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We reduced transaction costs to attract investors – Acting SEC DG

We reduced transaction costs to attract investors – Acting SEC DG

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The acting Director General, Securities and Exchange Commission, Ms Mary Uduk, in this interview with IFEANYI ONUBA speaks on moves to reposition the capital market for improved efficiency

Last month, the Capital Market Committee held a meeting to review activities of the capital market. What were the major issues discussed during the meeting?

The essence of the quarterly meeting is to identify challenges affecting operations and activities in the Nigerian capital market and formulate relevant solutions.

The last edition of the CMC meeting was no different as participants identified various issues that required extensive reviews and attention, some of which were 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.

To what extent has the implementation of e-annual report been carried out?

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 monies being spent on the printing of annual reports which in many cases get to the investors very late (even many months after the Annual General Meeting had held) were being wasted.

So we said that rather than waste such monies, it was better to distribute the 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 reasoned that the money that was being wasted in printing annual reports could 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 asked 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 at the CMC meeting, 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 was awareness and the market has agreed that awareness on this will be intensified. The second is that 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.

SEC, as part of moves to boost effectiveness of the capital market, was working on a minimum operating standards for operators.  Was this also discussed at the meeting?

Yes it was. 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 minimum operating standards for capital market operators.

The committee has submitted its report and some of the recommendations include manpower and equipment, organisational structure, technology and effective processes. The report was discussed at the CMC 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 stockbrokers.

Now what we are going to do is also implement the minimum operating standards for the registrars, fund managers, issuing houses, custodians and the rest of them and we will commence immediately following the adoption of the recommendations of the committee at the CMC meeting.

Forbearance of multiple subscriptions is one of the initiatives by the commission to boost level of trading in the stock market; where are we on that?

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, those shares cannot be properly captured in the system. We are saying come and regularise 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 regularise that transaction between now and December 31.

The objective of doing that is that it will increase liquidity in the market because the shares are just there as there is no trading on them. Not only that, the investors cannot claim their dividends too and that increases the level of 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.

What is delaying the implementation of crowd funding in the capital market?

I want to assure you that SEC is very desirous of having rules on crowd funding. We have severally discussed it and we want to have crowd funding in this market but we have a challenge.

Firstly, the CAMA (Companies and Allied Matters Act), which is the primary regulation for all companies, does not have provision for crowd funding and even if it has, Investment and Security Act 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.

The demutualisation of the Nigerian Stock Exchange is taking so long. What is responsible for the delay?

That is going on. As we speak, the bill is with the Presidency; the National Assembly has passed it.

The cost of listing on the capital market seems to be on the high side. There were plans to reduce the cost of raising funds. What is being done on this?

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 incentivise 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 2.28. It was a pilot for one year after which we will do an impact assessment to see how it will impact 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.

What is the current update on the MTN Initial Public Offer? If they decide to come to the market, how long will it take for SEC to approve it?

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.

The NASD was created for unlisted securities. What are you doing with CAC to ensure that every publicly quoted company leverage that platform?

We have been working with NASD. We have come up with a rule of trading in securities of which we have collaborated with CAC on this. We have an arrangement where they open their portals to us.

Secondly, on the issue of unlisted securities; we have an interface with CAC and that essentially is because these public liability companies, 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.

Recently, FMDQ shareholders approved the removal of OTC from its name; is that of any significance?

The change of name by FMDQ has not changed what the platform is. 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.

The 2019 elections are around the corner; what are the measures in place to prevent the 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.

Technology is taking over the financial market space. What is SEC doing to guard against electronic cross-border offerings from impacting negatively on the market?

We are trying our best to ensure that investors are not hurt. There is no way that we will not encourage innovation but at the same time, you want to be sure that investors are not hurt.

We have in-house a dedicated FinTech team that watches the environment. Also, we have a sandbox on our website to watch what FinTech is doing. We don’t want Ponzi’s to take over and investors get hurt.

Periodically we issue circular and press release advising investors to be careful on investors and securities that have not been listed.

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