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Capital Market in 2010: Slow recovery amidst monumental leadership crisis

By Peter Egwuatu
The capital market was characterised by a very slow gruesome recovery of the Nigerian Stock Exchange even as a monumental leadership crisis bedevilled the Exchange through the year.

The market also witnessed the assumption of office of a new Director-General for the Securities and Exchange Commission (SEC) Ms. Arunma Oteh, which  culminated into a number of measures to reform the market and restore investors’ confidence while for the first time the Commission successfully asserted its authority over the NSE.

The new D-G, Ms. Arunma Oteh assumed  office in the month of February, 2010, expressing resolve  to implement reforms that are capable of lifting the capital market and repositioning it  to be among the leading capital markets in Africa that meets international standards and best practices.

During the year under consideration, the SEC boss unveiled a road map for rebuilding the market declaring that the Commission will adopt recommendations of the I5 man National Committee on Review of Capital Market Structure and Processes established at the instance of SEC in September 2008.

She insisted that  the 32 point recommendations  of the committee articulated the reforms needed to lift the capital market out of the doldrums and laid strong foundations for some of the key issues to be undertaken by SEC.

Equities performance:
Meanwhile prior to her  assumption, the  stock market  has been battling with  declining   investors’ confidence as the market indicators, All share index and market capitalization which reached their peak in March 2008 at N13.5 trillion and 66000 basis points respectively opened the market at the beginning of the year 2010 at N 4.293 trillion and 20,838.90 points respectively.

Analysis of the equity market for 2010 show that the index rose by 15.6 per cent from 20.838.90 points in January to close on December 23, 2010 at 24,699.29 points. The market capitalization grew by 45.6 per cent from N4.293 trillion to close at N7.890 trillion the same day.

However, the market trend in the first quarter presented the dynamism of both investors and speculators activities as indicated by the price movements across the sectors in the period under review.

March 2010 saw a significant movement towards the resolution of the leadership crisis on the NSE which coincided with the recovery and a building of momentum in the market.

The third quarter ended in a negative position as the month of September 2010 continued on the bearish trend  and low confidence state inherited from the month of July through August.

Market activities in the month recorded an avalanche of red to close the quarter at its eight month low with index closing at 23,050.59 points.

Third quarter was characterized by a deluge of fundamental market and business regulatory pronouncements – ranging from directives, license and status policy changes as well as regulatory compliance circulars. The combined effect not only depressed or depleted the market indicators but left unresolved the twin issue of illiquidity and low confidence in the market.

In the fourth quarter, the month of October started on a good note with better outlook and prospects for the last quarter of the year, taking a cue from bullish run experienced in the last three days of the preceding month; after a long bearish atmosphere in the month of September.

There was more listing of new securities. The biggest listing was that of the Dangote Cement Plc which was as a result of the aftermath of the merger between Benue Cement Company (BCC) Dangote Cement.

The NSE during the year threatened to delist and sanction some of the companies that had not been complying to post listing requirement  This action resulted to many of the quoted companies now posting their results as at when due.

The NSE during the year increased the trading period in order to allow stock brokers trade more shares on the Exchange.

SEC intervention on NSE crisis:
Earlier in the year, SEC intervened in the succession crisis in  the NSE management and gave the Exchange up to June, 2010 to produce a new Chief Executive Officer (CEO) designate that will succeed its erstwhile Director General/CEO, Professor Ndi Okereke Onyiuke in the ongoing transformation exercise.

The Commission did order the NSE to make the appointment process  open and transparent to ensure emergence of a competent person as D-G

But before this could be achieved, a leadership crisis erupted in the Council of the Exchange between the President, Alhaji Aliko Dangote and the  Director-General, Prof. Okereke-Onyiuke. To arrest the ugly development and forestall futher lose of investors’ confidence, SEC intervened by sacking both of them and appointed an interim management team led by Mr. Emmanuel Ikazoboh was subsequently inaugurated to oversee the affairs of the organisation.  The intervention also occasioned mass retrenchment of 95 workers from the  Exchange including four senior management staff.

While addressing the market over the action of SEC, Oteh said that the Commission took the decisions in the interest of the public and the need to protect investors’ interest.

Furthermore, the SEC during the year under review asked the interim Management of the NSE led by Ikazoboh to appoint forensic auditors to investigate the report of alleged mismanagement of accounts of the Exchange by its President, Dangote.

The report of the forensic auditors on the four year financial statement of the Exchange revealed how the former management of the Exchange illegally shared over N1.2 billion bonus.

New Rules and Regulation:
During year SEC  year came up with new rules and amended old ones. Some of its rules include breaking up companies whose  activities is believed to  constitute a restraint to competition. The rule lists those business practices capable of restraining competition and creating monopoly and for which the Commission may take the ultimate sanction of ordering the breakup of the company in accordance with Section 128 of the Investment and Securities Act (ISA), 2007. The rule was to ensure that only fit and proper persons run the affairs of market institutions.

The other key provisions in the new rules include: the rule on validity of accounts submitted to the Commission. It requires that it should not be more than nine months for corporate bodies and not more than 12 months for governments and supranational bodies.

The requirement to make underwriting of Issues the discretion of the issuer also made underwriting of Issues in the market no longer mandatory stressing that where an issue is underwritten, the underwriting commitment by a single underwriter shall not be more than 3 times its shareholders fund for equity offering and not more than 4 times for fixed income securities.

Other key rule is that issuers are now required to list shares not more than 30 days after allotment clearance (where the issuer had stated in its prospectus that the securities would be listed. Another key amendment relates to a reduction in the cost of issuance and separate rules have now been issued for corporate bonds.

The new rules now make SEC to regulate money market funds, while public companies are expected to make additional financial reporting such as quarterly reports, half yearly report and to file annual reports with the Commission in accordance with the requirements of section 60-65 of the ISA.

The SEC during the year under review declared that banks’ shares will no longer be accepted as collateral  for margin trading, adding that banks will on their own determine whether to use shares as collateral for lending.  The     Central Bank of Nigeria (CBN) also banned banks from extending margin loans to stock broking firms.

A mjor  boost  to expected market recovery was the  Assets Management Company of Nigeria (AMCON) which came into being in the last quarter. To the relief of capital market operators, the Company offered generous valuation criteria for purchase of margin loans, which is a major weight on market recovery.

Punishment for Unethical Behaviours
As part of efforts to sanitise the market,  SEC  during the year under review dragged 260 capital market operators before the Investments and Securities Tribunal (IST) for alleged violation of ethics.

The Commission stated that the operators allegedly violated the Investments and Securities Act (ISA), 2007. According to SEC, “The prosecution was to restore investors’ confidence and capital market integrity. The Commission alleged that the suit was filed against operators alleged to have engaged in insider trading by using unpublished price in the purchase or sale of securities.


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