By PETER EGWUATU

Shareholders have criticized the proposed plan by the Nigerian Stock Exchange (NSE) to stop retail investors from investing directly in the stock market.

The Chief Executive Officer of the NSE, Mr. Oscar Onyema, had stated during the recently concluded probe on the near collapse of the Nigerian capital market by the ad hoc committee of the House of Representatives, that one of the major causes of the market meltdown was the ignorance of  retail investors who participated without the knowledge of the market.

However,shareholders faulted such proposed plan, saying it tantamount to disenfranchising them from investing in the market.

Speaking exclusively to Vanguard, the Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, said, “The plan cannot work because the market is dominated by retail investors. It is the retail investors that sustained the market when foreign investors left the market during the downturn. It will be an abuse of human right if this move is executed. They want to disenfranchise us from investing in the market.

“What are the stockbrokers doing? Most of us are investing through the stockbrokers. The management of the NSE don’t know what to do to restore investors’ confidence. It is the business of stockbrokers to buy and sell shares for and on behalf of retail investors.

“So how is the move going to work? It seems the current management of the NSE lacks ideas that will move the market forward, they should resign and leave those that can do  the work to continue. Also, what will happen to our investment if this move is carried out” Well we are going to resist it .”

In the same vein, Mr. Adebayo Adeleke, National Secretary, Independent Shareholders Association (ISAN), said, “It will be an infringement on our fundamental human right if the NSE stops retail investors from investing directly on the stock market. We have freedom of association and to disassociate. It is not compulsory that retail investor should invest through professionals or investment vehicle as being proposed.

The NSE management should be very careful with the kind of policy they want to initiate. They should make use of their senses. They want to create funds for big players so that they will continue to ride exotic cars and live in big houses. Even in America, they still have retail investors who trade directly from  their houses. The proposed plan to stop retail investors from investing directly in the market is counter productive, illegal and will lead to severe extortion.”

Also, the Chairman, Nigerian Shareholders Solidarity Association (NSSA), Chief Timothy Adesinya, said, “The NSE management don’t know what to do to restore investors’ confidence. The calibre of people they want us to go through before we invest in the market are those people that contributed to the crash of the market.

It will be re called that the NSE boss said,  “The capital market boom of 2004-2008 triggered an increase in retail participation.  With little-to-no experience, first-time investors poured into the market, unaware of the innate risks of investing in the capital market.  During this time (January 2, 2004 to March 5, 2008 – the peak of the market), the All Share Index (ASI) surged 225.37% and the market capitalization for listed equities grew 841.46%.

Investment decisions were driven mostly by speculation, and easy access to loan facilities usurped the need for proper financial planning.  Low financial literacy made it easy for some financial institutions to take advantage of inexperienced investors and consumers, and as a result, market discipline was almost non-existent.

While many banking institutions had risk management processes in place, these were often overlooked in anticipation of higher returns on their investments and loans. This led to an unprecedented level of bank over-exposure and high rates of margin lending.

Under the weight of the 2008 market downturn, these practices triggered unseen rates of default.  This was further compounded by the lack of an adequate consumer protection framework to educate investment consumers on their rights.

The result was retail investors taking flight, foreign investors selling off to mitigate losses, and institutional investors getting jittery and exiting.  This caused illiquidity in both the financial and capital markets, and the near collapse of the stock market itself.

As a result of this development, he noted there was need to improve the capacity of local institutional investors.”
Continuing Onyema said, “Following the near-collapse of the Nigerian capital market at the heels of the market downturn, it is important to implement changes to better manage investors’ exposure to market risk.

The NSE suggests that the minimum subscription amount for both debt (non-sovereign) and equity transactions be significantly raised, such that only qualified institutional investors, market makers and High Net worth Investors ( HNIs) can directly access the market.

“This would prevent vulnerable retail investors lacking in-depth understanding of the risks associated with the market from directly exposing themselves without the guidance of licensed Asset Managers.  The investment strategy for such investors should be through managed funds, whereby individual stock selection is done by professionals who understand the risks inherent to the capital market. The NSE currently has 26 managed funds listed on the Daily Official List.

“These funds provide exposure to various asset classes and investment strategies that meet investors’ different needs.  For the successful implementation of this initiative, the NSE would look to the SEC to further develop the asset management industry, beginning with the strengthening of licensing requirements for asset managers. The NSE has also introduced the ETF asset class (which provides exposure to a basket of underlying securities or commodities while been traded like a stock) as a cost-effective way of providing diversification.”