How to restore investor confidence in capital market

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By Chinenye Anuforo and Chinwendu Obienyi

For the Nigerian economy to achieve its full potential, there is urgent need for strong capital market that is sustainable, well performing and adequately positioned to play a central role in development activities.

The years before the 2008 meltdown, the Nigerian capital market was doing well with the exception of few downward experiences, but after the 2008 market downturn, the market has never been the same again as both issuers and investors are treading cautiously.

Since then, restoring investor confidence has been a difficult task for regulators because market infractions by operators has eroded investors’ confidence.

For instance, just recently a stockbroking firm, Partnership Securities Limited (PSL) and its sister companies – Partnership Investment Company Plc; Life Care Partners Limited; and SBDC Microfinance Bank Limited, were embroiled in alleged N10 billion scandal based on official estimates relating to diversion and misappropriation of funds. According to petitions to the regulators, the N10 billion quoted involved a series of transactions on behalf of various clients in which the Chairman and Chief Executive Officer, PSL, Victor Ogiemwonyi, was identified as the principal character.

Another instance is the case involving approximately 96,077,872 shares of Ecobank Transactional Incorporated (ETI), valued around N1.24 billion and an additional $80,000 from accrued dividend owned by a former ETI Chief Executive, Arnold Ekpe. These and other evidence have dampened investors’ confidence in the capital market.

On how investors’ confidence can be restored in the market, the President, Proactive Shareholders Association, Taiwo Oderinde, said that level of fraudulent practices in the market calls for further review by the regulator.

“This is a market that is developing and needs foreign investors but with these types of monumental fraud happening, means the sector needs review,” he said.

In his on contribution, National Coordinator, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, noted that the market needs strategic initiatives to revive investor confidence.

The Securities and Exchange Commission (SEC), on its part recently, assured all investors and stakeholders of its commitment to ensuring continued development and stability of the capital market, adding that it will leave no stone unturned to recover investors’ monies that have been illegally converted by market operators. Although SEC’s move was applaudable by stakeholders, they also argued there’s more to just reassuring investors about commitments.

In restoring confidence to investors and making the market liquid and sophisticated, the Commission needs to work with the government in making the right policy implementations. Chief Executive Officer, Quest Advisory Service Limited, Bayo Rotimi, said that policy direction and coordination matched with definite timelines can restore confidence once again in investors.

“What really drives investor confidence are essentially policy direction and coordination of the same policy as well as implementation. My hope and expectation is that the plan must have very definite deliverables and there must timelines attached to it.

“In essence, it becomes easy to hold the government or the implementers of that particular policy or programme accountable and we can, on a regular basis, check to see we are on course and where there is a deviation, we can pull people back,” he said.

On the other hand, Mr. Adeniyi Adebisi, the National Coordinator-elect of Independent Shareholders Association of Nigeria (ISAN), said that both local and foreign investors need enlightenment and called on market regulators to minimise sanctions and fines imposed on quoted companies.

He said, “massive education of investors should be embarked upon by all stakeholders in the capital market to return investors’ confidence and market regulators should try and minimise sanctions and fines imposed on quoted companies for these fines are discouraging companies to seek quotation on the exchange.”

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