As The Market Bleeds | Independent Newspapers Limited
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COLUMNIST, Echoes of Business

As The Market Bleeds

Posted: Jul 19, 2015 at 12:00 am   /   by   /   comments (0)

Echoes of Business

The  Nigerian  stock market  had dipped from N11.478 trillion at the beginning of this  year to N10.718 trillion in February,  on  account of anxiety over the Presidential election, but jumped to over N11 trillion after Buhari emerged the winner.  Positive reactions from investors  to the victory of Buhari continued for about 10 consecutivetrading days, in a price gaining streak last witnessed in December 2012.

However, as the dust settled, investor patronage waned after signals emerged that the President was not in a hurry to appoint the Federal Ministers. This has created a jolt in the market, leading to  an estimated loss of N823 billion in market value, between when Buhari took over and last week.

But beyond Buhari’s indecision over appointment of cabinet ministers, some market watchers and analysts opine that the dire state of the economy occasioned by the vagaries of the world oil prices, coupled with the seemingly clueless approach to the issue of insurgency carry more weight on the poor performance of the stock market.

Added to these, is a realization that it is the foreign investors who take the next available flight  to elsewhere their investments could flourish.

On the part of the  Exchange, it should devise policies that would reverse the composition of investment which saw  domestic transactions on the stock market decreasing from 49.75 per cent to 45.16 per cent as of May, this year . The situation is not  different from the composition of investors in the stock market in recent years. This explains why the market is now stewing in its own juice. The Nigerians stock market does not possess the necessary absorbing capacity  if the retail investors, a potent component of the domestic investors, are lagging behind. The imperatives of renewed and sustained education and enlightenment programmes by the regulators and operators,  as well as engendering other policy decisions aimed at restoring investor confidence to the retail investors who burnt their fingers during the stock market crash in the country, can no longer be taken for granted. There is no gainsaying that the preponderance of domestic investors in the

stock market would have stood by, to stoke the fire of recovery.

It is in this regard that the recent efforts made to facilitate the full implementation of dematerialization of the share certificates bears commendation.

Dematerialization refers to the conversion of share certificates (physical paper form/certificates or documents of title representing ownership of securities) to an electronic form which is domiciled directly with the Central Securities Clearing System (CSCS).

This is not the first time investors’ expectations  have been dashed following previous announcements of the cutoff dates for the paperless market which were not respected.

However, analysts, market watchers and some other stakeholders are worried that the  full implementation of dematerialization could run into a brick wall if the Companies and Allied Matters Act (CAMA) is not amended to accommodate the requirement of the scheme.

According to them, CAMA did not provide for e-dividend payment and e-bonus, e-rights or e-IPOs,  stressing that until CAMA was amended to recognise electronic documentation of capital market transactions, regulators cannot force operators and investors to embrace full dematerialization. It behooves the regulator to sponsor a bill to the National Assembly to amend the relevant section of the Act.

Also,  for full implementation of dematerialization to succeed, there is need to provide incentives to encourage shareholders to deposit their share certificates with the CSCS,  as practiced in the developed markets.

Another issue which should be pursued to logical conclusion is that of recapitalization of capital market operators, if confidence is to be restored to the market.

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

Under the new minimum capital base, the capital requirement for brokers/dealers was increased from N70m to N300m. That of brokers was raised to N200m from N40m, while that of dealers was hiked to N100m from N30m.

The minimum capital requirement for issuing houses was increased from N150m to N200m, while that of underwriters was raised from N100m to N200m. Registrars saw their minimum capital requirement increased to N150m from N50m, while the requirement for trustees was increased to N300m from N40m. Rating agencies were not left out as their minimum capital requirement was increased to N150m from N20m.

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The SEC, which had initially announced December 31, 2014 as the deadline, extended the deadline by nine months in December after repeated calls by operators for an extension, and possibly a review of the capital requirement.