By NKIRUKA NNOROM

At the media interactive session organised by the Nigerian Stock Exchange, NSE, to appraise its performance in 2012, as well as make projections into the New Year, the Chief Executive Officer, Oscar Onyema, spoke on several issues bordering on stocks price movement, making the Exchange a public company (demutualisation exercise), the one trillion market capitalisation outlined for 2016 and other initiatives to further stabilise the market. He disclosed that the newly inaugurated market makers in the equity sector have not achieved enough depth as their participation is still below one percent.

EXCERPT:

Are the current volumes in the market sustainable, some stock prices are hitting the roof?  Is another bubble not in the making in the market?

As you know, an efficient market really needs to take into consideration different buying effective, trading strategies and investment philosophy. So, in terms of raw volume, I will say they are sustainable; we need even more activity in the market because liquidity and depth is something we are trying to build.

In terms of price movement, the indices we have shown you are a reflection of fundamentals. Those sectors that are not doing well, you saw a decrease in their accounts like insurance and oil & gas; and those that are doing very well, it is seen in their financial statements and other things, like banking and consumer goods. Their indices are showing that they are doing very well.

So, I will say that the market is reflecting the pricing and if you look at this pricing and where the All Share Index is today, it is not where it was in 2008 or the previous years. I will also beg to argue that the quality of companies we have in the market today is virtually higher because we are trying to cleanse the market to make sure that the financials that are out there and the companies that are coming into the market are of high quality.

Is the Nigerian Stock Exchange following up on large ticket transactions to make sure that there are no hostile take-over bids?

We have a surveillance department that we created and it is an arm that acts as detective. So, they do a lot of work that you shouldn’t know about, except if you break the rules and regulations and they start asking questions. So far, we are satisfied with the number of cases they have brought because actually the people that were perpetuating the crime did not know that we were watching them.

So, let me use this opportunity to warn anybody that wants to manipulate the market that we are watching very closely and, we will come after them with everything we have. This market needs to be a market where people are playing on level playing field and things like insider trading and general market manipulation will not be tolerated any more.

For clarity purpose can you give details of the newly introduced fixed income market making programme,  some investors are asking if it is just another way of reducing the pressure on the equity market.

The idea of introducing fixed income market making programme into the market is not a new one. What is new is the approach to doing it. So, we believe that the OTC market is already taking care of institutional side of the equation in the fixed income market in Nigeria.

DG/CEO, NSE, Oscar Onyema

There is no feasibility into the pricing; the pricing of sovereign bond, especially at the retail level was not there and that is the shortcoming that we are trying to plug by introducing a retail market for fixed income. What we announced recently, that there will be market makers in fixed income was to actually launch the real trading on the 4th of February. Is it designed to take the heat off the equities? Not necessarily.  What we are trying to do is to give investors a plate of asset classes that they can use to construct a well diversified portfolio.

Remember my mantra is you must have asset class allocation and within which each asset class, you must have diversification, so that if you look at equities, you can now invest in large, mid or small capitalised companies. If you look at fixed income, you can now invest in FGN, State or Corporate Bonds or a combination of them.

You can also begin to look at Exchange Traded Funds, ETF,s as well as more ETFs. The current ETF we have gives investors exposure to gold. I don’t know of any other security that we have right now in the market that gives you exposure to gold because we don’t have listed gold mining company. So, those are the kinds of innovations that we want to bring in that allows you to construct a well balanced portfolio with the existing products that we already have.

You said you want to address the cost of activity in the secondary market this year, what is the Exchange doing to reduce the cost in the primary market because that in itself is a problem?

The truth of the matter is even though you may think that the cost of activity in the primary market is high, if you benchmark it with other markets I have worked in, it is really low actually. So, the total amount by law that an issuers can be asked to pay in the primary market, I think is 4.35 percent of value of the transaction.

In America, an investment banker alone will charge five to six per cent of the value of the transaction; forget about other parties to the transaction. So, in the primary market, I think a lot of work needs to be done to make the listing of shares and other products more efficient, but in terms of costing, we are very competitive actually.

Some delisted companies from the exchange have pointed to high cost as reason for delisting. What is the exchange doing to keep those that are listed on board?

