THE CAPITAL MARKET CRISIS: AN INVESTOR'S CONCERN
The word "investor" in the title of this piece is used advisedly: it simply means that I am one of the millions of ordinary people who bought a few company shares, and so by that fact became an investor in the Nigerian capital market which is now under a terrible siege. The Chief Executive Officer (CEO) of the Nigerian Stock Exchange (NSE), the President and the Council members have all been sacked by the Securities and Exchange Commission (SEC), and a sole administrator has been appointed to take charge of the Exchange to prevent a likely collapse of the market, following conflicts among the NSE elite and allegations of insider abuse. But in all of this, there has been very little focus on the ordinary investor, this has so far been the fight of the big men and women, but the worst victims are bound to be those ordinary investors who for the second time in less than three years are being told that the market in which many of them have invested their fortunes is failing. Many of us were attracted to the capital market a few years ago when it suddenly became the place where prosperity could be accessed.
There was such a big boom in the market which attracted a lot of ordinary people: even students and artisans became stock market gurus, monitoring prices, the stock market pages of newspapers witnessed increased readership. So popular was the market between 2000 and 2007 that the Obasanjo government claimed it as one of its major achievements. But with the global economic recession, the market went burst, and many Nigerians were badly affected. Ordinary investors who had no capacity to spread their risks were the greatest victims including those who borrowed from the banks to invest in the market. The Nigerian capital market it was revealed had no depth at all, because it was dominated by portfolio investors. When these "one-chance" investors pulled out, the market bottomed out. It is in the nature of capital markets to oscillate between periods of boom and burst. But when that happens, countries use the opportunity to strengthen structures, institutions and regulatory frameworks.
In 1929, the United States, witnessed a crash in its stocks market. This was what led to the establishment of the Securities and Exchange Commission in 1934, following appropriate legislation. The global economic recession of 2007/8 has also resulted in the United States and elsewhere in fundamental economic policy shifts and a reconsideration of issues. In Nigeria, informed protests that the burst in the market and the knock-on effect on the economy should result in a general restructuring of the economy and change of personnel in the regulatory agencies yielded little result. In due course, however, pressures in this direction led to the exit of Musa el-Faki and the appointment of Arumah Oteh as SEC DG, and the announcement by NSE CEO, Ndidi Okereke-Onyiuke that she would retire by December 15, 2010. Those who should protect the market merely papered over the cracks. What is now happening in the Nigerian securities market clearly confirms what has always been suspected: that the sub-optimal performance of the market is the result of a combination of regulatory weaknesses, political meddling and capacity inadequacy amongst operators, not necessarily the global market crisis.
One cardinal rule of the market is defined by what is called "Shingle theory": it is based on the assumption that players in the market will do "fair and honest business." But business has never been done in a fair and honest manner in the Nigerian securities market. The general impression has been that broker-dealers and investment advisers are thieves. A few of them are in jail because they stole investors’ funds, some brokers have had their licences withdrawn by the regulator; in addition there have been cases of manipulation of share prices, insider trading and listing infractions by privileged investors and their collaborators who otherwise should be in jail. Self-regulation is one of the mechanisms for ensuring fairness and honesty in the market, but with the crisis in the NSE and its suspended President, Alhaji Aliko Dangote alleging that the NSE leadership has been abusing investments, the limits of the concept of self-regulation (that is the Shingle theory) has been exposed and a justification for the SEC’s intervention is well provided. The entire capital market community is, in my view, culpable.
But it is the manner of SEC’s intervention that raises a number of additional issues. US Supreme Court Justice William O. Douglas commenting on the role of the US Securities and Exchange Commission (SEC) noted that it is like holding a "shotgun, so to speak, behind door, loaded, well-oiled, cleaned ready for use but with the hope it would never have to be used." I think this will be the case only if the SEC is vigilant and alive to its responsibilities. In Nigeria, the SEC, and even the NSE, merely provide sinecure positions for political clients. Without the internal crisis in NSE that boiled over, Oteh’s SEC would still have been asleep. And in acting rightly, it has blundered most characteristically.
By this, I am saying that I support the exit of the NSE CEO, Okereke-Onyiuke, but she should have been suspended, not removed and should have been given an opportunity to state her own side of the case. Who was the letter removing her addressed to since there was no formal reversal to status quo ante bellum as the court demanded, hence there was no council in place to remove her? Has the SEC by its action not usurped the powers of Council and set a dangerous precedent? Okereke-Onyiuke was scheduled to proceed on retirement in September, she has since submitted a letter to that effect, so says Sola Oni, the NSE Assistant General Manager, Corporate Communications- would it not have been better to ask her to proceed on leave a month earlier? There is also another point: To remove the NSE CEO, the Stock Exchange was invaded by gun-wielding policemen who intimidated the staff; the place is still under heavy security control: such show of might is dictatorial and unnecessary. It is reminiscent of the sack of the MDs of the troubled banks by the Central Bank of Nigeria and of the military era.
