‘Regularisation of multiple share subscription to improve market liquidity ’

Mary Uduk, acting director general of the Securities Exchange Commission (SEC), together with the Nigerian Capital Market Committee (CMC), is driving a set of reforms in the market, aimed at improving liquidity and reduction in time to market for issuers. She spoke to a cross section of the financial press on e-annual reports, extension of forbearance for multiple share subscription and sundry issues in the market after the second quarterly meeting of the CMC in 2018. Adesola Afolabi who was there presents the excerpts:

The CMC recently held in Lagos. What were the major highlights?

As you are aware, the major essence of this quarterly meeting is to identify challenges affecting operations/activities in the Nigerian capital market and formulate relevant solutions. This edition of the CMC meeting was no different as participants identified various issues that required extensive reviews and attention. Some of which are 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.

How far has the implementation of e-annual report gone?

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 cost being spent on the printing of annual reports, which in many cases get to the investors very late, is a waste since many shareholders get their copies even after the AGM has held. So we decided that rather than waste such monies, it’s better to distribute these 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.

We also consider that the money that is being wasted for printing annual reports would 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 gave 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 yesterday at the CMC it was considered and was agreed that technology is the way to go. We observed that shareholders have one or two challenges about the issue, one of that of awareness and the market has agreed that awareness on this will be intensified. Two, 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.

What about the minimum operating standards? Was it 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 a Minimum Operating Standards for capital market operators. The Committee has submitted its report and some of the recommendations include manpower and equipment, organizational structure, technology and effective processes.

The report was discussed at the CMC yesterday 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 Nigeria 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 house, custodian and the rest of them. We will commence immediately following the adoption of the recommendations of the committee at the CMC meeting.

Where are we now on forbearance of multiple subscriptions?

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. 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 and then those shares in the system. If you are able to identify yourself properly those shares cannot be properly captured in the system. We are saying come and regularize 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 regularize that transaction between now and 31st December 2018.

The objective of doing that is that it woul increase liquidity in the market because the shares are just there no trading on them, not only that, the investors cannot claim their dividends too and that increases number of unclaimed dividend. Let them come and regularize 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.

Can we know what is delaying crowd funding in this market?

I want to assure you that he SEC is very desirous in 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, which is the primary regulation for all companies, does not have provision for crowd funding and even if it has, ISA 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.

Why is the demutualization of the Nigeria Stock Exchange taking so long?

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

Has cost of raising funds in the capital market reduced?

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 percent for equities and 3.97 percent 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 incentivize issuers to come to our market and that is what we did. We reduced the cost of equities from 3.17 percent to 2.21 percent and then for fixed income from 3.97 percent to 2.38 percent. It was a pilot for one year after which we will do an impact assessment to see how it will impact in the market.

I can say it has started impacting because issuers are coming and they are happy that these transaction cost has 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.

Can we get an update on the MTN IPO? If they decided to come to the market how long will it take 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 is created for unlisted securities. What are you doing with CAC to ensure that every PLC leverage that platform?

We have been working with NASD; we have come up with a rule of trading in securities. We have collaborated with CAC on this, we have an arrangement where they open their portals to us and also agreed that companies that have not opened up their shares to the Commission to do so.

Secondly, on the issue of unlisted securities, we have an interface with CAC and that essentially is because these Plc. are 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.

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.

What is the financial literacy timeline?

We have been working with National Education Research and Development Council (NERDC) on the curriculum. We will soon begin to see traction in respect of Capital Market Studies coming into curriculum of schools.

On the average what is the time to market?

Our desire is to review applications within the shortest possible time and if possible within 48 hours and 72 hours we want to be able to give approval. But there are other factors to consider for instance the documents that are being filed have to be complete. There are other issues we need to look at; if a company is supposed to file 6 documents and they file 3 it is not complete filing. It is those underlying documents that will make you to be able to review the main document and therefore if they are not all filed at the same time they have to be requested to do so. Most times it takes them substantial time to do that.

When you now open the offer documents and you find a lot of misstatements, a lot of information that is not correct, a lot of information that need to be clarified, you have to ask so that you don’t misleads investors. Those are some of the issues that make us not to be able to give specific time lines within which an application can be reviewed. We have been working with the various stakeholders and now we are engaging the solicitors as well.

We are also doing IT related things within the commission for companies to be able to file electronically, then we review electronically so that it can be fast tracked. We are trying as much to reduce paper work, everyone reviews at the same time electronically so that we close the gap and totally shorten it.

Fintech is taking over. What is the SEC doing to guide against cross boarder offerings electronically from impacting negatively?

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 witnessed two ICO. 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 ponzis 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. Even IOSCO is still studying the issue and yet to come up with a guideline. SEC is actively involved in the working group of IOSCO and very soon IOSCO will come up with a guideline. And with that the SEC will come up with guidelines or rules on that. But we just advise investors to be careful.

What would you say are the achievements this last quarter?

I am glad to inform you that the Nigerian capital market within the quarter under review witnessed some achievements in various segments of its operations. These achievements validate the continuous efforts of all market participants and are as follows:

1. Aggressive use of various social media platforms to boost financial literacy campaigns such as the creation and deployment of a one (1) minute Financial Literacy video on YouTube.

2. The renovation of five (5) warehouses by the Nigerian Commodities Exchange (NCX) in preparation for commodities trading.

3. Conclusion of about 30 cases at the Investment and Securities Tribunal (IST) from a backlog of over 50 cases.

4. Commencement of modalities to introduce the Investments and Securities Tribunal Law Reports.

5. Implementation of the Recommendations of the Commodities Trading Ecosystem in phases, from 2018 to 2025.

6. Increase in the number of shareholders who have mandated their accounts for E-Dividend payments to 2.55million.