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Mixed reactions trail exclusion of banks from margin list

By on March 21, 2013

Stakeholders in the Nigerian capital market have reacted to the exclusion of banks from companies that can access margin loan for trading shares.

A margin loan or a margin account is a loan made by a brokerage house to a client that allows the customer to buy stocks on credit.

Speaking to the National Mirror, the former President of Association of Stockbroking Houses of Nigeria, Alhaji Rasheed Yussuff, said that the exclusion of banks from the list indicates that the regulators could not discharge proper monitoring of the financial institution.

Yussuff, who is the Managing Director of Trust Yields Securities Limited, pointed out that the inability of the Central Bank of Nigeria and the Securities and Exchange Commission to perform their regulatory roles made the banks’ management to manipulate the banks shares prices with margin loans.

He said, “What really happened before the bubble burst in 2008 was that the regulators were relaxed and the bank management were lending money to some brokers to push for the banks’ share prices,”

Yussuff added that if the regulators have the technical knowhow and the expertise to monitor the banks, there was no need to remove them from margin list.

However, the Managing Director of Partnership Investment Company Plc, Mr. Victor Ogienwonyi differed with Yussuff, saying that the exclusion of the banks from the list will prevent them from manipulating the banks’ share prices.

According to him, the banks were excluded from the list to prevent their exposure to margin loans, which got some banks into trouble in 2010, adding that the SEC is trying to prevent fraud, as some banks have the potential to diversify the margin loan.

SEC had said that bank equities can be traded within a margin account but will not be used to determine the credit that is due in a margin account.

“The list is made up of securities that have the highest trading profile in the market. Banks are excluded from the list at this time but this may change over time,” SEC said in a statement.

It noted that the SEC guidelines provide rules for the administration of margin activity from the shared perspective of regulators and operators.

The statement said that rule 22 of the guidelines addresses eligibility criteria for the margin list which include 12 month trading history, three months trading volume, 10 day trading volume, a minimum price of 75 kobo and the exclusion of Initial Public Offer, IPOs) from being funded through margin loans.

The Asset Management Company of Nigeria (AMCON) recently disclosed that margin loans represent 40 per cent of toxic assets amounting to as much as N414bn in its first phase of asset repair, saying that it became clear that systems and understanding of margin activity was inadequate from an operator, financier and regulator perspective.

 

( National Mirror )