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NSE management tasks FG, legislators on reviving capital market

By on October 10, 2013

It was ordinarily an opportunity for the management of the Nigerian Stock Exchange (NSE) to bare its mind on the Chartered Institute of Securities and Investment Bill 2013, before the Senate Committee on Capital Market.

But, it was also a chance for the bourse to woo stakeholders like the Federal Government and the National Assembly to its gospel of long-term savings and borrowings.

In a memorandum dated April 5, 2013, detailing its mind on the bill, and published last week, the NSE said its intervention as a critical stakeholder in the nation’s capital market, “is to enable members of the committee make an informed decision that would positively affect capital market stakeholders at a critical time in the recovery of the capital markets.

The NSE said it is “working in partnership with other capital market stakeholders and with the support of the Senate Committee on Capital Markets provides a vehicle for long-term ‘saving’ and ‘borrowing’, and hence, efficient use of financial resources.

“The current market cycle presents an incredible opportunity for the government to play a leadership role in revitalising the capital market, and for investors to once again, begin to create durable wealth.

The NSE urged the committee to address concerns raised by other stakeholders, including other securities and investment professionals to be affected when the bill is finally passed, before it is enacted, despite its well intended objective.

“From an operational perspective, it is impractical to extend the scope of the CISI without adequately addressing the concerns highlighted above,” the NSE noted.

Continuing, it said “the proposed CISI Bill is a replacement of the current Chartered Institute of Stockbrokers Act 2004. It modernizes and broadens the scope of operations of the Institute to include Securities and Investments which otherwise is restricted to traditional stockbroking activities or buying and selling of stocks.

“The Chartered Institute of stockbrokers of Nigeria (CIS) is the professional body for stockbrokers in Nigeria. It is responsible for the regulation of the conduct of stockbrokers and the administration of academic certification for participating in the Nigerian capital market,” the NSE explained further.

The Bill seeks, among others, “to advance the theory and practice of Securities Dealing and Investment Management and Advisory; to determine the standard of knowledge and skill to be attained by persons seeking to engage in, and practice in the Securities and Investment business and profession respectively in Nigeria to become registered members of the Institute, and to raise those standards from time to time as circumstances may permit.

It is also “to conduct professional examinations leading to the award of certificates, diplomas and other awards as may be prescribed by the Institute; to maintain discipline within the profession; to do all such things as may advance the profession of securities and investment.”

Benefits of the Bill, the NSE continued in its memorandum, include fostering “greater collaborative and proactive engagement with Regulators, trade bodies, financial services firms, academic institutions and expert advisers.”

It was also noted that the bill would enhance global best practices, as it is in line with the practice in other leading jurisdictions like the United Kingdom, South Africa and The U.S.

The Exchange agreed that in the UK, “the Chartered Institute for Securities & Investment (CISI) is the largest and most widely respected professional body for professionals in the securities and investment industry in the UK and in a growing number of financial centers globally. This is the model that the proposed CISI Bill 2013 intends to adopt.

“The South African Institute of Security (SAIS) was established in Johannesburg in 1978 and it is responsible for drawing up the original training standards for the securities industry. The aim is to promote individual professional competence and to support the maintenance and enhancement of this competence by securities professionals. This model is also similar to the proposals in the CISI Bill.

“The Financial Industry Regulatory Authority (FINRA) is a private corporation (in the U.S.) that acts as a self-regulatory organisation (SRO). FINRA is the successor to the National Association of Securities Dealers Incorporated (NASD). It is a non-governmental organisation that performs financial regulation of member brokerage firms and exchange markets. It also regulates the activities of professionals in the securities markets as well as administers the certification for participating in the US financial markets.”

Admittedly, the NSE continued, “the CISI Bill seeks to adhere to international standards as illustrated in capital market activities in other jurisdictions. It will ensure that the Nigerian capital market meets up to the set benchmark and remains one of the leading financial centres in the African region in line with the transformation of the Nigerian Capital Market and wider economy.

