BY MICHAEL EBOH

The Nigerian Stock Exchange, NSE, has raised an alarm over the rising spate of frauds and infractions in the Nigerian capital market allegedly perpetrated by stockbrokers and dealing member firms.

The NSE blamed the upsurge in the infractions on dealing members’ high loan exposure, illiquidity suffered by members and on-going debt recovery efforts by banks.

According to the NSE, in its 2010 Annual Reports and Accounts, the number of complaints concerning various forms of infractions in the market improved significantly, rising from 249 in 2009 to 449 in 2010.

Of the total complaints received, the NSE said the 360 were against active dealing member firms, 80 were against non-dealing members while nine were against inactive houses.

“We observe that complaints of unauthorised sales and failure to remit proceeds of sales continue to persist in the market. This can be attributed to illiquidity suffered by the majority of Dealing Member Firms, the high loan exposure of many Dealing Member firms and the desperate efforts of the banks to recoup outstanding facilities,” the NSE said.

The Exchange further noted that of the total complaints received in 2010, it was able to resolve 135 while 231 are still being investigated pending resolution.

The NSE also blamed the high rate of fraud and infractions on the failure of a number of stockbroking firms to comply with the Know Your Client, KYC, requirements,

According to the NSE, it was observed that some dealing firms do not comply with the KYC requirements set forth in Article 102 of the Rules and Regulations Governing Dealing, adding that as a result, fraudulent sales have occurred based on instructions from persons who are not the true owners of the securities.

The NSE further stated that various forms of sanctioned were meted out to dealing member firms for violating certain aspects of its rules and regulations.

It said 74 dealing firms were suspended in 2010 for failure to submit their audited accounts for 2008, 2009 and 2010 accounting years, respectively compared to six during 2009, adding that this is contrary to Article 15 (H) of the Rules and Regulations governing dealing members.

This, the NSE said, led to its introducing a new reporting format for the rendition of interim reports, so as to ensure uniform reporting and ease of comparison of members.

The report noted that the NSE has recently began enforcing a number of rules against dealing members, such as separation of client accounts from that of the dealing member firm; rendition of returns to the NSE as and when due among others.

The NSE, in the report, said it inspected a total of 251 stockbroking firms, out of 262 scheduled for inspection, with a number of the stockbroking houses reporting losses and negative shareholders’ funds.

The affected stockbroking firms, the NSE said, blamed their situation on the financial crisis that followed the economic downturn, adding that the firms were advised by the Exchange to inject fresh funds into their operations and return their firms to profitability.