By MICHAEL EBOH
The current leadership of the Nigerian Stock Exchange, NSE, has indicted the erstwhile management and Council members of the NSE and the regulatory authorities for the near collapse of the Exchange and for the crisis that rocked the capital market from 2009.

Chief Executive Officer of the NSE, Mr. Oscar Onyema, in a memorandum to the House of Representatives Committee on Capital Markets, blamed the near collapse of the market on the weaknesses within the NSE, including amorphous management processes.

He said these weaknesses led to poor corporate governance structures which facilitated lapses in market integrity and felled investor confidence.

According to Onyema, unstructured management and ineffective internal processes were responsible for the NSE’s lenient approach to achieving its directive to oversee the capital market – the companies listed on the Exchange and licensed dealing members.

He said, “Corporate governance was weak as well.  The Council, our equivalent of a Board of Directors, is entrusted to carry out a specific mandate of providing an efficient market by ensuring appropriate oversight of Exchange management, but priorities may have been skewed during the boom, causing a shift in focus, from the stability and development of the market to other non-priority areas, including campaigning and marketing.”

Onyema noted that committee structures were not deployed and no performance management framework existed to ensure the Council’s oversight of management’s success in meeting the NSE’s objectives.

He further stated that the NSE was not adequately equipped to manage systemic risks, nor was it diligent in enforcing the rules of the market.  “There was a known lack of will to enforce sanctions for market infractions, and sentiments towards the Exchange began shifting once the market took a turn in 2008,” he added.

Onyema blamed the past management for delaying all necessary reactions to the state of the market when the downturn set, an action which he said led to huge capital flight via investment outflows and the hurting of retail investors who lost confidence in the market.

Commenting further, he said, “Market compliance was deficient, supported by the lack of automated processes.

There were little-to-no analyses-based linkages between market performance and market surveillance, compliance, growing investor complaints, and market inflows/outflows – all critical to mitigating market risk.

“Information from the Exchange was also scant and fell short of addressing investor fears — both locally and internationally from the onset. Requisite analytic data for management purposes were unavailable, and market reports looked mainly at stock performance, with little attention to market trends, macro-economic shifts and risks.”

Onyema stated further that inadequate disclosure by listed companies and broker/dealer firms was another key contributor to the crisis.

He said reports to the NSE and the investing public were often inaccurate, late or simply not submitted.

He said, “This prevented market access to critical information that is required in making informed investment decisions.  While some listed companies did not comply with the reporting rules of the Exchange, some broker/dealer firms treaded a fine line between insider trading and their fiduciary responsibility to their clients.

“The Exchange also had a known practice of not enforcing the rules, in terms of the quality and timeliness of reporting, making it difficult to perform its role as a self regulating organization (SRO).  Paper-driven process slowed down the regulatory capacity of the Exchange and contributed to the lax attitude surrounding enforcement.

“While important information was sometimes released on a selective basis, some listed companies and broker/dealer firms engaged in the act of “cooking their books”.

These practices and others, Onyema noted, fueled the speculative nature of the market, and consequently, the advent of the bubble that led to the recent bear market.