By BABAJIDE KOMOLAFE

The National Investors Protection Fund (NIPF) being promoted by the Securities and Exchange Commission (SEC) excludes shareholders of listed companies, investors in mutual Funds, and clients of dealing members of Securities Exchanges and Capital Trade Points.

Upon reading this in the last edition, a stakeholder asked, “Then who is the Fund meant for?

The thinking behind this massive exclusivity is that, these categories of investors should be protected by Investors Protection Fund (IPF) of Securities Exchanges and Capital Trade Points. The weakness of this thinking is that, presently, there is only one of such IPF, which is the one established by the Nigeria Stock Exchange (NSE).

Secondly, this promotes multiplicity of Investors Protection Fund in the capital market, each with its own rules, procedures and requirements.  The third weakness is that this rationale places the most vulnerable category of investors at the mercy of Investors Protection Fund indirectly established and governed by operators, who usually have little or no regard for retail investors.

This is tantamount to asking banks to establish Deposit Insurance Schemes, to provide insurance for depositors’ money. In other words, instead of having just one Deposit Insurance Scheme (DIS) as we currently have through the Nigeria Deposit Insurance Corporation (NDIC), we would have multiple DIS.

The commercial banks would establish one for their customers; Merchant banks would set up another one and so on. While it can be argued that the capital market is different, that the stock exchange and Capital Trade Points are regulators, the principle and objective is the same. Meanwhile, the NSE is owned by the stockbroking community. The summary is that SEC’s investors’ protection framework promotes confusion, and makes retail investors more vulnerable.

The ideal framework is what obtains in the banking industry. The banking industry has one Deposit Insurance (Protection) Scheme. The capital market should also have one Investors Protection Fund, which would cover all categories of investors.

One of the success factors of the NDIC is that its management and operations is far beyond the influence of banks and bankers.

Hence, the Corporation is highly revered in the industry. That is what is needed in the capital market, one Investors Protection Fund, which management and operations are insulated from the influence of capital market operators.

Hence, the National Investors Protection Fund (NIPF) being promoted by SEC should be the only Investors Protection Fund in the capital market, and it should cover all investors in the market. As a result, all Investors Protection Fund, existing or in the pipeline, should be suspended or absolved by the NIPF.

(To be continued next week. Please send comments to [email protected])