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We shall launch our surveillance model for all exchanges soon — SEC DG

The Director General of the Securities and Exchange Commission, SEC, Mounir Gwarzo, in this interview shed light on wide range of issues including cost of transaction and time-to-market, unclaimed dividend among others.
Excerpt:

By Nkiruka Nnorom

SINCE the expiration of tenure of SEC commissioners, nothing has been said. When is SEC Board going to constituted?
We don’t have power to constitute the Board, but I believe the relevant authorities and the honourable minister and relevant officers are aware that commissioners are on the Board. It is not only SEC, but other institutions that have a Board also. My colleagues have been very supportive, the directors; executive directors, particularly,the heads of departments have been extremely supportive to me.

Yes, we need a Board because the institution must continue to move forward. We have also been receiving excellent support from the minister. In terms of presentation of our activities, the absence of a Board has not in any way hindered our effectiveness.

How ready is the CSCS and the registrars on June 30 deadline for stoppage of issuance of dividend warrant?
If you cast your mind back to the BVN registration when the Central Bank of Nigeria, CBN, gave the deadline, so many people did not take action until the deadline actually came.

Outstanding dividend

The challenge is that when you are making this kind of significant change, there will be some pain, but the pain is to create more transparency in the market. Today, if you are an investor and you have unclaimed dividend dating back to nine, 10, 11 years, all you need to do is to complete that e-dividend form. Once you submit that form and it is approved, all your outstanding dividend are paid, whether they are five years, 10 years ago, they will be paid.

So, for those investors who don’t mandate their accounts, by June 30, what will happen to them automatically is that any dividend declared after that date will technically be withheld. Until they go and do what we are doing now, they won’t get their dividend. So, there is a process already in place that when you approach your bank or your registrar, this process is seamless.

In terms of whether we are ready, we are already doing it. It is something we are already doing in collaboration with Nigeria Inter-Bank Settlement System, NIBSS, the banks and registrars. It is a process that is already working. All that people need to do is to take advantage of that process. It is important to also emphasise that changes that are being made is not to deny anyone the proceeds of his investment. SEC is not saying that it wants to deny you the benefit of your investment.

‘All I want to do for you as an investor is to make it easy for you to, at least, get your return-on-investment’. E-dividend has come to stay. Nobody is saying that after July 1st you won’t have access to your funds. What we are saying is that the means of paying you has improved from paper based to electronic based.

It has even reduced the cost of claiming these funds to now saying that you don’t have to incur the cost of transporting yourself to the bank to drop the dividend warrant. It is now instant payment, instant credit to your account. SEC has made it compulsory for companies to announce the date of payment of dividend at every annual general meeting and when that date is given, it must be stick to.

What percentage of cost reduction is the SEC and other capital market operators considering to encourage issuers to come to the market?
We have realised that the stock exchange, issuing houses, the SEC and the receiving agents constitute almost 85 per cent of the cost of transaction in the capital market. So, what we have done is to look at how we can shed weight at that level. The cost associated to services of reporting accountants and securities trustees seems to be a little bit negligible. So for now, we are stepping down on emphasising on their fees.

The reduction in cost is going to be used as a carrot to attract new issuers. There is an argument saying that reduction of cost does not necessarily encourage more issuances, but as we repeatedly said, we are not looking at reduction of cost in isolation of other important factors. So, for now, what we have agreed at the Capital Market Committee, CMC, is let’s try the reduction in cost as a pilot for one year if four or five key institutions reduce their cost. We have a template in terms of percentage of reduction; we don’t want to release it yet because it has to go through the process of rule making. But our rules have specific percentage each issuing house, stock exchange, SEC will charge. With the understanding we received from the capital market; with the agreement we have reached, we will now have to amend those rules. Once that amendment is finalised, the market will be aware of it.

Considering what has been done to boost retail investors’ confidence in the capital market, what is being done to revive activity in the primary market?
We also want to see a lot of Initial Public Offers, IPOs, in the market. The macro-economic environment does not seem to be very much stable for those issuances; rates are very high. What we are doing is to see how we can reduce time-to-market and that is why I briefed on the float chart that we just introduced expecting that every key stakeholder in the value chain of issuance process will also key into that time-line.

We at SEC commit that once an application is filled with us, within five working days, the review of that application will be concluded. And once there is a response from the operators, within 72 working hours, we will also respond. We also came up with a policy that once an application is not 100 per cent complete, we are not going to treat that application. So, we as a community, as a market, we agreed that we do not see why a transaction cycle should not be completed within a period of three weeks. Everybody has to key into it. The issuing houses, the reporting accountants, every key stakeholder in the market has to key into it, not only the SEC. If we all do that, we believe that we will be able to reduce the transaction cycle.

What we have been told is that part of the things that discourages issuers from the capital market is time-to-market. It takes a longer period of time and that is why we are looking at that direction. We believe that with this transaction cost we have reduced; with the time-to-market we are working on, with most of the excellent economic policies the government is pushing, we expect that the demand for FX will be able to go down. We are told that in the next one or two years, refineries will be in operation, 750,000 litres will now be produced. 35 to 40 per cent that the country spends in importation of fuel in terms of FX will now be saved. 10 to 15 per cent of the FX that is spent on importation of rice, in the next one or two years, the government will save that. So, there will be a lot of FX for companies to have access to. With the excellent government policies, economic policies, that is being pursued, we believe that production will go up, inflation is likely going to go down. The Central Bank of Nigeria, CBN, will be able to work on the interest rate to come down. So, we believe that the capital market will be a major beneficiary and we will more issuances in the market.

What is the regulatory plan for Fintech & blockchain technologies considering that SEC in Malasia recently released guidelines for Fintech & blockchain?
Fintech is very key and that is why we set up a committee to look at technology shared services because it is very important to be technologically compliant; it is also very important for institutions to have the resources. SEC is also looking at that area. In the next couple of months, probably early next year, we should be able to launch our surveillance model, which will allow us to have surveillance over all the exchanges, including the commodities exchange.

So, yes, Fiintech is key, Fintech has come to stay, but we also have to be training ourselves. As technology is growing; as technology is developing, a lot of funny things is actually happening in the technology space, but we have to also be able to meet up in terms of training. So, fintech is key, more importantly in terms of capacity because it is not just about the technology, you must also have the capacity to withstand some of the problems that will be associated with it.
What are you doing about capital market operators that no longer concentrate on the core business they are registered for?

That is the beauty of IBS (Internet Based Solution). In the past, it will take us like four, five, six years without actually inspecting a particular operator, but with the IBS, all the operators are categorised into three. There are some that will be inspected almost on yearly basis.

There are those that will be inspected every two years and there are those that will be inspected after every four years. So, inspection will be able to provide the insight on the kind of business they are doing. The whole concept of IBS is to make sure that a CMO is not taking the risk that is over and above what his/her capital can accommodate. And through that regular inspection, we will be able to ascertain whether CMOs are doing the business they are licensed to do.
It has been observed that removal of VAT and stamp duty charged on stock transactions has not been effected. What is the SEC doing to stop stockbrokers who still charge VAT and stamp duty without remitting same?

Again, during the inspection, our guys are going to look at it because they are going to have access to their books from beginning to the end and IBS has a very robust template. There is a lot of engagement with the operators and ourselves. Before the staff started undertaking the IBS exercise, we had a workshop for the CMOs and trade groups where we shared with them the template. So, some of these issues we think that are happening in the market, am sure that by the time that exercise is fully operational, it will be a thing of the past. We have already done first stage in terms of inspection.

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