As the investing public anxiously wait for the demutualization of the Nigerian Stock Exchange, Lamido Yuguda, Director General, Securities and Exchange Commission ( SEC) says all is set.
What is your assessment of the performance of the Nigerian Stock Market compared with matured, emerging and other frontier markets, 8 months into the year?
The Nigerian Stock Market has since the beginning of the year generated strong interest from investors, stakeholders and policymakers. In the early part of the year, the market performed well when compared to the developed, emerging and frontier markets. However, performance has also been affected by the Covid-19 pandemic, but recent indices suggest a positive performance with gains in recent weeks. The expectation is that this trend may continue for the rest of the year, amidst some moderate fluctuations.
As a Regulatory Organisation, what structures and policies has SEC created to bring it in conformity with IOSCO Principles?
The international Organization of Securities Commission (IOSCO) is the international standard setter for securities market regulation. It developed a set of high-level global standards in the form of 38 principles to achieve the three main objectives of securities market regulation: investor protection; advancement of fair, efficient and transparent markets; and reduction of systemic risk.
The Investments and Securities Act (ISA) 2007, the Rules and Regulations made thereunder, Policies and activities of the Commission all mirror these principles because of their importance in the creation and maintenance of a sound regulatory system. Additionally, the SEC is on the Board of IOSCO and plays active roles in all critical IOSCO Committees.
The Commission periodically undergoes assessments of its compliance with these principles. As reflected in the report of the last assessment conducted, in 2012 by the Financial Sector Assessment Program (FSAP), the assessors had observed that, “the regulatory framework for securities markets in Nigeria has improved since the 2002 FSAP, and particularly in the last five years. Since the adoption of the Investments and Securities Act 2007 (ISA) and the first set of rules and regulations of the Nigerian Securities and Exchange Commission (SEC), the regulatory framework has been further strengthened and expanded”
The Commission continues to update its processes in line with novel regulatory tools recommended by IOSCO as it strives to maintain the required balance between regulation and innovation.
Read Also: Nigeria’s champagne consumption drops for the third consecutive year
The global economy and stock markets have been hit by the COVID 19 pandemic. What safety nets has the SEC put in place to ensure safety?
The Commission’s Business Continuity plan as well as those of its regulated entities have been implemented. This has ensured that market activities have continued with little or no disruptions. In addition, other measures put in place include stronger regulatory oversight over all market activities, greater emphasis on accurate data presentation that reflects actual market positions and timely situation reports that help analyse and manage risks. The Commission has also temporarily discouraged in person activities, and advised regulated entities and other stakeholders to use the various electronic channels for communication and interactions with the Commission. Regulatory services are being provided remotely while meetings and other events are also being conducted virtually. We are also engaging regulatory peers, both within and outside Nigeria to gain insights on best practices that could be adopted to help make our market more efficient amidst the losses occasioned by the pandemic.
The demutualization of the exchange has been on the card for a while. How soon should we expect its actualisation?
All necessary steps have been taken to facilitate a seamless demutualization of the Nigerian Stock Exchange (NSE). The Commission is providing the necessary support to the NSE and has committed to providing the necessary approvals once all required filings have been received.
What are your expectations for the global and Nigerian markets in 2020?
The Covid-19 pandemic has had more negative impact than anticipated on the global economy and therefore we expect recovery to be more gradual and slower than predicted globally. The Nigerian markets are expected to generate better results towards the end of the year. Currently the market is treading on a recovery path as major indices have started showing positive movements; the ASI and Market Capitalisation rose to 28,546.22 points and ₦14.92 trillion respectively as at 8th October, 2020. Generally, we expect the markets to perform better in developing countries where the health impact of the pandemic has been relatively lower.
E Dividend payment was designed to, among others reduce the unclaimed dividend problem. To what extent has it helped to address the challenge?
Since the introduction of the e-Dividend policy, a lot of progress has been made. So far, about 1,368,650 investors’ accounts have been mandated for e-Dividend payment. Investors who have been enrolled in the e-Dividend Management System have been able to clear backlogs of unclaimed dividends and now receive dividend payments directly into their bank accounts. Investors in new issuances are also strongly encouraged to provide necessary details at the point of subscription to prevent future unclaimed dividend. It is worthy to note during the first three years of the e-Dividend Management System, costs of enrolment were underwritten by the Commission.
