Nigeria: NSE Eyes Global Integration

The Moment (London)

9 January 2012

THE Nigerian Stock Exchange (NSE) said it is on track to integrate into global capital market operations and standards. This is in order to further encourage investors into the nation’s capital market.

The chairman of the Securities and Exchange Commission’s (SEC) board of directors, Udoma Udoma, told participants recently in an on-going Thomson Reuters Foundation journalism training course on financial and economic reporting in Lagos, that apart from the reforms to restore confidence in the wake of the 2008 market crash, steps have been taken to upgrade the operational process to bring them to global standards.

He noted unprecedented growth by all market indicators, saying capitalisation rose from N2.5 trillion in 2005 to N12.1 trillion by March 2008, while trading value increased with a daily average of N1.06 billion from N254.7 billion in 2005 to N2.086 trillion in 2007, with a daily average of N8.62 billion.

Though market capitalisation as of December 31, 2010, was at about N10.33 trillion, with about 264 listed securities comprised of 217 equities and 47 debts, Mr. Udoma, however, traced the collapse of the capital market to insider dealings as well as abuses of margin lending by banks, which gave loans to many investors to buy shares without collateral.

According to him, the reactivation of FGN bond resulted in the issuance of over N3.5 trillion bonds between 2003 and 2010, while secondary transactions of the bonds on OTC market was over N48 trillion between 2006 and 2010, with about 11 state governments going to the market to raise funds for their programmes.

He listed the challenges the market is currently facing to include low investor confidence; poor market depth, in terms of limited securities and products on offer; poor savings and investment culture as a result of the country’s low per capita income; low market liquidity; excessive market concentration, with over 60 per cent of trading activities on bank stocks as well as legal constraints.

As part of the reforms, he said 52 new rules and amendments have been introduced since 2008, including new margin trading guide lines by the Central Bank of Nigeria and the Anti-Money Laundering/Combating Financing of Terrorism manual to help banks and stockbrokers check incidences of money laundering.

Besides, he said a new code of corporate governance, which became effective last month, requires auditors to report on the adequacy and effectiveness of internal regulatory systems as well as change the company’s audit and partners every year, while upgrades have been carried out on the NSE platform to meet international standards.

‘We are on track towards reforming the Nigerian Stock Exchange into a world-class capital market.

The country’s capital market is not in isolation from the international community. The Nigerian economy is poised to take off with the stability being provided by better elections’, he said.

Other actions taken to reform the system include development of a model for risk-based supervision, particularly for regulated entities; rationalisation of the market’s intermediary structure through stratification of the broker-community; overhauling of complaints management framework to ensure improved efficiency and alignment of the market with international best practices in complaint management as well as encouragement of functional market makers to facilitate securities lending and borrowing.

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