“I can say it has started impacting because issuers are coming and they are happy that these transaction costs have been reduced.”
Chinwendu Obienyi
The Nigerian capital market committee (CMC) recently held its second quarterly meeting for the year 2018. The meeting which is a periodic gathering of stakeholders in the Nigerian capital market discussed critical development in the sector. Ag Director-General, SEC, Mary Uduk spoke to journalists on the outcome of the meeting including emerging issues that would impact the market in the months ahead.
Excerpts:
CMC Meeting outcome
As you are aware, the essence of the quarterly meeting is to identify challenges affecting operations/activities in the Nigerian capital market and formulate relevant solutions. This edition of the CMC meeting was no different as participants identified various issues that required extensive reviews and attention. Some of which are e-annual reports, extension of forbearance for multiple share subscription, progress in e-dividend registration, constitution of a committee on FinTech and the implementation of recommendations of various committees among others.
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Implementation of E-Annual Report
Over one year ago, the SEC spearheading the market saw the need to embrace electronic annual report distribution for three reasons. One we discovered that the cost being spent for the printing of annual reports which in many cases gets to the investors very late, many months even after the AGM has held such monies would have been wasted. So we discovered that rather than waste such monies its better to distribute these annual reports electronically. The second advantage is that because technology is taking over the world and wherever you are in the world, once your email address is known you can receive the audited annual report electronically. And we discovered that the money that was being wasted for printing annual reports will now be distributed as part of dividends. Why do you want to waste such monies when they can be directed to the shareholders as dividends? We gave the market to implement a pilot exercise for one year. That one year ended in June, when it ended SEC conducted an impact assessment to see how it went and yesterday at the CMC it was considered and it was agreed that technology is the way to go. We observed that shareholders have one or two challenges about the issue, one of that of awareness and the market has agreed that awareness on this will be intensified, two we are making greater efforts to ensure that we get the email addresses of all the shareholders. Thirdly, we have agreed in addition that there should be enlightenment campaigns. And for those who do not have internet, which is one of the issues that the shareholders have raised, it has been agreed that physical copies will still be distributed as a mix with the electronic versions. We believe that within the next five years, technology will continue to expand and go to remote places.
We have also enjoined registrars that at every AGM they should take a few minutes to enlighten shareholders on the benefits of electronic annual report.
Minimum operating standards
As part of the Commission’s initiative to enhance the efficiency and effectiveness of the capital market operators, a number of initiatives are being taken. About two years ago the Commission introduced the Risk Based Supervision for Capital Market Operators in addition to that, we also set up a Committee to come up with a Minimum Operating Standards for capital market operators. The Committee has submitted its report and some of the recommendations include manpower and equipment, organizational structure, technology and effective processes. The report was discussed at the CMC yesterday and adopted, after that the relevant department in the Commission will work with the leadership of the Trade Groups and implement the recommendations. We have a minimum of two years to implement that. One advantage we have is that the Nigerian Stock Exchange has already implemented the Minimum Operating Standard for the stock brokers, now what we are going to do is also implement the Minimum Operating Standards for the Registrars, fund managers, issuing house, custodian and the rest of them and we will commence immediately following the adoption of the recommendations of the committee at the CMC Meeting.
Forbearance for multiple share subscriptions
During the banking and insurance sector consolidation between 2004-2007, there were a lot of issues in the primary market because the banks or insurance companies came to the market to raise funds and during that period, because a lot of people were coming to the capital market for the first time, they saw the capital market as a place where they can make a lot of money so a lot of them bought shares in different names. Today those shares are not in the system, because if you are not able to identify yourself properly and then those shares in the system. If you are able to identify yourself properly those shares
cannot be properly captured in the system. We are saying come and regularize that situation and get back your shares which are being warehoused somewhere. There is absolutely no punishment attached to it, the SEC is not punishing anybody, we just want such individuals to come and regularize that transaction between now and 31st December 2018.
