As SEC Moves to Stop Issuance of Dividend Warrants

0

The decision by the Securities and Exchange Commission to discontinue the issuance of dividend warrants as a way of reducing unclaimed dividends may be counter-productive writes, Goddy Egene

The issue of unclaimed dividends in the Nigerian capital market has been a major concern to all stakeholders, especially investors. The value of unclaimed dividends was put at over N80 billion and this was giving many investors sleepless nights and discouraging many from investing the market.

However, as part of efforts to reduce unclaimed dividends in the market, the Securities and Exchange Commission (SEC), in 2015 collaborated with the Central Bank of Nigeria (CBN) and Nigerian Inter-Bank Settlement System (NIBSS) to launch Electronic Mandate Management System (E-DMMS) platform.

The platform allows shareholders to receive dividends directly into their bank accounts.
Since the introduction of the platform, SEC has been encouraging investors to register for e-dividend instead of waiting for dividend warrants.

According to Director General of SEC, Mr. Mounir Gwarzo, so far about 2.2 million shareholders have mandated their accounts as at the end of April, 2017. However, the regulator declared that from July 1, 2017, dividend warrants would no longer be issued.

This means that shareholders, who are yet to register for e-dividend, will not receive dividends from July 1, 2017. Although SEC said that such dividends would remain with the registrars until the shareholders comply and comply with the e-dividend requirement, stakeholders are of the opinion stopping the issuance of dividend warrants may increase value of unclaimed dividends in the market.

Benefits of E-dividend platform

Gwarzo had explained that the platform would address the lingering problem of unclaimed dividend, which the market had sought solution for the past 20 years.

“The era of stale dividends and huge unclaimed dividends in the market will be a thing of the past with the launch of e-dividend payment platform. We are determined to see the full implementation of the system to facilitate effective payment of dividends to investors.
Also speaking on the benefits, Head, Business Process, NIBSS, Samuel Oluyemi said that e-dividend portal was developed under the auspices of zero tolerance on unclaimed dividends being pursued by SEC.

The platform, he explained, would allow direct payment of dividends into investors’ accounts once the mandate form was completed appropriately.

Oluyemi said investors would supply bank account number, registrars shareholders account number, clearing house account number and bank verification number in the mandate form to facilitate payment.

According to him, the portal would also accept payment of dividends into dormant accounts, adding that an investor could only withdraw the money after revalidating the account.

“The registrars have been mandated to provide online access of the mandate forms to investors in Diaspora for efficient implementation of the e-dividend payment platform,” he said.

E-Dividends Platform Yield results

SEC said following the introduction of E-DMMS, over N30billion was paid to investors from the backlog of unclaimed dividends. The regulator noted that as means to further reduce the unclaimed dividends profile and curb its growth in the country, it would continue to underwrite the cost of e- dividend enrolment till June 30, 2017, when it would stop issuance of dividend warrants.

“Arising from this exercise, over N30billion, which was, hitherto, unclaimed, have so far been credited to respective bank accounts of investors. Therefore, the advantage of the e-dividend is not only to enable investors collect subsequent dividends electronically but it allows all accrued dividends be credited to investors’ bank accounts. The commission has, however, observed with concern the challenges being experienced by investors in the course of the e-Dividend registration and therefore commits to further defray the cost of registration till June 30, 2017 to enable investors continue to enjoy the free registration,” SEC said.

The SEC boss added: “When we started the e-dividend, the major challenge was for people to key into the e dividend mandate. There are unclaimed dividends that have not been claimed, the registrars have been compelled to pay all the arrears of unclaimed dividends. In this country, we have never had this kind of initiative that has reduced unclaimed dividends like we had today. Apart from the investor getting his dividends where ever he is, that investor will be able to get dividends that in the last five years he has not been able to get. The e-dividend is for the interest of retail investors.”

Stopping Issuance of dividend warrants

Having seen the impact of the e-DMMS since it was introduced in 2015 and the level of response, Gwarzo had early last month restated the decision of the commission not to issue dividend warrants from July 1, 2017. According to him, before 2017 date, the electronic-dividend registration would have gained significant traction.

“From June 30, 2017 no registrar will issue dividend warrant again in the market. This will not only assist in reducing unclaimed dividends in the market but will also compel those yet to embrace the e-dividend registration to do so,” he said.

Apart from discontinuing the issuance of dividend warrants, the SEC boss also disclosed that shareholders who bought shares and registered with multiple names would forfeit ownership of such holdings. He explained that it is against the law, saying that the dividend and shares of those who registered with multiple names would be forfeited going forward.

According to the SEC DG, the shares and dividends of these individuals would be transferred to the Capital Market Development Fund (CMDF).
He however, noted that the investors who joggled their names in order to have multiple subscription should be given a forbearance period of six months within which they can lay claims to both their shares and dividends.

“For those that have the same name, but joggled it to have multiple subscription and can provide identity and justify they are the owners of the shares, they should be able to claim their shares and dividend,” he said. According to him, the CMDF will not be managed by SEC but by other stakeholders in the Nigerian capital market.