“It will also ensure a higher degree of professionalism in the financial services industry and encourage members to maintain and develop their knowledge and skills to promote higher standards of ethics and integrity in the securities and investment industry.”

 

Broadening participation

The Exchange equally agreed on the need to take the Nigerian stockbroker beyond the rudimentary business of simply buying and selling stocks, to trading in fixed income trading, Exchange Traded Funds and other securities.

“As part of the effort to deepen and develop the Nigerian capital market, other financial instruments will be introduced to the market imminently which will require participation from other financial services professionals. For example, Treasury Bond Dealers in the Over-the Counter (OTC) market amongst other securities. The current CIS structure has become redundant as it is restricted to only stockbrokers and does not accommodate other financial market professionals.

“The CISI Bill incorporates these professionals so they can also participate and contribute their quota to the development of the Nigerian capital market.

 

Trouble spots

Wonderful as the idea of the bill sounds however, the NSE’s memorandum noted that it may have been prepared with very little or no consultation or collaboration that would enabled many other professional bodies to be affected in one or the other make inputs and take part-ownership of the Bill, a situation that now threatens its passage.

“These stakeholders play a major role in the securities  and investment markets and cannot be compelled into participating in an association without due consultation and collaboration. These stakeholders include Issuing Houses, Fund and Portfolio Managers,

Trustees, Financial Advisers, Financial Analysts, Treasurers, Bond Dealers, Foreign

Exchange Dealers, Custodians, Private Equity Managers, Venture Capitalists amongst others. These stakeholders have to be adequately consulted and carried along for the Bill to achieve the purpose of improving broader participation,” the memorandum advised.

Arising from the lack of broad consultations, the NSE argued that the provision on The Governing Council of The CISI Bill excludes it as a member, and instead “provides for ‘One representative each of the licensed securities and or commodities Exchanges in Nigeria,’ meaning that only one representative of all registered Exchanges will be allowed on the Governing Council of the proposed CISI. This is contrary to the current composition of the Governing Council under the 2004 Act wherein The Exchange is permanently represented as the foremost Securities Exchange in the Nigerian Capital Market.”

Yet another thorny issue in the CISI bill is its scope, which needs adequate and articulate definition.

Particularly, the bill provides for the establishment of the CISI “to ‘regulate and control the practice of Securities Dealings and Investment Advisory profession and for related matters’.

“The regulatory functions and powers need to be clearly defined and should be restricted to professional standards and ethical conduct. This includes the appropriate professional qualifications, continuous learning and development and other professional certifications that improve professional competence. It should also prescribe the professional and ethical conduct required.”

Continuing, the NSE explained that the Securities and Exchange Commission and The Exchange regulate the markets and market participants generally, therefore the CISI would need to define the scope of its powers and specifically list the market participants that it will govern.

“As stated earlier, there are several other capital market professionals that operate in the Nigerian capital market outside of the stockbroking community. The CISI Bill would need to state the professionals that fall under its  jurisdiction. For example,   Issuing Houses, Fund and Portfolio Managers, Trustees, Financial Advisers, Financial Analysts, Treasurers, Bond Dealers, Foreign Exchange Dealers, Custodians, Private Equity Managers, Venture Capitalists etc.”

Also worrisome, the NSE said in the memorandum, is the power granted the CISI in the bill to “sanction individuals who hold themselves out to be capital market professionals but are not members of the CISI.

“The offence is punishable by monetary fines ranging from five hundred thousand naira to N5 million and six months imprisonment. This can only be achieved after due consultation and collaboration with the other capital market stakeholders, taking into consideration the fact there are numerous other trade groups and associations that already exist.”

Another provision also causing some upset in the bill, is that for corporate memberships who must satisfy the CISI council that they are fit and proper in conducting business in the securities and investment space, is also causing ripples.

Such, if allowed, the NSE continued, “could potentially duplicate and conflict with the regulatory oversight functions of the Securities and Exchange Commission and the Nigerian Stock Exchange as the Apex regulator and front line Self-Regulatory Organisation in the Nigerian capital market.”

 

 

[Daily Independent]