When a company lists on the Exchange, there are certain reasons why it lists. It wants to raise funds, diversification of ownership in the security, and to change the balance of equity and debt. It wants to reduce the cost of landing. There are so many reasons, legacy issues and all kinds of things.

When a company lists, there is a barge of honour that it gets as a listed company because it has gone through lots of documentations and a lot of reviews. It has opened its books, we have looked at its properties, and we have sent people to its factories to make sure that the factories are there and all of that.

We don’t want to list any company that cannot pay our fees; our fees are very reasonable. If a company cannot pay the fees, it means that they are not doing enough business to even be listed. What we also want to do is to have a clean plate of companies that are good quality companies that can be the next barge of African Champions. By definition, an African champion is the company that is doing more than one billion dollar business.

A one billion dollar company cannot be complaining of high fees, I think our highest fee is N4.2 million; that’s our highest fee. I think there are some other reasons, but I don’t want to go into specific companies, but for a number of them, I would have given you the reason why they are delisting. They haven’t even met the delisting requirement and we want to enforce our rules.

Some companies listed on the exchange have not submitted their results yet the Exchange is insisting that their share prices cannot go below par. Don’t you think it is advisable for the NSE to allow free fall where possible, especially when information is not available? Is it not also likely that the present structure is encouraging more abuses?

There will be a shift on the statute. We are going to set up a working committee to work with the industry, the companies and everybody else to see if the market structure today, when you have par value as the lowest you can go is the right market structure. We will see what other markets are doing and actually come up with something.

You talked about cooperation with other like organisations, will you be willing to cooperate with another Exchange operating in Nigeria market space?

If a new Exchange comes up in Nigeria whether we will collaborate with them? I will need more explanation on that. Are you saying if an Exchange that wants to compete with us comes up we should be giving them tools to fight us? I don’t understand. When I say collaboration, I mean international Exchanges so that we can get best practices from them and in some cases, their technical know-how in some of the areas that we want to go into.

How has the primary market makers performed in relation to the mandate given to them at inauguration?

I will give you some numbers, but I want to put a context to the numbers. You remember when we started the market making in September; we said it was a six months roll out period. In those six months, we said we will not be holding the market makers to the private obligations that we want to give them because we want them to complete their roll out and get some experience on how to do market making.

Even the market structure that we had introduced, which was unique in Nigeria, has never been done before. We are still in the roll out period and we only have 39 companies that have been rolled out. We are very fixated on the fact that we want to complete the roll out within six months. So, once we complete the roll out, we will hold them to the obligations and then we start working on the roll out of complementary market makers.

So, the complete thing is that you have primary market makers and you have complementary market makers. In the roll out, we have been collecting and sharing data with each market making firm and fathoming out where we think they can do more or where we think they can move in.

So, it is a collaborative set up. However, in terms of market participation rate, the last set of number I looked at, the market participation rate was less than one percent for the primary market makers. However, I can tell you that their presence has brought a lot of confidence that there is somebody willing to make you a market such that you can get in and out at their prices.

You said that with the inauguration of SEC board, more activities will be seen in the demutualisation exercise. Is it that the NSE is depending on SEC to demutualise the Exchange?

No! You will recall that there was a technical committee that was set up last year to work out a framework that the SEC can approve that will then allow anybody that wants to do a demutualisation to go through and implement a demutualisation process.

So, let me give an example, if we decide that we don’t want to wait for the rule from the SEC to demutualise and we go ahead and do so and come up with a document that says we are now demutualised and we take it to the SEC for approval, on what basis are they going to be doing the approval?

So, the technical committee’s report is at the SEC waiting for their board to review and come out with the guideline on how demutualisation will occur. Then the Exchange will then take a decision whether we want to demutualise or not and then follow the law that has been set down to achieve the demutualization exercise.

The exchange very often places a company on either technical or full suspension for not meeting post-listing requirements. Don’t you think the Exchange should look at the companies’ management instead of just slamming them with suspension?

If you have been following the market, you will know that last year, we introduced markers. We said we will no longer be doing technical suspension right away. We will first of all, put a mark – Below Listing Standard, BLS, and three other marks depending on what it is next to the symbol of the company so that the buyers will know that this company is either below listing standard, restructuring or in delisting process or this company is awaiting regulatory re-approval as the case may be. That’s the first thing.

