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At least 50% of Nigerians should participate in the capital market – Madubuike

By on July 27, 2014

Mr. Emeka Madubuike is the President, Association of Stockbroking Houses of Nigeria. He shares his views on investor protection efforts, the new capital requirement for operators and other issues withSIMON EJEMBI

Some analysts have said that when it comes to policy formulation, the capital market is not taken into consideration. Do you share this view?

Of course I do. And it is not just the Central Bank; the government tends not to focus on the capital market. Look at the total budget and consider what has been earmarked for capital expenditure, how much of that is going through the capital market? Most of it goes through the money market or the money is obtained from outside the country. A lot more emphasis needs to be placed on the capital market because that is the way we can develop our economy. The saying that without a well-developed capital market a country cannot grow has not changed. We still have serious infrastructure deficit, housing deficit and other deficits. And unless we begin to look at the capital market, it will take us a very long time for all of these problems to be solved.

There have been a lot of reforms in the market over the last few years. To what extent has your association been involved in these reforms?

A lot of the capital market reforms have come through the platform of the Capital Market Committee, which is made up of stakeholders in the capital markets – the regulators and the operators, and we have continuously worked together in the last three to four years to ensure that the reforms are implemented to get market to where it is today.

As part of that committee, we have played our part. We have been part of almost all the committees that have been set up to drive the reforms.

As part of the reforms, market makers were introduced into the market. However, some operators have said their impact has been minimal partly due to the absence of strong securities lending in the market. How true is this?

These are new initiatives. Remember we are coming from a situation whereby the market was in crisis. So, it will take a while for these initiatives to develop and for their impact to be felt. The fact that you have reforms doesn’t mean they are just going to kick in automatically. The place to start is where we are. We believe that with time, as the market increases, as we have more participants and products, the effect of the market makers will begin to be more pronounced and effective. And I must say that even where we are, the market makers are not performing too badly. As for the issue of securities lending, it also has to do with operators taking business decisions. Before somebody goes into a business, he must first assess it because he is looking at the bottom line. I believe most of these things will evolve over time.

Regulators have maintained over time that they are doing their best to protect investors and they are engaging investor education. What are the stockbroking houses that deal directly with these investors doing to educate them considering that Nigerians still fall victims to scammers posing as stockbrokers?

When it comes to investor education, it’s an industry-wide initiative. It has to come from various angles. Every stakeholder in the capital market is supposed to be a part of this education. The most protected investor is the most educated investor. For example, right now, there is an initiative from the Capital Market Committee that we are putting together a 10-year master plan on improvement of capital market literacy. That is the fundamental initiative because it is going to cover all investors, the entire capital market. And all the initiatives that will come under that literacy arrangement will ensure that people begin to know what the capital market is all about: why they should invest, how they should invest, who to go to, and issues like that. So, the issue of investor protection must be an ongoing thing; there must be a continuous engagement and that engagement is taking place as we speak on all levels. The Stock Exchange has its Investors Clinic, just as the Security and Exchange Commission, the Chartered Institute of Stock Brokers and other stakeholders have their own investor education initiatives. We have all put in place similar arrangements. But this 10-year master plan is going to be more holistic.

The intention is that by the time it kicks in, we are going to have a literacy initiative that cuts across all type of investors and all areas of this country.

Last year, the NSE introduced a new trading platform, X-GEN, which is said to be the best in West Africa. Do you think the stockbrokers are now equipped to fully utilise the platform?

Of course, that is what we have been using. The X-GEN system is very robust, it has very friendly market features that make trading and investment easy and also enables you to minimise errors.

It is configured in such a way that, for example, you are not able to sell the stocks that you do not have. It is making the market more transparent and accountable. And as we go on, we are going to have more customer-friendly experience in our interaction with our customers. That is because we will have a situation whereby our customers can, from the comfort of their homes, send in orders through our order management system because all stockbrokers are supposed to deploy an order management system from laptop, smart phones, etc.

Some have argued that the market can be better protected from shocks as it suffered in the first quarter of the year if domestic investors dominate it. Do you share this view?

Yes, there is no doubt. As we speak, the total investor population if you go by our CSE, we have about five million give or take. First and foremost, the point that needs to be made is the fact that the market needs more participants whether foreign or domestic. The market should make efforts to increase the number of participants. If you focus on the domestic participants, even all the five million participants are local, how many are we in this country? We are about 160 or 170 million depending on who is counting. But effectively, at least 50 per cent of that figure is supposed to be participating in the market and that is why the Stock Exchange has put a target for itself to get 40 million investors to play the market. That is a target we must all work towards achieving. A lot of reforms and initiatives that have been put in place are geared towards achieving that objective of increasing the number of participants in the market. But, of course, I quite agree that it is not of whether they are foreign or local but the more local investors we have, the less volatility we will have even when the foreign investors decide to move.

Considering the low level of participants in the market, what would you say are the major factors holding Nigerians back from the market?

I think one of these has been addressed before. The first thing has to do with literacy or knowledge. If there is a knowledge gap, you cannot give what you don’t have. That is why improving the capital market literacy of individuals or of government in general is very important. The more the people know about the potential in the capital market, the better for all of us.

SEC has announced new capital requirements for market operators, what is your view on this?

You remember we talked about reforms. We need to look at these things holistically. There is nothing wrong with talking about increase in capitalisation but it needs to be put in context and it needs to be done in such a way that at the end of the day, the entire market benefits from it. So, our strategy as stockbrokers is to engage the regulators seriously to ensure that whatever comes by way of capitalisation is done in the interest of the whole market. We need to ensure that after we have done this, investors will be properly protected. We have an increased level of literacy and the market is doing a whole lot better than it is doing.

That is why what we are doing right now is engaging with the regulators to make sure that we are taking everything into consideration. Again, we must also not forget what is happening in other markets. That is because the whole world, not just the capital market, is one village; we cannot ignore what is happening in other places. The whole market is heading towards a risk based regulation. And we need to ensure that this is properly handled, considering the experience we had in 2007, 2008. It is important that the risk each operator or investor in the market carries is known and properly covered.

 

 

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