Registrars’ Position
Speaking on the plan by SEC to discontinue issuance of dividend warrants from next month, the Executive Secretary, Institute of Capital Market Registrars (ICMR), Dr. David Walker Ogogo said the Registrars are prepared to implement the directive of the capital market regulator.

“Regarding the decision of SEC on the issuance of dividend warrants, the registrars do not have any problem. Since the information was made public, we have been preparing our minds and have told them to tell the publicly quoted companies that this is what the regulator is looking. We have the companies already and we are working towards it,” Ogogo said.

Before now, SEC had issued a directive to registrars to return all unclaimed dividends which have been in their custody for 15 months and above to the paying companies. The commission had given that directive in June 2015 as part of efforts to discourage registrars from holding on to unclaimed dividends.

According to the commission, once Registrars do not get incentive in keeping unclaimed dividends, they would be compelled to ensure fast disbursement to shareholders or return them to the paying companies.
The Registrars complied with that directive as the managing director of one of the leading registrars, had confirmed to THISDAY that they had returned the money to the paying companies.

The Snag
However, some market operators said with the plan by SEC to stop issuing warrants as from July will rather increase the amount of unclaimed dividends in the market, a development that is capable of negating the current efforts of the regulator.
According to a senior stockbroker, the regulators and registrars have been working on reducing unclaimed dividends, but the E-DMMS platform, which is supposed to absorb all the dividends are not yet perfectly being adopted.

“The rate of success is still low now you and they are planning not to issue physical dividend warrants again, which means if the success you have recorded is about 35 per cent, the remaining 65 per cent would be with the registrars. This will mean going back to square one,” the broker said.

The broker explained that from their interactions with Registrars, they confirmed that they account details of investors but until the investors go to the Registrars, nothing that can be done. This means that their e-dividend mandates cannot go into the E-DMMS platform.
“We have even had experiences with some Registrars, who said their old e-dividend mandate forms were discontinued by SEC, saying that only the new platform should be used.

“But if you say everybody must go to the platform, the rate at which people are going there is low. I think there should be more enlightenment and awareness creation. Do not forget the issue of multiply applicants is also there. Because the E-DMMS platform uses BVN, many of those multiple applicants cannot get back their dividends. That means those monies would remain with registrars. Now if you say no new warrants should be printed, the registrars will only pay those who are in the system already.

Invariably, instead of reducing the dividends in the system, you are increasing the level. There should be more enlightenment and awareness creation. Also, there should be other incentives. I know SEC is trying by saying the registration is free but those that are in rural areas, should have a motivating thing that would encourage them to come and register,” he said.
On the multiple applicants forfeiting their money to the capital market development fund, an investor, said that would be going contrary to the provision of CAMA.

Shareholders React

Responding to the decision to stop issuance of physical dividend warrants, Mr. Olufemi Timothy of Renaissance Shareholders Association of Nigeria, said it is good to encourage e-dividends but it should be done in a way that no investors loses their dividends.
“It is good move but a flexible window to collect dividend after the closing date of June 30, 2017. No investor must lose his or her dividend,” Timothy said.

The Chairman of Ibadan Zone Shareholders Association, Mr. Eric Akinduro, said the proactive steps taking by SEC to eradicate unclaimed dividend through e-dividend platform is a welcome development that is going to help to reduce the incidence of unclaimed dividend.

According to him, SEC has also done well by creating a platform where investors can check their non-mandate account with registrars and which many of them have embraced.

“However the dead line is what I fault due to the level of illiteracy of both investors and even the banks. SEC needs to do a lot of enlightment at grassroot level for the small investors that are the major owners of this unclaimed dividends to know how to do about it.

Also the issue of signature irregular has to be addressed. Many investors are still facing a lot of difficulties when it comes to signature problem either irregular signature or no specimen signature. What I believe is that this new development in the banking sector should be aligned to do that.

So far the BVN and bank has endorsed the form and you can link the name to other shares owned by the investor there should be a way where they can amalgamate the accounts as this will help indeed. So SEC should not close the platform because unclaimed dividend is a continuous issue that cannot stop over a period of time. How many small Investors have access to internet and computer to check this but with time information will go round and more people will get it done,” Akinduro said.

In the opinion of Mrs. Bisi Bakare, stopping issuance of dividend warrants would not solve the problem. According to her, while it is good to embrace e-dividend, there is still a lot of work l to be done to resolve back-log of complaints. She noted that many investors still have issues with registrars pertaining to creation of multiple accounts for bonus issues by some registrars among others.

“In as much as I am in total support of e-dividend, it is not matured now to completely stop the issuance of dividend warrants. Before that should be done, we need to do more of enlightenment, especially in the rural areas. Before now, most investors were civil servants, who have retired to their villages or changed addresses.

Most of them do not have access to mass media to key into the E-DMMS that SEC has introduced. We need to go down to the rural areas to enlightened them. If SEC goes ahead to implement its decision, many of the investors would remain locked out and this would have defeated the objective. The regulator should collaborate with other stakeholders and do more enlightenment for a more efficient result,” Bakare said.