Investors want a seismic change in the securities market, Okereke-Onyiuke’s exit may be the signal of that change but the handling of her exit is a case of doing a good thing in a wrong manner. Arbitrariness of any sort is deplorable. Okereke-Onyiuke may well go to court and force the issue thereby throwing the market into greater confusion. It is more important to do everything to protect the integrity of the market; it is a shared responsibility that all stakeholders must be concerned about. The Securities and Exchange Commission has since appointed Emmanuel Ikhazobor the sole administrator of the Nigerian Stock Exchange. This is being presented as something extra-ordinary. The truth is that the NSE has in fact been under a sole administrator for a while. Where was SEC? With the NSE Chairman and the council suspended by court order, the NSE has been operating a sole administrator regime under Okereke-Onyiuke. Another question: why has SEC chosen Ikhazoboh? What are his credentials and antecedents? Has he been appointed sole administrator because he has a track record of doing business in a fair and honest manner? Or because he knows where the dead bodies are buried? In 1929, the United States Government appointed Joseph Kennedy (patriarch of the Kennedy dynasty) head of the Stock Exchange: he had quite a reputation as a man with an insider knowledge of the wheeling and dealing within the stock market with very useful contacts; his was a case, if we may say so, of sending a thief to catch the thieves. Since then the appointment of sole administrators for the securities market in a season of crisis has always been suspicious.
It is not enough therefore for SEC to appoint a sole administrator; they must tell us why he is considered the best man for the job and most importantly spell out the time limit so as to avoid a permanent interim management situation as we have in the case of the eight rescued banks. It will be recalled that on August 14, 2009, Sanusi Lamido Sanusi, the CBN Governor appointed new managers for the rescued banks with the promise that they would be in charge for a short period, he even promised that by December 2009, the banks would have been sorted out well enough for them to stand on their own. But since then, the new directors have been in charge, they are still there about a year later! What we have in the case of the banks looks like a permanent interim situation. This should be avoided in the case of the NSE, the CBN Governor supporting the SEC at this moment rather mischievously notwithstanding.
In all of this, one question must serve as the main guide: where is the market headed? Where is it going? Nobody is addressing this. The removal of Ndidi Okereke-Onyiuke may have established SEC as the final authority in the market and that may make some people happy, but we need to raise the discussion beyond the level of individuals. The market does not run in isolation of the larger economy. It reflects the character of the economy; it does not quite determine it. Is it Okereke-Onyiuke’s exit that will reflate the market? What has been proven since 2000 is that the Nigerian Securities market is a market where anything goes, where anything can happen like the country itself. The time is ripe for change in that market, a seismic change; Okereke-Onyiuke’s exit must provide an opportunity for reform.
My layman’s suggestion is that there should be a radical change in the way the securities market is organized. Old practices need to be transformed. Remedial steps need to be taken in order to save the image of the NSE, the SEC and the country itself, to prevent sending the wrong signals to genuine investors and to restore confidence in the larger Nigerian economy. The security men who have taken over the floors of the Stock Exchange should be withdrawn! The market as it is, is not competitive enough, it is dominated by speculators and buccaneers, with the big investors using it to serve their own interests, cheating ordinary investors in the process. It is competition that will drive change. It should be encouraged. The Nigerian National Assembly also now wants to play a role in the matter, it has summoned the NSE and the SEC, but its members must begin by trying to understand what this is all about and not see it as an opportunity for collecting additional sitting allowances.
Current players in the market: stockbrokers, investment advisers and financial analysts also need to invest in expertise and technology and not see the market strictly as a meal ticket. In the final analysis, the Securities and Exchange Commission must get its acts together. It must embark on a house-cleaning exercise. It is only when SEC gets its acts together that the market can improve. There are many complaints before SEC which have not been addressed- the point is that change in leadership is not enough, emergent issues about the inadequacy of SEC procedures, operations, and capabilities must be resolved. Why, for the benefit of the deaf, is reform so urgent and imperative? The answer is simple. The Nigerian Securities market has already lost over N110 billion worth of investments on account of the events of the last week alone! It could be worse. And it is ordinary investors, mostly ignorant about the dynamics of the market, but who collectively represent the market majority that are being cheated and punished. The injustice that they suffer should not be sustained. What are the signposts that the ordinary investor needs to see to be sure that the market is back? In the long term, the market will start recovering when investors can trade without the help of thieving brokers and they can exercise free control over their investments.