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Capital market needs efficiency – Lemo

By on June 26, 2014

For the Nigerian capital market to compete satisfactorily in the global space, it needs stronger structures and efficiency, a former Deputy Governor, Central Bank of Nigeria, Mr. Tunde Lemo, has said.

According to Lemo, more work also has to be done to improve the market integrity, transparency and accountability as well as strengthen its regulatory oversight.

He said this in Lagos while presenting a keynote address at the fifth Annual Conference of the Institute of Capital Market Registrars.

He spoke on ‘Developing a world-class capital market: The need to strengthen adherence to corporate governance practices – the role of regulators, operators and investors,’ which was the theme of the conference.

Lemo explained that despite the progress made in the market since the financial crisis, more work needed to be done to grow the market to better reflect the economy.

He said, “Clearly, the size of an economy should be a major determinant of the size of the capital market. South Africa was estimated as the 34th largest economy in the world in 2013.

“Nigeria’s current ranking as the 25th biggest economy in the world (2013 estimate) suggests that Nigeria has some work to do in growing the size of her capital market.”

The former CBN executive said as a result of these, the Nigerian Stock Exchange’s target of achieving a $1tn market capitalisation (by 2016) was, therefore, welcome.

Reviewing the transactional efficiency (market infrastructure – including processes, technology – and cost competitiveness), he noted that the current trading platform being used by the Exchange met international standards.

However, Lemo said, “Transaction costs at about 1.7 per cent and 2.1 per cent for a ‘buy’ and ‘sell’ transaction, respectively, on the secondary market remain high and deter potential investors.”

He added that the processes for dematerialisation of share certificates needed to be strengthened to reduce fraudulent conversion.

In terms of regulation, Lemo, who said several of the past setbacks in the capital market could have been prevented with proactive regulation, stressed that there was the need for focus on systemic risk and “strengthening of regulation of the investment profession.”

 

 

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