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The Director-General of the Securities and Exchange Commission ( SEC), Ms Arunma Oteh had an interactive session with journalist on the journey the Commission has undergone since its creation 50 years ago and how it intends to build a world class capital market.

Peter Egwuatu captures her comments in the interactions at both press briefing and investment forum organised by the Commission as part of one year long activities to commemorate 50 years of capital market regulation in Nigeria.

What has the Commission been doing to strengthen the stock market?

Well, since I came on Board, the leadership of the Nigerian Stock Exchange (NSE) has been strengthened with the appointment, earlier in the year, of a new CEO, Mr. Oscar Onyema and a new Executive Director for IT and Market Operations, Mr. Ade Bajomo in a transparent manner.

The new NSE team has outlined a bold vision to build a credible market with five product ranges - equities, fixed income, exchange traded funds (ETFs), options and financial futures - over the next five years.  They expect that these products will enhance liquidity and market depth and lead to a robust market that will have a market capitalisation of US$1trillion by 2016.

Mrs Oteh
We have introduced new rules and upgraded the code of corporate governance. We have also been carrying out investor education as well as organising seminars and workshops for operators and other stakeholders. We have been settling disputes as well as punishing offenders in the market. Above all, Mr. President, Dr. Goodluck Jonathan has expressed his strongest endorsement for our effort by urging the SEC under my leadership to use any means backed by law to bring all those who abuse the capital market to book.

Why is the NSE not a member of the WFSE especially now that there is competition in the financial system globally?

NSE is not a member of the World Federation of Stock Exchanges (WFSE) contrary to claims by the previous management of the Exchange.

We were told by the authorities of the WFSE that there are key specific requirements for us to be a member. But, unfortunately, the previous leadership of the NSE had promoted erroneous impression that we were a member of WFSE, but when we intervened during the period of the NSE leadership crisis, we found that it was not exactly the case.  We are told that there are specific requirements that must be met before we become a member. The requirements lie in terms of market integrity, transparency etc.

But, I know that the current NSE leadership is working hard to ensure we attain these specific requirements to enable us become a member of WFSE.

We do believe that becoming a member of the WFSE is paramount because one of the things that some investors consider when they want to invest in a market is to find out if a stock exchange is a member of WFSE. Similarly, we believe that for our market to be more attractive, we should be in the emerging market and not in the frontier market. We are the largest stock exchange in West Africa, so to be in the emerging market, we should be able to attract foreign investors.

Why it is that most of the multinationals especially in telecommunication, maritime and oil and gas are not listed on the NSE?

We are engaging the companies on the need to list in our Exchange. It is true that some key sectors are not represented on the Exchange, but we are working hard in ensuring these key sectors are represented on the Exchange. We are partnering with the various ministries like Power, Petroleum, Telecomm, and Agriculture. For instance, Agriculture, which we believe should make more than 40 per cent of the Gross Domestic Product (GDP) should have more of its companies listed on the Exchange. This sector should be able to support the agro businesses.

We want the sector to focus on developing value chain for agro business. We also believe that telecomm sector is very important. It is true that some of the telecoms parent companies are listed in their home countries, so we are engaging them. By the time we reposition the stock market and our Exchange follows global practice, it should be able to attract these companies to be listed in our Exchange.'

I must commend the Ministry of Petroleum for championing the passage of the Petroleum Industry Bill (PIB). It is a step in the right direction since it encourages indigenous participation. These indigenous firms will need huge capital for their operations, so the best place to come to source for funds is the capital market.

Mrs Oteh
The same commendation goes to the Ministry of Finance. The Minister of Finance, Ngozi Okonjo-Iweala has stated that the privatisation programme which her Ministry and Bureau of Public Enterprises (BPE) are working on should support listing of the companies on the Exchange. We believe that the capital market is the channel for firms to consider in taking advantage to meeting their financial needs.

It's obvious now that the next challenge in improving governance of the Exchange is the ongoing effort by the SEC to ensure that the Exchange is demutualised by a process that is in consonance with the best global standards, what is the  SEC doing in this regard?

It is a global practice, so we want to reposition the stock exchange to take its pride of place. With demutualisation, the NSE should be exposed to robust corporate governance; enhanced efficiency and transparency associated with publicly quoted companies.

Demutualization is just part of the overall reform that SEC is putting in place to help reposition the capital market. SEC is setting up a regulatory committee to curb the downward movement in share prices.

The SEC recently inaugurated a technical committee on the demutualization of the NSE. The Chairman of SEC, Senator Udoma Udo Udoma, who inducted members of the committee in Lagos, emphasized that the committee is expected to advise the Commission on the demutualization of the Exchange. The 21-member committee is being chaired by Mr. Asuerinme Ighodalo. Some other members include the Dean of Lagos Business School, Enase Okonedo, and the Chief Executive Officer of NSE, Mr. Oscar Onyema, among others.

What is the Commission doing in terms of market development?

The Commission is determined to broaden the products base with the confidence that a wide pool of products will immunize the Nigerian capital markets against future crises. Whilst the fixed income segment of the market is predominantly dominated by government bonds, it is not unlikely that there will be upswing in issuance of sub-national and corporate bonds given the Commission's strong campaigns for increased participation.

