By BABAJIDE KOMOLAFE

Stockbroking firms are critical players in the capital market. As an investor, you can’t do without them. This is because they are the only firms or individuals licensed to trade in shares on the stock exchange. Hence anybody that wants to trade in shares through the stock exchnage must engage their services.

In addition to this, you need stockbroking firms to dematerialise your shares and open a share account for you with the Central Securities and Clearing System (CSCS). The efficiency or inefficiency, honesty or dishonesty of your stockbroker has a lot of impact on investment in shares.  Some stock brokers are not only inefficient, they are also fraudulent.

Rather than give you advice that will enhance your choice of and returns on your investment, they seek to exploit you to maximise their own profit. There are examples of stockbrokers who sold shares without the consent of the owner. There are also examples of stockbrokers who will buy a stock at N10 per share but claim to have bought it at N15, or sell at N10 and claim to have sold at N7.

But there are also stockbrokers who are efficient and honest. They play by the rules and provide sound advice to investors. They don’t overstate the price at which they bought shares for the investor or understate the price at which they sell shares for him. Submit your certificates to them for dematerialisation, they pursue it with vigour, with regular text notification of progress report. The inefficient ones will not do that. They will not submit the certificate to the registrar on time and they will not follow up until the investor starts asking question.

The inefficient and fraudulent brokers have inflicted pains and losses on many investors and they are still doing so. Many investors have lost millions of naira to such brokers and many will still lose money to them. The recent  directive by the Securities and Exchange Commission (SEC)  that stockbrokers should increase the money they use for business (capital base) however inspires hope that these brokers would soon be eliminated from the market. But before then, investors must know how to avoid them.

The first step is to realise how important the choice of a stockbroker is to your fortunes or misfortunes as an investor. While investment in shares is fraught with a lot of risk, the choice of stockbroker can reduce or increase the risk. That is why you must approach that choice with all sense of caution and responsibility.

In this regard, the Managing Director/Chief Executive of Central Securities Clearing System (CSCS), Mr Bukar Kyari, has some advice for investors. Addressing the March Bi-Monthly Forum of Finance Correspondents Association Nigeria (FICAN) last week, he said that when it comes to choosing a stock broker, investors should go for the best in the market.

He believes that investors should choose among the top stockbrokers in the market. These, he said, are well established, with structures and standards for every transaction with investors. In addition to these, the top stockbroking firms, have a name to protect, and hence would  not want to tarnish that name by engaging in fraudulent practices.  In other words, the top stockbrokers offer efficiency and security to investors.  (To be continued next week)