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SEC, market operators may clash over recapitalisation deadline

By BusinessNews Staff on December 23, 2014

The insistence by the regulator of the Nigerian capital market that the operators must meet new capitalisation milestones on the last day of this year is causing uneasiness, SIMON EJEMBI writes

Operators in the nation’s capital market and the Securities and Exchange Commission are in conflict over the December 31, 2014 deadline set for the recapitalisation of the operating firms, our correspondent has gathered.

While several operators are seeking an extension of the deadline in view of the current economic challenges facing the country, the commission appears unwilling to bulge.

The operators, who said they were not against the recapitalisation, however, explained that the call for the extension of the deadline was in view of the current market trend, falling oil prices, devaluation of the naira and the implication on the economy, among other issues.

The SEC had in December 2013 approved new minimum capital requirements for the market operators pursuant to Section 313(6) of the Investment and Securities Act, 2007.

Under the new guideline, the capital requirement for broker-dealer was increased from N70m to N300m. That of brokers was raised to N200m from N40m, while that of dealers was hiked to N100m from N30m.

The minimum capital requirement for issuing houses was increased from N150m to N200m, while that of underwriters was increased from N100m to N200m. Registrars saw their minimum capital requirement increased to N150m from N50m, while the requirement for trustees was increased to N300m from N40m. Rating agencies were not left out as their minimum capital requirement was increased to N150m from N20m.

Following the announcement, several operators had expressed reservation about the move, suggesting that they were not duly consulted and that the move would have a negative impact on the market and lead to job losses.

But SEC issued a statement saying that not only was the increase in capital requirements the result of industrywide consultations, but that it was necessary if the capital market was to compete globally and attract more participation.

With less than three weeks to go, the operators said insisting on the deadline and withdrawing the licences of operators who fail to meet the deadline would throw the market into crises.

The Managing Director of a stockbroking firm, who spoke on the condition of anonymity in order to avoid being blacklisted by the regulator, said the deadline needed to be reviewed in the interest of the market.

He said, “The situation in the market is not positive at the moment. A portfolio that had not eroded much before now has now eroded by more than 25 per cent. So, if by June you had N300m, now you have about N240m.

“Insisting on the December 31 deadline will not do any other thing to the market other than to kill it vis-à-vis the state of the economy. We have a situation where the government is introducing austerity measures to alleviate the hardship expected.”

He also faulted the decision to make the requirement for broker/dealers higher than that of other operators.

Asked to give an ideal date for the implementation of the new capital requirement, he said, “Even if this process is put off for the next six months, it may not be enough because the recovery of the market is not yet in sight and the election year is coming.

“What ought to be is the suspension of the deadline in the interest of the market.

“Everybody wants to put his money where it will yield return. With the over 19.47 per cent negative year-to-date return of the market, it is hardly attractive for anybody to say they want to put money in the business.”

Another stockbroker, who stressed that the market had not fully recovered and that it was only seeing a semblance of recovery, held a similar view.

He advised the regulator to focus more on increasing the penetration of the market as the level of participation was a far cry from what was expected in a country with a population of 170 million.

“I don’t think there are up to 10 million Nigerians participating in the market. The regulators should focus on that. If you are recapitalising now, you are going to create unemployment and create apathy in the market and cause more problems for the retail shareholders. This is not the right time for that,” the stockbroker added.

He also faulted the position of the regulators that it was better to have fewer but well-capitalised operators, who could execute more transactions and encourage penetration.

“That is not the right move. If you have fewer operators, how do they penetrate the hinterland? If I have N300m to trade, I will trade on my account and generate 10 to 20 per cent gain per annum. We should develop our own model and ensure that the operators abide by the rules, whether big or small,” he noted.

He, however, admitted that the operators were not just sitting back as efforts were being made to meet the requirements through mergers and other means.

The President, Association of Stockbroking Houses of Nigeria, Mr. Emeka Madubike, confirmed that member firms were seeking an extension of the deadline.

“We have also reached out to the regulator on the same basis. So, what they are saying is the position we have taken,” he said.

On the appropriate date for the recapitalisation, Madubike said, “Nobody is a prophet; you take the issues as they come. If those are the issues; then, those are the issues.

“For me, I believe that whatever we are doing, we are doing it in the interest of the market. So, if whatever you are doing doesn’t seem to be in the interest of the market, you need to re-strategize. What we are asking for is a deferment of the deadline.”

The Communication Adviser to the Director-General, SEC, Mr. Obi Adindu, however, faulted the concerns raised by the operator.

He said, “ASHON and some market operators will cite everything under the sky as excuse for not migrating to a new capital regime.

“There is nothing in the so called current economic challenges and market trends that recommend the sustenance of the current regime of multiplicity of puny and undercapitalised market operators with a high propensity to perpetrate market crimes, infringe on investor funds and hike regulatory cost.”

According to him, the current market trend is induced by sell pressure arising from election-related anxiety as well as the declining fortunes of oil, the sole forex earner of the nation’s economy.

“There is nothing in all this that has any relationship with operator capital in our capital market. The connection they are trying to establish is tenuous, dubious, non-existent and tantamount to a blackmail,” Adindu noted.

[Punch]

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