The Nigerian Stock Exchange, NSE, is a regulated market and stockbrokers are the specialists in this market. Stockbrokers sell and buy shares on the stock exchange for their clients and in the process their firms earn commissions. Stockbroking firms are also investors, they buy and sell shares for their own accounts.
Company registrars are chosen by each company primarily to carry out the functions of maintaining the records of shareholders in the company and for the payments of dividends and bonus shares to shareholders of the company.
Investors are required to provide company registrars with details of bank accounts into which any dividends due to them should be paid. Investors should also use the services of stockbroking firms to open accounts with the Central Securities Clearing System Plc, CSCS. Bonus shares due to investors should be credited into these accounts with the CSCS.
The introduction of the NUBAN account numbers and a number of electronic payments initiatives by the Central Bank of Nigeria, CBN, have made it easier for investors to mandate bank accounts into which their dividends could be paid. However, office locations of stockbroking firms are limited and are largely in Lagos and a few other cities in Nigeria.
Investors outside of Lagos and outside of other major cities cannot readily become clients of stockbroking firms and hence there are a number of investors without CSCS accounts. Efforts should be made such that more investors have accounts with CSCS or in the alternative the investors should dispose of their shares.
An example from the United Kingdom may give some indications of how an appropriate scheme can be drawn up for investors on the NSE. In the mid 1990s, building societies in the UK transformed into public limited companies.
Essentially, building societies were like cooperatives and the transformation to public limited companies required that holders of savings and investment accounts and holders of mortgage and loan accounts in the building society were given free shares in the public limited companies.
For example, Halifax Building Society had about 18.1 million savings and investment accounts and 2.5 million mortgage accounts at the transformation to Halifax Plc.
About 2.7 billion free shares were distributed to qualifying account holders and it is evident that each account holder received only a limited number of shares. Arrangements were put in place for shareholders in Halifax Plc to sell their shares through a designated company.
When a shareholder indicated to the company that he/she wanted to sell his/her shares, a deal would be concluded at the current market price and the share transfer forms would be sent to the shareholder by post. The shareholder was required to complete the share transfer forms and return them with the share certificate to the designated company, also by post.
Payment would then be made to the shareholder by direct credit within the number of days stipulated by market rules.
There may be concerns that the Nigerian postal system may not be able to handle such transactions within the time limits for delivery of documents.
However, it is mainly the banks that have large numbers of shareholders and each bank could designate a stock broking firm which their shareholders could use with the collection of documents being undertaken at bank branches.
A number of investors acquired their shares in the banks during public offers and some of these investors hold the minimum or close to the minimum of 1000 shares.
Following on the intervention of the CBN in some banks in 2009, some distressed banks were merged with others. The shareholders of the distressed banks received shares in the banks they merged with but they received only a fraction of the number of shares they previously had.
The result is that there are a large number of shareholders who have much less than 1000 shares in some of the banks. It would help the process of dematerialisation of share certificates if such shareholders are encouraged to bring forth their share certificates.