Before The Ax Falls. | Independent Newspapers Limited
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COLUMNIST, Echoes of Business

Before The Ax Falls.

Posted: Aug 9, 2015 at 12:00 am   /   by   /   comments (0)

Echoes of Business

Recently, the Securities and Exchange Commission  informed capital market operators that it would stick to the September 30, 2015 deadline, which it set for recapitalization of their operations in line with new capital requirements approved by the Commission in 2013.

Under the new minimum capital base  requisite, the capital requirement for brokers/dealers was increased from N70 million to N300 million. That of brokers was raised to N200 million from N40 million, while that of dealers was hiked to N100 million from N30 million.

The minimum capital requirement for issuing houses was increased from N150million to N200million, while that of underwriters was raised from N100 million to N200 million. Registrars saw their minimum capital requirement increased to N150 million from N50 million, while the requirement for trustees was increased to N300 million from N40 million. Rating agencies were not left out as their minimum capital requirement was increased to N150 million from N20 million.

The  apex capital market regulator, the Securities  and Exchange Commission (SEC) SEC, which had initially announced December 31, 2014 as the deadline, extended the cut-off date by nine months in December after repeated calls by operators for an extension, and possibly a review of the capital requirement.

The operators,  under the aegis of the Association of Stock broking Houses of Nigeria (ASHON), Association of Issuing Houses of Nigeria (AIHN) and the Chartered Institute of Stockbrokers (CIS), had made several entreaties to the apex capital market regulator to reconsider certain elements of the recapitalisation plan.

Their grouse rested on  three planks; the structure of the capital requirement that fixed a minimum amount irrespective of the size and scope of operations of a firm, the implementation process and the deadline for full compliance.

They were also pushing for risk-based approach where the capitalization is tied to the risk a firm carries in its operations.

However, with the deadline petering out, a fresh challenge has emerged which provides a straw  for the market operators to cling.  It has to do with the free fall of the market.

Since the beginning of this year, the market has  dropped by about 30 per cent, a development  they attribute, not only to the economic downturn, but the inability of the present administration to appoint  ministers who would provide policy directions of the government programmes and activities. Specifically, the absence of the cabinet for so long, is said to be responsible for foreign investors dumping their shares in the Nigerian bourse in preference to other markets.

The continued fall of the market has made it difficult for stockbrokers and other operators to function profitably. It was gathered that a good number of the stock broking firms have already downsized their operations, leaving behind skeletal staff to perform essential duties.  To those in this predicament, the issue of recapitalization now, is out of the way.

Arguably,  if the N300 million capital, for instance, was met in the December 2014 deadline, this would have been eroded by about 30 per cent and  the promoters ,would by now, be called upon for additional capital.

In this regard, their argument that the regulators, through their activities and programmes should fix the market first, before recapitalization, draws sympathy.

If SEC’s dangling axe falls next month., it could create a jolt in the market.  Chances are that majority of the market operators would close shop which would be counter productive to efforts made to revamp the market.

Apart from the regulator’s revenue shrinking through reduced commission, reliance on the few top stock broking firms to carry the cross is an invitation to crisis of uncertainty ,since this category of  liquid houses swim with  more than 60 per cent of their investments in foreign portfolio.

At the risk of alluding that SEC  can only bark but not bite, another round of deadline postponement should not be contemplated now. It is highly suggested that what needs to be done  for now, is to put a hold on the recapitalization exercise pending the full recovery of the market.