Revamping the stock market

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Since the crash of the nation’s stock market and the attendant loss of confidence in equities by investors, many former patrons of the Nigerian Stock Exchange (NSE) have diverted to other investment options such as bonds, commodities and real estate, leaving the stock market a shadow of its once vibrant self. The Federal Government has, since that time, been coming up with different initiatives to revamp the market.

The latest of these measures, released recently, abolished taxes charged on stocks, such as Value Added Tax (VAT), stamp duties and sundry commissions taken by the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE) and the Central Securities Clearing Systems (CSCS). Government also pardoned 84 stockbrokers found to have contributed to the crisis that led to hefty losses in investments in 2009.

For their various roles in precipitating the stock market crash, these stock- brokers were earlier suspended from all the activities of the market. Now that government has pardoned them, they have been asked to return to the market and play by the rules. Besides the pardon, government has written off N22.6 billion loans the stockbrokers got from banks to buy shares, which later lost value owing to the market crash.

The Central Bank of Nigeria (CBN) has also been directed to expunge this amount from the books of banks that granted them the loans. On the reprieve granted the stockbroking firms, the Minister of Finance and the Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, has explained that government’s decision to pardon the brokers and bring them back to the market is hinged on the realisation that a vibrant capital market is indispensable to the government’s economic transformation agenda. Moreover, the minister reiterated the fact that the stock market remains one of the best avenues to raise the long-term financing needed for critical infrastructural development in the country.

She pointed out that research by the International Monetary Fund (IMF) and the World Bank shows that solid economic growth in a country is closely linked to the joint development of the banking sector and the capital markets. However, the forbearance granted the stockbrokers is not without some penalties to the erring firms.

The sanctions imposed on them include: prohibition from providing professional services to the Asset Management Corporation of Nigeria (AMCON); greater disclosure to the Securities and Exchange Commission (SEC) of their transactions; limit on debt financing; reporting to credit bureaux; use of custodians, and trading restrictions. We laud the government for taking this bold initiative aimed at reviving the nation’s ailing stock market. The new measures, if well implemented, will boost investors’ confidence in the market once more and encourage them to invest more. The abolition of the taxes hitherto paid on every transaction is also welcome.

Beyond this pardon, those in charge of regulating the capital market should be more alive to their responsibilities, this time around. They must, henceforth, enforce all the stipulated regulations and sanctions to make sure that the infractions that led to the capital market crash between 2008 and 2009 are not repeated. The crash of the stock market in 2009 was a terrible blow for Nigerian investors.

The market’s All Share Index (ASI) declined from a peak of about 66,000 points in March 2008 to less than 22,000 points by January 2009. This reportedly wiped out over N8 trillion or about 70 percent of the total capitalization of the stock exchange within the period. Today, the index hovers at about 26,494 points, an indication that the market is gradually recovering. This pattern must be sustained.

Since the performance of any nation’s economy is partly judged by the level of activities in its stock market, government should continue to introduce measures to ensure that the market returns to its pre-crash level. Apart from restoring investors’ confidence in the market, this will provide a pool of funds for critical infrastructural development. Let all players in the market work assiduously to make this dream a reality.

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