institutional investor we are engaging is the Asset Management Corporation of Nigeria (AMCON). All these are being done to deepen our market.

QUES: Where is Commission on demutualization of the exchange?

UDUK: Everything the Commission is doing is geared towards positive impact on the whole economy as well as the people on the streets. If people have confidence in the capital market.

The increased activities in the market through the participation of local investors will be to the benefit of the economy.

If people make wealth in the capital market, it will impact the economy positively. If you have more companies doing well in the capital market, the unemployment situation we have will reduce.

With the kind of awareness, SEC is doing with the mutual funds where we expect that a lot of investors will come into the capital market through that space is impactful.

There, you will not wait until you have a lot of money to invest in the capital market and then you will also not invest where you don't understand the products and then you get your hands burnt.

If you invest through this channel, at the same time you are investing in those companies in which you want to invest.

This e-dividend initiative we are embarking on is also a way of improving the economy.

If, through this initiative, unclaimed dividends are reduced, people will have more money in their pockets through their dividends. This is impactful on the economy.

A lot of the awareness we are carrying out right now like Capital Market Studies, as well as the collaboration we are now having with the academia will impact the economy.

Also, we are coming up with other products that will enable the PFAs to invest, especially towards infrastructure.

Eve in a down market, people still make profit. There are investors that have made money. That means the market has contributed to the pockets of those investors.

The common man that invests, some of them have made gains, some of them that had low stocks and have not sold. That does not mean they are making losses.

True, the value has reduced. But since they did not also buy very high, they have equally gained.

Also, the market one way or the other has assisted the economy, even those that are not investors have benefited.

There are foreign investors that brought money into this market and that money most of the time is used to shore up our reserve and that affects our foreign exchange and the stability of our currency.

There are companies, whether they are making profit or loss on the stock market, they are still paying taxes.

These monies are used by the government to construct roads and other infrastructure, so the common man is also benefiting.

So it's not only on the equity side, but also on the fixed income side. The government is making money from the capital market to finance infrastructure development.

We have collective investment schemes, we have savings bonds and common men are investing in them.

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