By Peter Egwuatu

The Nigerian capital market operators are still seeking bailout from the Federal Government, even as the stock market is showing signs of improvement despite the five days strike embarked upon by the Nigerian Labour Congress (NLC) in protest of fuel hike to N141.00 from N65 per litre.

The stock market lacked liquidity following investors’ apathy in the market for the fiscal year 2011.

A review of the stock market last week showed that the market capitalisation which opened at 6,530,905,784,265.14 on Monday closed on Friday at 6,567,354,645,934.69 points, showing 0.6 per cent rise while another stock market gauge, the All-share index which opened at 20,725.30 points closed at 20,840.97 points , representing 0.6 per cent increase.

Meanwhile, market operators have opined that stockbrokers still require financial bailout from the regulatory authorities to overcome their debts overhang despite improvement in market gauge recorded last week.

It will be recalled that stockbroking firms recorded huge debts following the crash of equity prices in the stock market in 2009, a situation that has been affecting liquidity in the market till date.

Specifically, the Chartered Institute of Stockbrokers (CIS) and Association of Stockbroking Houses of Nigeria (ASHON) had called for a bail-out package for the capital market

It should be noted that last year, the Federal Government, through the Co-ordinating Minister of the Economy, Dr. Ngozi Okonjo- Iweala, stated that the Central Bank of Nigeria(CBN), had concluded arrangements to grant dealing member firms of the Nigerian Stock Exchange (NSE) forbearance regarding the huge debts they incurred from banks via margin loans.

Although Okonjo-Iweala did not give details on how the brokers would be assisted, the Chief Executive Officer of the Asset Management Corporation of Nigeria (AMCON), Mr. Mustapha Chike-Obi, said the bailout for brokers was in the original plan of government when the AMCON Act was passed.

According to him, “When the AMCON Act was being passed, certain institutions like banks and stockbrokers were identified as having to be supported. The process of supporting the brokers was a crucial part of supporting the banks and it is that process that we followed in the last one year. Those loans had already been acquired since December last year. They were the margin loans made to the brokers.”

Arunma Oteh, DG. SEC

Chief executive officers (CEOs) of stockbroking firms, whose firms obtained huge margin facilities are apprehensive over the price they would pay as the CBN prepares to assist the capital market to lessen the burden of margin loans.

Dealing members on the Exchange cum market analysts in their responsibilities to properly diagnose and proffer solution to the bear run in the stock market have not succeeded in checking the downward slide in the market coming at the wake of global financial crisis and regulatory and management lapses following the removal of the administration of Professor Ndi-Okereke Onyiuke by the Securities and Exchange Commission (SEC) in the wake of allegations of corporate governance lapses levelled against her by Alhaji Dangote, which were considered detrimental to investors’ interest.

Besides the downturn of the market in value terms in 2011, the regulators and the Exchange tried to put some regulations to reposition the market for growth and development as well as increase the dividend yields of shares to investors during the year under consideration.

Suspension of stockbroking firms

At the beginning of last year, about 60 stockbroking firms were suspended by the Nigerian Stock Exchange under the leadership of the former Sole Administrator of the exchange, Mr. Emmanuel Ikazoboh, over failure to meet the minimum capital base of N70 million

It was gathered that the suspension of 60 out of the 240 dealing member firms followed the exchange’s purported deadline on the heels of the June 2009 routine check and December 2010 directive to all the brokers to shore up their capital base or face the consequence of suspension from trading

The suspension, it was gathered, took its toll on major stockbroking houses, which the NSE said have had their shareholders’ fund depleted far below the expected capital adequacy level.

The issue of recapitalisation by operators in the capital market was put on hold since 2009 following the crash of the capital market from the end of the first quarter in 2008, against the expected shoring up of stockbrokers’ capital base to N1 billion from N20 million.

The ex-while Director-General of the Exchange, Prof. Ndi Okereke-Onyiuke had cited the agreement between the NSE and Securities and Exchange Commission (SEC), to allow the stock market time to recover, as reasons for the suspension of the directives.

Appointment of Oscar Onyema

SEC in order to further douse the tension the exit of Okereke-Onyiuke created, undertook a process of recruiting a substantive Chief Executive Officer which saw the emergence of Mr. Oscar Onyema on 4th of April, 2011 as a prelude towards demutualising the exchange.

Onyema who joined the Nigerian Stock Exchange from the American Stock Exchange where he was a Senior Vice- President and Chief Administrative Officer at his maiden address said that the corporation of all the stakeholders on the stock market is key to the success of his administration.

Placing 48 companies on technical suspension

Onyema in a bid to restore confidence in Nigerian Stock Exchange after few months of his administration placed 48 companies in default of audited account rendition on suspension.

In a statement from the Exchange, the affected companies which got either technical suspension or full suspension as the case may be, have not submitted their Financial Statements for the year ended December 31, 2010 which is in violation of the Post-Listing Rules of The Exchange as contained in Key Issue No. 5 (Annual Accounts Procedures), which states that “Audited Annual Accounts of companies ought to be submitted within three months of the year”.

“The Nigerian Stock Exchange and the investing public need timely financial information from listed companies in order to facilitate stock transactions that are based on market fundamentals. This is essential for fair price discovery and investor confidence in our capital markets.

Demutualisation committees

The Securities and Exchange Commission during the year under review inaugurated a new technical committee to advice the Commission (SEC) on the demutualisation of the Nigerian Stock Exchange and required it to submit its recommendation to the commission within three months.

Plans to develop new products in the market

The Exchange had also disclosed its intention to offer five new products to the stock market in five years in its drive to hit $1 trillion in market capitalisation in 2015.

Onyema said this became necessary to provide more alternative investment outlets to both local and foreign investors.

He noted that in addition to equities, the exchange’s aim was to promote active trading in bonds, exchange traded funds, options and financial futures.

“These initiatives are vital part of increasing the vibrancy, depth and competitiveness of the exchange so we can truly become the undisputed gateway to African frontier markets,” Onyema said.

In pursuit of this drive to deepen the stock market, the Nigerian Stock Exchange recently unveiled the New Gold Exchange Traded Fund (ETF) for investors.

An Exchange Traded Fund (or ETF) is an investment vehicle traded on a stock exchange, much like shares. Most ETFs are passively managed index funds which normally track an index, with their main objective being to participate in the economic growth of an industry, sector or commodity.

ETFs provide the attraction of the returns of a traditional tracker fund (like unit trusts) with the liquidity of a listed security. ETFs are traded at prevailing market prices, which are approximately the same price as the Net Asset Value (NAV) of their underlying assets over the course of the trading day.

The gold-backed ETF called NewGold, according to NSE, will give investors on the NSE the opportunity to invest, own and trade in gold when the fund is listed.

However, following the persistent depression in the nation’s equity market, market operators have agreed that for the market to regain its pride of place as a centre for capital formation, government should not only inject funds in the fledgling market but address security challenges currently facing the nation which according to them, the depression is linked to the exit of some foreign investors.