By Babajide Komolafe

The  Investment Securities Tribunal, IST, ruling on the case of Eze A. Eze vs Fidelity Securities Limited, Fidelity Bank Plc, Securities and Exchange Commission (SEC), and First Registrars Limited, addresses one of the challenges confronting  investors in the Nigerian capital market. It is the challenge of share certificate verification and dematerialisation of shares.

In 2007, while he was a staff of Fidelity Bank, from the acquisition of FSB International, Eze purchased 726,991  units of FSB Staff Trust shares. The shares were acquired due to the conversion of his entitlements as staff of the defunct FSB International. December of 2007, he lodged the shares with Fidelity Securities for verification and dematerialisation in to a CSCS Account, with the hope of selling them later. As at the time he lodged the shares, the price per unit was N11.83 and if the shares had been verified at that time, Eze would have realised N8.8 million.

But the shares were not verified until November 2009 by which the price of the shares had nosedived to N2.7 per share, and Eze could only realised N1.962 million. In fact the verification of the shares would have taken longer, but for the intervention of SEC. Why did the  verification take  so long? Fidelity Securities and First Registrar blamed it on two factors: Discrepancy in name (Eze  Eze (FSB Staff Trust) was written on share certificate, while the Applicants full name was Eze A. Eze); and irregular signature. Eze however blamed it on negligence on their part.

After examining all the facts, the Tribunal agreed with Eze, that the delay was due to negligence of Fidelity Securities and First Registrar. It ruled “The applicant has proved before the Tribunal that the 1st, 2nd, and 4th Respondents, who were to protect his shares interests, had not discharged that duty which they owed the Applicant. The 1st, 2nd, and 4th did not exhibit the diligence and professionalism required of them as professionals in this type of situation. This apathy on the part of the respondents has affected adversely the value of the applicant’s shares. The Applicant, like most other investors is a lay man; it is the responsibility of their stock brokers to guide and protect them”.

For example, it took Fidelity Securities three weeks to send Eze’s shares to First Registrar. Eze lodged his shares on 24th December 2007; Fidelity Securities did not lodge them until 17th January 2008.
Why should it take a stock broker three weeks to lodge shares with registrars, even after charging for the services?  One reason off course could be lack of standards.

There are no standards in the capital market that stipulates minimum service standards for operators. This lack of standards is what stock brokers and registrars exploit to deliberately delay share verification and dematerialisation.  Thus, if the Securities and Exchange Commission really want help and protect shareholders from this kind of delays, it should develop service standards for critical broker-clients transaction, and registrar-shareholder transactions.