The Commission also seeks to increase the breadth and depth of the stock market by encouraging international oil companies, energy and telecommunications companies. New products recently introduced by the NSE include: Assets Backed Securities, Collective Investment Schemes (CIS), and Second Tier market where Small and Medium Scale Enterprises (SMEs) can raise funds.

What has the Commission done to strengthen regulation?

Well a new set of transactional and risk management has been put in place to allow market transparency.  In April, 2011, a new code of corporate governance was released to update the 2003 version. Under the new code, the public traded companies and issuers of publicly traded securities are required to have risk and audit committee at the Board level. The Board of public companies has also assumed bigger roles in addressing the thorny issue of executive compensation. Public companies are now required to disclose more.

The Commission is leaving no stone unturned to ensure the success of the e-dividend policy. The Commission is also set to audit shareholders associations as part of the overall efforts to restore confidence in the capital market.

A number of measures had been put in place by the Commission including the setting up of two Committees: one to review the structure of the market under Mr. Dotun Sulaiman, and the second to review the Code of Corporate Governance for public companies under Mr. A.B. Mahmoud (SAN). The recommendations of the two committees have since been largely implemented. In particular, a new Code of Corporate Governance for public companies has been issued by the Commission and it came into effect on April 1, 2011.

Also in furtherance of the implementation of the Market Structure Committee report, a number of new rules have been issued and existing rules amended. All these are being compiled by SEC in a single document for ease of reference. The Commission has also been taking steps to improve the governance structure of the NSE and to ensure that capital market operations are conducted in accordance with the highest global standards.

Furthermore, the Commission has directed all quoted companies to adopt International Financial Reporting Standards (IFRS). We have also come up with new rules affecting market operations and also introduce book building in the offering of new securities in order to support efficient price discovery.

What is the Commission doing in terms of capacity-building?

The Commission as a matter of priority is developing the skills of its workforce and operators in the market. Under me, the SEC is focused on empowering industry stakeholders with relevant market knowledge as a tool for addressing the information gaps in the market. The Commission has invested considerably in workshops, seminars, stakeholders' forums and investor education programme.

Part of our strategy is to leverage strategic partnership within the International Organisation of Securities Commission (IOSCO), to accomplish this goal. Indeed, the US SEC was in Nigeria some time in July at the invitation of the Commission to run an enforcement and oversight programme for regulators and operators.

What lesson has been learnt with regard to global financial crisis?

The far reaching effects of the global financial crisis while difficult for Nigeria as with other countries, have highlighted the fundamentals that position Nigeria as the preferred investment destination.  First, Nigeria has enjoyed political stability since the return of democracy in 1999.  In addition, the macroeconomic reforms embarked on since 2003, has engendered an enabling environment for economic growth.  Nigeria is also expected to remain one of the fastest growing economies in the world with an average GDP growth rate of 8.5%.

Nigeria has one of the ten highest real income per capita growth rates in Sub-Saharan Africa, an indicator of the increasing purchasing power of its over 150 million people. This is without doubt a veritable incentive for investors in the consumer sector. The ongoing financial sector reforms have engendered a better capitalised and more stable financial sector that is strong enough to provide robust financial intermediation and support Nigeria's position as the preferred investment destination.

With respect to the capital markets, the SEC has in the past 22 months invested significant resources in catalyzing its transition to a world class capital market. In the first instance, we undertook a diagnostic review of the capital market and have been implementing reforms in line with the recommendations of this review.

How far has the Commission gone in improving its enforcement role in the market?

We have improved our enforcement regime. This has resulted in higher levels of compliance and reduced improprieties. We have strengthened market rules and regulation with the introduction of new rules and the amendment of existing ones. One of such is the introduction of margin guidelines designed to curb excessive risk-taking by operators.

We have also addressed gaps in corporate governance with the introduction of the Code of Corporate Governance effective April 22, 2011. The new code of Corporate Governance has been adjudged to be comparable to internationally acceptable codes.

In addition, we are facilitating a seamless transition to risk-based supervision and are working with publicly quoted companies to ensure that they are able to transition to International Financial Reporting Standards (IFRS) in 2012. These, we believe, will ensure adequate and timely disclosure of information thereby promoting market integrity.

What is the Commission doing to attract investors in the capital market since the market crashed in 2008?

Current statistics reveal that only about five million Nigerians out of a population of 150 million people invest in the capital market. Of this total, only 230,000 people, representing 0.15% of the total population, invest in Collective Investment Schemes. We believe that there is great opportunity for growth in this aspect of the market both for the investor and the managers of such funds.

In anticipation of the expected growth, the Commission has intensified efforts to strengthen the market including examination of fund managers and trustees of such schemes and recently encouraged the establishment of an industry trade group for the fund manager.

In the area of improving efficiency in terms of settlement process, and transaction process, how is the Commission tackling infrastructure development?

The Commission has undertaken a review of its internal structures to improve efficiency and service delivery. We have also committed resources to enhancing our processes through fortification of our ICT platform in the areas of Registration, Returns Rendition and Analytics.

To address knowledge gaps, we continue to invest in capacity-building initiatives for SEC Staff, operators and the general public. Also, the new leadership of the NSE has told us it will replace its trading platform by next year to meet international standard. We hope all these will help improve the efficiency of the market.