Stockbroking: Analysts caution regulators on capital requirement

Market analysts have urged capital market regulators to review the idea of increasing the minimum capital requirement for the operations of stockbroking firms in Nigeria.

According to them, if the minimum requirement is again increased from the current N70m to N1bn, it may have some negative implications for the stockbroking firms and the market as a whole.

The Managing Director/Chief Executive Officer, FSDH Securities Limited, Mr. Ese Onosode, said that such an increase was needless, especially when some companies were still trying to recover from the effect of the global crisis.

According to him, a capital base of N70m is not bad for a firm that is operating as a stockbroking firm.

He said, “I think that an increase in minimum capital requirement for stockbroking firms from N70m to N1bn is an overkill, especially if it is for stockbroking alone. One thing that is worth noting is that having too much capital in your business could have a negative implication on that business.

“This is because in most cases, huge capital in businesses put pressure on the companies’ returns, which may not augur well for its growth in the long-run.”

Onosode noted that the fact that a company raised its share capital did not usually translate into an increase in the company’s profitability, adding that “it puts pressure on the business, and it may lead the businessman to start taking more risks in his business, which more often than not, may be unguarded.”

He noted that from the look of things, regulators might have soft-pedalled on the issue, as it was a project that was billed to start by the middle of the year.

“We have not heard much about it in recent time, and so it is possible that they might have reconsidered the issue. The truth is that increasing the capital base may not change the market into a World-Class market, which is the aim of the Securities and Exchange Commission. So, I think it is not necessary for the market now,” he said.

The Managing Director, Ideal Securities Limited, Mr. George Okafor, said that the whole essence of increasing capital base was not important in the market at this time.

According to him, there are other issues that should interest SEC and the NSE, which the market regulators are avoiding.

He said, “Consolidation is not the issue in the market right now, what the regulators need to do is to find a lasting solution to the crisis rocking the market currently. We can see that the market has been recording instability in the past few months, and this, I think should interest the regulators more rather than constant increase of capital base.”

Another broker, who spoke to our correspondent in confidence, said SEC should consider the peculiarity of the Nigerian capital market before deciding to increase the capital base.

“With a N1bn capital base, it will be difficult for any stockbroker to say he wants to go to the grassroots. That definitely is going to affect grassroots mobilisation of funds, which is necessary for the growth of the economy,” he stated.