Minister of Finance, Dr. Ngozi Okonjo-Iweala
Retail investors may be prohibited from investing directly in the Nigerian equities market if the recommendation of the Committee for the Resuscitation of the Capital Market set up by the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, is adopted.
Currently, retail investors with as low as N5, 000 can approach a stockbroker and purchase shares on the floor of the Nigerian Stock Exchange (NSE).
However, in its report submitted to Okonjo-Iweala, which also contained the N22.6 billion forbearance package for stockbrokers, the committee has recommended that retail investors should be made to buy equities through Collective Investment Schemes (CIS).
According to the Committee, which has Deputy Governor of the Central Bank of Nigeria (CBN), Financial System Stability (FSS), Dr. Kingsley Moghalu, as chairman, the minimum subscription amount for capital market transactions be raised so that only institutional investors, market makers and high networth individuals can invest directly.
The committee explained that following the near-collapse of the Nigerian capital market on the heels of the market downturn, it was important to implement changes to better manage investors’ exposure to market risk.
“The committee suggests that the minimum subscription amount for capital market transactions be significantly raised, such that only qualified institutional investors, market makers and high networth individuals can directly access the market. This would prevent vulnerable retail investors lacking in-depth understanding of the risks associated with the market from directly exposing themselves without the guidance of licensed asset managers. The investment strategy for such investors should be through managed funds, whereby individual stock selection is done by professionals who understand the risks inherent to the capital market,” the committee said.
The committee noted that there were currently 26 managed funds listed on the Daily Official List the NSE, stressing that these funds provide exposure to various asset classes and investment strategies that meet investors’ different needs.
CIS, also known as mutual funds, pools the funds of various investors and invest them in securities which are managed by professional asset managers.
The President of the Association of Corporate Trustees (ACT), Mrs. Oluwatoyin Sanni, recently advised investors to invest through the CIS for more safety of their investment and professional services.
She said individual investors do not have enough knowledge to be able to play the market on their own.
“Ideally, they should come in through CIS because they have well-balanced governance structure, comprising the fund manager, the trustee that looks after governance and custodian that hold the assets. So there are checks and balances in that structure to safeguard the interest of investors.
We should let investors be aware of this as opposed to investors just buying securities on their own and hoping to monitor on their own. Through CIS, there is a lot expertise that is being deployed by the parties. Besides, CIS are also regulated and monitored by the Securities and Exchange Commission (SEC).So it is a good vehicle by which investors should play the market,” she said.