While these efforts have gone a long way to boost investor confidence, we are aware that there are still challenges with reducing the quantum of unclaimed dividends owing to certain factors including the issues with non-resident/international investors who are unable to physically mandate their accounts, multiple subscriptions and several others. The SEC has identified identity management as the first step to resolving these challenges and is working with relevant capital market stakeholders to develop a robust identity management system. We also recognise that continuous enlightenment is necessary to create awareness among investors.
The challenge of corporate governance is a global concern. What policies have been designed or are being planned to birth integrity and investor confidence?
There is no doubt that weak corporate governance practice in Nigeria was part of the issues that led to the 2008/2009 market crash. The Commission has taken several actions to address the corporate governance challenges and curtail the dip in investors’ confidence in the Capital Market. One of such actions was the enactment of the SEC Code of Corporate Governance for Public Companies in 2011.
Other related notable reforms are as follows:
(1) In 2014, the Commission made compliance with the Code of Corporate Governance mandatory for public companies.
(2) Improved Monitoring Mechanisms on Corporate Governance through the following:
• Development of the SEC Corporate Governance Scorecard. This was done in conjunction with the IFC.
• Amendment of Rules on Corporate Governance –.
• Two-year moratorium period given to public companies to ensure that relevant processes are put in place to enable full compliance with the requirements of the Code.
• Implementing an E-filing System, an electronic platform with which public companies now submit their returns.
• Design of an Automated Messaging System
(3) Participation in the Technical Committee of the Financial Reporting Council of Nigeria that developed the National Code of Corporate Governance.
(4) Introduction of the SEC Corporate Governance Guideline (SCGG), to complement the requirements of the National Code.
Other initiatives put in place to birth integrity and investor confidence are:
• Aggressive public enlightenment, workshops and training programmes;
• Introduction of E-dividend mandate management system (e-DMMS) for effective implementation of the E-dividend process;
• Implementation of Direct Cash Settlement (DCS);
• Dematerialization of Share Certificates;
• Development of a Complaints Management Framework.
One of the functions of a capital market regulator is investor protection. How much is in the investor protection fund and to what extent are investors benefiting from it?
The SEC as mandated under the ISA, 2007 established a National Investor Protection Fund (NIPF) in 2011. The NIPF is funded by the SEC, annual contributions from relevant Capital Market Operators, unclaimed return monies (unclaimed after six months), grants, subventions and donations etc. The objective of the NIPF is to compensate investors who suffer pecuniary loss arising from insolvency, bankruptcy or negligence of CMO whose losses are not covered under the Investor Protection Fund administered by securities exchanges and capital trade points. As at date, 279 investors have benefited from the fund.
What has been the experience of SEC in tackling fraudulent activities including cyber-crimes and other market malpractices? Could you let us know how these are being tackled?
The Commission is relentless in its efforts in tackling fraudulent market activities. The monitoring and activities of the Commission are geared towards ensuring that only fit and proper capital market operators are allowed to operate within the Capital Market. The Commission has zero tolerance for market infractions and sanctions erring capital market operators accordingly. The SEC also carries out enforcement actions against illegal operators and illegal schemes including those who offer such schemes online. Operations of several illegal schemes have been shut down over the years.
The Commission also designs investor education programs to ensure that the investing public are enlightened on the activities of illegal operators. The SEC also constantly leverages both traditional and social media to warn the public on identified fraudulent schemes. There are also collaborations and engagements with other regulators to tackle fraudulent activities in the financial system.
Is there any other information about the market you want to let our readers know about?
The current happenings in the world have served as a clarion call on the need to restore and strengthen the confidence in our market. While we strive to achieve this, investors should also take advantage of the various market initiatives available in the market which include the Direct Cash Settlement, E-dividend payment, Regularisation of Multiple subscriptions, among others.
May I use this medium to remind investors of the potential and value that can be obtained from our market, especially when investors hold a long-term view, diversify their portfolios and seek expert advice. Investors should also be careful not to fall into the trap of illegal operators/unregulated investment schemes that may promise higher-than-normal returns.
