For the Securities and Exchange Commission, SEC, bringing more local and international investors into the capital market remains a priority for Nigeria’s continued growth and development. To fulfil this dream, the commission is moving quickly to engender and sustain local and international investors’ confidence in the Nigerian capital market in furtherance of its statutory roles in national economic development agenda. JOHNSON OKANLAWON reports.
From its recent initiatives aimed at finding new investment opportunities that will deepen the market to deployment of new technology to drive these investments, the SEC has in recent months demonstrated its commitment to adopt innovative strategies in furtherance of its statutory roles in attracting investible funds to the nation’s economy.
Specifically, these initiatives are more noticeable in the visionary drives of the management to encourage more investment of pension funds in the capital market. For this and many other measures, stakeholders in the nation’s investment space see the management as treading a path with good promises for sustainable growth of the capital market and by implication, the economy.
The SEC Director General, Mounir Gwarzo, recently disclosed that the March 2016 data from PenCom showed that Nigerian Pension Fund Administrators (PFAs) invested only 8.16 per cent of their assets in the domestically listed equities market and 1.24 per cent of their assets in foreign equities, which translates to less than 10 per cent of the total assets invested in equities.
Besides, at 9.4 per cent allocation to equities, Nigeria has the lowest allocation to equities by pension funds among peer markets. In contrast, South African pension fund invests 73 per cent of total assets in equities; Botswana (70 percent), Namibia (66 per cent) and Swaziland (57 per cent) which have much smaller and shallower stock markets than Nigeria but allocate far more of total assets to equities. The world average for allocation by PFAs to equities is 42 per cent which is more than fourfold the level in Nigeria.
For the SEC D-G, all stakeholders in the pension industry should reevaluate their current asset allocation and aim to improve it. This makes sense for asset safety and for ensuring PFAs beat inflation consistently.
“Our PFAs can certainly not afford to continue allocating over two-thirds of contributors’ assets to Federal Government of Nigeria (FGN) securities with the array of available investible products, especially in an increasingly inflationary environment,” he said.
Gwarzo noted that even if the pension fund administrators were to invest up to the 30 per
cent allowable limit of the pension funds in equities as approved by the National Pension Commission, it was still below the global benchmark of 42 per cent. Such investment, he believes would generate the necessary returns to provide sustainable benefits to contributors.
On investors’ protection, the commission has also voted N5 billion as take-off grant for the National Investors Protection Fund (NIPF). It has equally launched the board of NIPF, flagging off the special purpose vehicle that will compensate investors for pecuniary losses arising from the insolvency, bankruptcy or negligence of sundry capital market operators that are not members of a registered stock exchange.
Gwarzo said the launch of the NIPF placed Nigeria within the elite group of countries with specialised compensation scheme for investors, noting that investors would now have a window to redress losses that arise non-investment risks.
“While dozens of jurisdictions have functional investor protection funds run mainly by Exchanges and their dealing members, Nigeria is now among only a few countries to have a National Investor Protection Fund, to compensate investors for pecuniary losses arising from theinsolvency, bankruptcy or negligence of nonbroker/ dealer capital market operators,” he disclosed.
The SEC has also played its part by providing the take-off grant for the initial operation of
the NIPF, adding that the entire capital market community would now have to come together to discuss details of how to contribute to continue funding for this critical market vehicle. He assured that the commission would ensure that the fund is used to compensate investors in accordance with the rules guiding its operation.
For instance, since the 2008 financial crisis in which the Nigerian stock market lost about 70 per cent of its value, investor confidence had been eroded, creating apathy that still impacts the state of the market.
The SEC has a dual mandate of regulating and developing the capital market and as such has put in place several reform measures to restore investor confidence and attract investors back to the market, with the NIPF as part of the investors’ protection mechanisms.
The inauguration of the board of the NIPF completed a cycle of protection for investors
that suffered losses due to inactions of capital market operators.
On the capital market legislation, the commission is also working closely with the Nigeria
Judiciary to boost investor confidence in the dispute resolution mechanisms available in the capital market. Both the SEC and National Judicial Institute (NJI) are collaborating to ensure that the rights of investors are protected.
Gwarzo said the role and responsibility of the Commission as provided in the Investment
and Securities Act 2007 included the powers to register, inspect, investigate, discipline and suspend any market operator.
The Act also gives SEC substantial powers to make rules and regulations and also to impose sanctions on and enforce decisions against erring capital market operators, or their sponsored individuals. He said the judiciary needs to understand the workings of the capital market even as the capital market also needs to understand the workings of the judiciary.
According to Gwarzo, capital market encompasses all parts of the financial system where long-term equity or debt securities are bought and sold. He noted that by definition, such markets were highly specialised and governed by distinct sets of rules and regulations.
The SEC is also helping the market to leverage on technological advancement to shorten
trading cycle from four days to two days thereby blazing the trails as the only African market with such a timely cycle.
The Commission believes that further reduction in trading and settlement cycle would translate into quicker turnover and improved liquidity for investors in the Nigerian stock market.
The management indicated that the ongoing initiatives such as cash direct settlement, electronic dividend and full dematerialisation being implemented by the capital market stakeholders would enable the plan to be realised.
Besides, for the first time in the history of any capital market in Africa, investors in the Nigerian capital market are now to get dividend payment within 24 hours through the electronic dividend (e-dividend) payment system.
All these initiatives promoted by the SEC D-G are aimed at encouraging retail investors to participate actively in the Nigerian stock market as part of a long-term 10-year master plan for the development of Nigerian capital market.
According to him, one of the strategies of deepening the market by the Commission is
to target the retail domestic investors by implementing key confidence-building initiatives that would encourage the retail investors to invest in Nigerian market.
“It is only the domestic investor that, no matter the condition of the market, will stay with us. What we have been experiencing in the market is the dominance of the foreign investor where anytime they want to move out of the market they get out and anything they want to come in they do so. Seeing what happens in the market, we decided that the best thing is to get the retail investor and our approach is not to go to them and be telling them to come back. Our approach is to identify the issues why they are not in the market and deal with such issues,” Gwarzo said.
He outlined that once the e-dividend platform is fully operational the issue of stale warrant will be of the past, the issue of travelling from one place to another to deposit the warrant will be a thing of the past; the issue of change of address will also be eliminated, the issue of unclaimed dividend, which is in excess of N80 billion, will also be a thing of the past.
The SEC is also partnering with the Financial Reporting Council of Nigeria (FRC) to establish a National Online Account Reporting Platform to make vital information such as audited and unaudited financial statements of quoted companies readily available to relevant stakeholders.
The platform will among other things allow for online real-time access, cross referencing, historical auditing, planning and confirming tax compliance and government revenue assurance.
Most importantly, it will serve as a single source for approved audited financial statements for both government agencies and authorised users.