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Stock Market Forbearance: FG Makes N22.6 billion Available

By on December 4, 2012

NSE President, Onyeama

The Federal Government has bailed out 84 stock brokerage firms with N22.6 billion to restore confidence in the stock market.

In attempt to justify the move, Minister of Finance, Mrs. Ngozi Okonjo-Iweala, said at a press briefing in Abuja on Monday that the move was promote the market by intervention as well as help clear the overhung debt in the sector.

She said, the government hand to extend a helping hand to the market because the stock market was essential to the Federal Government’s economic transformation agenda, therefore, the sluggish nature of its recovery would have affected the governments programmes.

She did not disclose the names of benefiting companies but stated that any firm benefiting from the N22.6bn bailout would be disqualified from providing professional service for the Asset Management Company for three years.

She said the bailout was recommended by a committee headed by the Deputy Governor, Financial Systems Stability, Central Bank of Nigeria, Dr Kingsley Moghalu.

The minister said, “The first measure is a forbearance of about N22.6bn on the margin loans of 84 stock brokers, in accordance with Section 6(5) of the AMCON Act. AMCON had purchased these margin loans from banks for about N42.6bn, but the value of the underlying assets or collateral is worth only N19.96bn today.

“In furtherance of AMCON’s cleanup of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity. But let me state clearly that this forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future.

“Brokers benefiting from forbearance will not be allowed to provide any professional services to AMCON for a period not less than 3 years; firms will be required to reveal to the SEC, any dealings in any security valued at a minimum of N25m executed in a single deal or multiple deals on the same day on behalf of their clients.

“As part of their net capital requirement, no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 per cent of his net capital; details of the firms will be forwarded to the Credit Bureau Agency.

“A strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians; and finally, the brokers will be prohibited from taking proprietary positions or trade on their own account for one year.”

On those that excelled, those that managed their stock broking businesses well, the minister said, they will be celebrated by the Federal Government in due course.

On Stamp Duty and VAT, Okonjo-Iweala said taxes on stock exchange transaction fees would from now on be ignored.

She said, “The second measure is the elimination of stamp duties and VAT on stock market transaction fees. Taxes on stock exchange transaction fees are as high as 12 per cent – much higher than in other jurisdictions and these constitute a major disincentive to invest in the Nigerian capital market.

“I would like to announce that the Federal Government has consented to waive the 0.075 per cent stamp duties payable on stock exchange transaction fees; and exempt from VAT, commissions earned on traded values of shares, payable to the SEC, and payable to the Nigerian Stock Exchange and the Central Securities Clearing System; by including these commissions in the list of VAT-exempt goods and services.”

She said, these measures, would establish the government’s renewed dedication to making Nigeria’s capital market one of the most vibrant markets in the world.