Then the second thing is that we increased the fine from N10, 000 to N100, 000 and then we brought in all the company secretaries and their Chief Finance Officers, CFOs. We told them we are not interested in their money; we are interested in them submitting their financials on time.

We also told them that will work with them proactively to submit their financials on time. So, we started calling them two months before time that their financials were becoming due. What are the challenges you are having; let’s see whether we can help you. So, we have done a lot of things, because it is a whole programme.

Technical suspension is the last option. If we see that the exchange has tried its best, the affected company has also tried its best but can not meet the standard, that’s when the company is placed on technical suspension. When a company goes on technical suspension, it is the first step in delisting such a company.

A company on technical suspension will not be there forever. It will progress from there to full suspension and be delisted. When a company is delisted, the shareholders suffer. Now why do the shareholders suffer? It is because they are the owners of the company.

When you see your company on technical suspension, you should call the management. You are the owners of the company. If you want to know why they are on technical or full suspension or why they are getting delisted, you can call them for clarification.

If we follow corporate governance and if we have interest on how the companies are being run, it will benefit all of us. Now going after the management individually, we will look at that and see whether it makes sense and whether it is even possible.

Beyond saying that a listed company wears a barge of honour, what else does it get as a listed entity from the system?

Companies benefit many things, I have told some of the reasons why they list. We have also increased the buyer by introducing value added services. So, we are giving visibility to the companies, we are helping them in terms of institutional service, which helps them to meet corporate governance standards, structure themselves very well for continuity.

There are so many reasons companies come to the market. Do we need to do more by advocating for improvement and additional government benefits for listing on the Exchange? The answer is yes and we are doing a lot in those areas. I think we have written a position paper to the government talking about things like listed companies should have a first bite of the apple on government contract. For example, listed companies should have a low tax rate. So, if you are a listed company, you get a lower tax rate. We have made that argument and we will continue to pursue it.

Don’t you think there is need to increase the depth of the market?

We agree to that. We believe that the value we have seen is on the back of foreign investors. We are happy to note that local investors are beginning to come back to the market. We are working very hard to bring in new products. We are also working hard to bring in new quality companies and we believe that what we saw in the market in 2012 is encouraging for issuers.

Hopefully, we will see a lot more companies coming into the market this year. Already, we have listed two and the projections are higher. However, the listing decision is entirely that of the companies, it is not the Exchange’s decision. So, we do not want to give you numbers. We are actually very bullish that the primary market will pick up this year.

We are two year away from 2016, and you are targeting $1 trillion capitalisation. Are you still optimistic on meeting that target?

Let me put certain things in perspective. When we set that target, we said that a number of things needed to be aligned, and we also said that it is an inspirational number. The things that needed to align- the government has said they want to deregulate power sector. They want to privatise power.

That means you have sixteen spin off companies that can come into the market. We need to talk to government to make sure those sixteen companies come into the market. We have telecom companies that are not listed, although they have more than one million subscribers. We are talking to those companies, but we also need the support of government to make sure that telecom companies come in.

We have the Petroleum Industry Bill, PIB, it provides for unbundling of the national oil companies. It will also facilitate the oil majors to do something if they wanted to. Again, the right environment needs to be in place. So, we appeal to the National Assembly to approve the PIB bill even if they have to make changes to it, before passing it. This is because the oil and gas sector is kind of slowed down because everybody is waiting to see what gets passed. So, there are many drivers. We did not just pick one trillion from the air.

The market capitalisation is seventeen times that of the GDP. That is one of the lowest in Africa. So, what we are saying is that we projected the growth rate of Nigeria; we projected how we can increase the market capitalisation as a percentage of GDP over time, if everything lines up, if the utility companies come in, if the telecom companies come in, if the oil companies come in, and agriculture is another key area.

So, we are still very optimistic that the transformation agenda the government is driving which we have aligned ourselves with will come to fruition and that will drive the listing of these companies on the Exchange. You can be chasing a business throughout the year, and it is just in December that it comes and you meet your target.

So, just because we have spent eighteen months doesn’t mean that we are losing faith. We are still very much focused that we will achieve the one trillion dollar mark. Again, there are many products that we are bringing on board, not just Exchange Traded Funds, ETFs. So, that number is really a number across five product categories that we have already outlined.