The objective of doing that was to increase liquidity in the market because the shares were just there with no trading on them. Not only that, the investors cannot claim their dividends too and that increases unclaimed dividend. Let them come and regularise so that there will be increase in trading of those shares and they will also claim their dividends so that the balance of unclaimed dividends will also go down.
Delayed crowdfunding in the market
I want to assure you that he SEC is very desirous of having rules on crowdfunding. We have severally discussed it and we want to have crowdfunding in this market but we have a challenge. Firstly, the CAMA which is the primary regulation for all companies does not have provision for crowd funding and even if it has, ISA does not support it. I want to assure you that with the review of ISA, that provision is now there and when it is approved we will be able to have it.
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Delayed demutualisation of the Nigerian Stock Exchange
That is going on, as we speak, the bill is with the Presidency because the National Assembly has passed it.
Reducing cost of raising funds in the capital market
What we did in terms of trying to enhance issuance is to try to look at the entire value chain holistically and look at the issues that actually impede on issuers coming to the market. One of them was transaction cost. There was a committee that was set up and a study was conducted and
it was observed that our market is very expensive in terms of issuance at the primary level and the Commission in collaboration with other stakeholders looked at the cost of the issuance. If you are coming to the market how much will the issuer pay? The rule has provided a limit of 3.17 for equities and 3.97 for Fixed Income. What we did in conjunction with other stakeholders is to look at those entire costs and do a haircut. Everybody agreed on how to reduce the cost in other to incentivize issuers to come to our market and that is what we did. We reduced the cost of equities from 3.17 to 2.21 and then for Fixed Income from 3.97 to 2.38. it was a pilot for one year after which we will do an impact assessment to see how it will impact in the market.
I can say it has started impacting because issuers are coming and they are happy that these transaction costs have been reduced. It’s a value chain, but it has started giving result. At the end of one year the Commission will conduct an impact assessment to decide if we can move forward or make amendments.
Update on MTN IPO
Let MTN file first and the day they inform you they have filed watch what the SEC will do. Not what is being bandied on the pages of newspapers, we will do our work to the best of our ability. I will make an exception and allow the press to come and monitor, that’s the seriousness with which we view everything that surrounds MTN and other filings. As we speak, as far as we know MTN is still a private company and until they convert to a public company and then file application with us, that is when the matter should be focused on us. Another thing you have to consider is documentation.
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The NASD is created for unlisted securities. What are you doing with CAC to ensure that every PLC leverage that platform We have been working with NASD, we have come up with a rule of trading in securities of We have collaborated with CAC on this, we have an arrangement where they open their portals to us and also agreed that companies that have not opened up their shares to the Commission
Secondly, on the issue of unlisted securities, we have an interface with CAC and that essentially is because these Plc. about 17,000, we need to liaise with other regulators to check if their securities are registered with SEC when they bring annual returns. We have also issued a circular and given a deadline of 31st December for all companies that ought to have registered their securities and have not registered. We can decide either to extend it or not. The law provides that they register their securities,
Removal of OTC from FMDQ
The change of name by FMDQ has not changed what the platform it, it is only a change of name. An OTC is an Over the Counter Market where bilateral transactions take place. In the wake of technology and speed, that does not happen anymore. There is a very thin line between trading on an exchange and what you call an OTC. The name change has not changed anything about the functions or nature of the FMDQ as an exchange.
Managing market reacting during the 2019 elections
The market must react whether positively or negatively. Irrespective of measures we put in place, the market reacts to activities that happen in the system. In 2008 during the meltdown, the market reacted to the global situation. Therefore, you should be alarmed if something happens during the 2019 election and the market does not react, we should be worried.
Irrespective of what we put in place, the market will react. I would rather enjoin gentlemen of the press to help us. The world is now a global village, anything we write here is blown out. I enjoin us to stay on facts, when we do that I am sure it will be fine. I therefore appeal to you especially since we are going into an election year to please help us.