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Expert calls for pegging of exposure limits for stockbroking firms

By Michael Eboh
Following the huge  amount of debts owed banks and other financial institutions by stockbroking firms and other capital market operators, a financial expert, Mr. Amaeze Olisaemeka has called on the regulatory authorities in the capital market to put forward a law, pegging the maximum amount of exposure to be  allowed for  operators in the capital market.

It will be recalled that the CBN in its  audit  reports on the first  10 banks, discovored that five  of them had exposure to margin facilities to the tune of N456 billion, while other analysts have put the total exposure of capital market operators to banks in the country at N1 trillion.

Speaking in an interview with Vanguard , Olisaemeka, who is the General Manager, Apex Securities Limited, blamed the regulatory authorities for the crisis in the capital market, especially for their failure to churn out appropriate policies that would have helped  instill sanity in the market.

According to him, the meltdown in the capital market would have been averted if a limit is set on the amount to be borrowed by stockbroking firms from banks, especially in the area of margin facilities.

He advised that the maximum exposure limit of a stockbroking firm should be based on its paid-up capital, noting that this will help in checkmating unnecessary borrowing and other market infractions.

He said, “The meltdown in the Nigerian capital market can be attributed to the failure of regulation. There is the need for appropriate regulation to ensure sanity, so that people will not just do what they like. In fact, the present economic meltdown in the capital market should be blamed on the regulatory body. This is because if the regulatory bodies – the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE) among others, have determined the maximum limit beyond which a stockbroking firm should not be exposed, the crisis would not have happened.

“For instance, if they had come out with a regulation that a stockbroking firm with a paid-up capital of N70 million, it total exposure should not exceed ten times that amount. This means that the stockbroking firm cannot borrow in excess of N700 million.

However, because of the absence of such legislation, one will see a single stockbroking firm owing as much as N1 billion, some N20 billion, some N88 billion, as the case may be. “This has brought to the fore, the need for proper regulation, guiding against unhealthy practices and acts capable of jeopardising the future of the capital market.

This is a professional market where people do not just come in and do what they like. Everyone is expected to play according to the rules.

But those rules should be set by the authorities regulating the capital market, guiding activities in the market and meting out sanctions to defaulters.”


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.