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The Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr Oscar Onyema, in an interactive session with capital market correspondents in Lagos after his briefing for the year 2012, spoke on several issues that affected the capital market in 2011 and made projection for 2012. Excerpts:

What reforms are expected in the capital market that would boost market confidence?

The Nigerian Stock Exchange (NSE) expects more reforms in the capital market in 2012. The Exchange will embark on the re-activation and revitalisation of the secondary bonds market and undertake increased investors' sensitisation and awareness programme on investing in the capital market.

Revitalising the secondary bonds market will provide investors with a wide range of choices regarding investment options and help stockbrokers tap into the opportunities inherent in trading in bonds.

The planned investors' education, sensitisation and awareness programmes are designed to bring about an increase in investor literacy and ensure a significant interest and improvement in market participation.

The NSE is pursuing full disclosure, dematerialisation, end-to-end trading automation and improvement in market data services. The NSE is working towards automating the processes through which quoted companies pass information to the investing public.

We are committed to pursuing our corporate advocacy programme to influence policies that will affect quoted companies. The demutualisation programme of the NSE is still on course. The demutualisation committee is presently working on the final draft and will come up with its final report on the process in a couple of days. The NSE is committed to ensuring total recovery of the capital market and is putting in place a number of measures to drive the recovery process.

Concerning the debt overhang by stockbrokers since 2008, why is it still a problem?

The margin loan obtained by stockbrokers from the banking institutions are still lingering and has been affecting the market. When this loan is offset, the market will further be boosted as confidence will be enhanced.

The Finance Minister, Dr. Ngozi Okonjo-Iweala, has stated that plans are being worked out to grant reprieve to stockbrokers that got unduly exposed to the margin loan bailout debacle. The Central Bank of Nigeria (CBN) has, however, written to the Ministry of Finance, but the Minister of Finance whose prerogative it is to give such forbearance, is still studying the proposal.

Mr Oscar Onyema, Chief Executive Officer of the Nigerian Stock Exchange (NSE)

The CBN took the decision to write the Ministry of Finance after receiving appeal from the board of Asset Management Corporation of Nigeria (AMCON) asking it to support efforts aimed at lifting the debt overhang in the capital market.

The NSE is working together with AMCON, CBN and Finance Ministry to ensure that the problem of margin facility becomes history. The law provides that the only person that can give the type of forbearance we are asking for is the Minister of Finance on the advice of the CBN Governor. Right now, I can tell you that the Minister is reviewing it. So we have been tracking it, we have been pushing it and we have been supporting it.

How come the margin loan degenerated to this?
The margin facility fell short of internationally accepted standard. In other climes, when the value of collateral depreciates by up to 100 per cent, there would be a margin call. A lot of broker-dealer firms actually received margin loans pushing up capital that was worth a lot more than the loan they received.

However, the margin capital did not run the way it is supposed to run; the way it is run the world over, where if the value of the collateral depreciates to up to 100 per cent, the banks that gave the loans will liquidate the position. Here, they did not liquidate the position, but allowed the value to degenerate to up to 20 kobo to a naira.

What is the NSE doing in terms of curbing malpractice in the market?

The NSE is strengthening its surveillance to ensure that all manner of infraction is stamped out of the market. Any operator that wishes to remain a market player must meet up with minimum requirement to retain its licence. The NSE would work towards proper codification of all its rules, guidelines and policies in the course of the year.

How did the market fare in 2011?
The market as you know did not meet the expectation of stakeholders. It was on the downside. The Exchange approved 33 new issues worth N2 trillion during the year. During the year, the number of total securities listed in the market grew to 250.

Out of this number, 201 were equities which accounted for N6.54 trillion market capitalisation.Twenty-fiveĀ  (25) FGN bond worth N2.09 trillion were listed, 11 state government bonds valued at N0.31 trillion and 12 corporate bonds valued at N1.34 trillion were also listed during the year as well as the newly introduced Exchange Traded Fund worth N988 million. A net inflow of foreign portfolio investment worth N165.97 billion was also recorded during the year.

What standard is expected of the stockbroker?
The Exchange expects minimum standards for broker-dealer community who wishes to maintain the NSE certificate. Stockbrokers must ensure that they meet the minimum capital requirements and also comply with all operational requirements.

What is your advice to investors and when do you think the market will recover?

Lack of investors' interest in the market was caused by the loss suffered in the market in 2008 and the reforms in the banking sector. My advice to investors is 'buy now that the equity prices are low.' The investors who don't have time or know the in-depth of the market should engage professionals to advise them accordingly.

Meanwhile, the NSE will enhance its education campaign to enlighten investors on opportunities that abound in the market. I advise investors to adopt appropriate technique in making investment decisions, because the capital market is not a game of chance but a game that is meticulously played.

Investors should know that the capital market is a cyclical market with up and down movement; that is, a market full of risks. So investors should engage the services of professionals like investment advisers; stockbrokers that will be able to manage their investment in the market. Alternatively, investors can on their own, monitor their investment and be able to have good portfolios that will result to risk reduction and improved returns.

The NSE is making attempt to introduce the investor's clinic where investors will be lectured on how the market works. More guidelines regarding the operation of the market will be made ready in the course of the year, as automation of the trading platform will be enhanced. As regards to when the market will recover, I cannot say precisely, but all I can say is we are working seriously to ensure that confidence is restored.

Why is it that regulators do not engage the FG in making policies that affect the market?

In 2011, investors experienced lots of challenges as their appetite for investment was marred by banking reforms, among others. There was no clear policy by the Federal Government for uplifting the market in 2011.

The NSE will work with the relevant regulatory agencies to ensure that quoted companies comply with the International Financial Reporting Standard, IFRS, in the presentation of their financial report. Furthermore, the NSE will work with other regulatory authorities to ensure that policies that affect the capital market are embedded in policy formulation.

What is the Exchange doing in terms of product development?

We will halt further development of new products in the capital market in 2012, as we are going to concentrate on developing and deepening the already existing products - equities, bonds and Exchange Traded Funds, ETF. We are committed to the achievement of the five products in five years target by 2015, with the introduction of Options and Futures to complement the other three asset classes.

This is among key initiatives targeted at driving the growth and development of the capital market in the current year. However, halting further development of new products will help increase the liquidity and depth of the existing asset classes.

What step is the Exchange taking to boost listing?

Chiefly, the NSE will continue to advise non-listed companies on the benefits of listing on the NSE, while it will also engage local investors on investing in the market. We believe that government will be able to list some of its agencies on the Exchange.

In addition to this, the multinationals in the oil, telecoms and power industries should be able to take advantage of the capital market to list on the Exchange. We will continue to encourage more private companies to patronize the market and get more funds to boost their operations.