Capital Market  Operators Call for Unified Licence to Access Discount Window

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For the umpteenth time, operators in the Nigerian capital market have called on the Central Bank of Nigeria to permit them to extend their investment foray into the money market. Their argument is that it will deepen the financial markets  and boost liquidity. However, some other stakeholders are saying the full potentials of the capital market are yet to be explored. Bamidele Famoofo reports

Recently in Lagos, the Association of Issuing Houses of Nigeria (AIHN), through its President, Mr. Sonnie Ayere, made a ‘save our soul’ call to the  Central Bank of Nigeria (CBN), Nigeria’s apex financial markets regulatory body, to permit capital market operators in the country to have access to its discount window.

The discount window is an instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money from CBN, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.

Ayere, who is also the Group Managing Director of Dunn Loren Merrifield (DLM) Limited, a full-service investment company based in Lagos, Nigeria, said this will be achievable if a unified licence would be granted to capital market operators that have big enough financial muscle to play in the market. 

He said the need for a single license for capital market operators went beyond enhancing the liquidity status of operators, but will help facilitate a more robust and deeper financial market in Nigeria.

Capital market operators, which include issuing houses, stockbroking firms, asset managers among others being licensed primarily by the Securities and Exchange Commission (SEC), the  regulatory body in the Nigerian Capital Market, are not permitted to trade in money market instruments.

AIHN believes that a reform of the existing market structure would provide a much stronger platform for market based financial intermediation to thrive and ensure that they were well capitalised and regulated.

“We are proposing that the CBN allows capital market institutions with the requisite capital (as agreed by CBN) access to primary auctions on behalf of themselves and their customers.

“Discount Window access can then be given to such operators to be able to discount for liquidity purposes all instruments normally acceptable to the Central Bank of Nigeria,” the AIHN boss reiterated.

Ayere said that the CBN should not focus only on commercial banks, noting that the combined capital base of issuing houses, stockbroking firms was not up to the capital base of a smallest bank in the country.

While it will take an issuing house, for example, to raise just N200 million as minimum paid-up capital to be eligible to transact business in the capital market, the least any bank is expected to have as paid-up capital to play in the money market is N10billion. Commercials banks in the class of national banks are required to raise a minimum of N25billion as capital while N50billion minimum is required to play at the international level.

Vice President and Divisional Head, Corporate Planning, FMDQ OTC Securities Exchange, Kaodi Ugoji, holds a contrary view to Ayere, as she says opportunities in the nation’s capital market are yet to be fully explored. 

Ugoji aired her views at a meeting of stakeholders of the Nigerian capital market hosted by the Capital Market Correspondent Association of Nigeria (CAMCAN) recently in Lagos. 

She noted that Nigeria as a country had not yet taken full advantage of the capital market to develop its economy. She explained that the capital market was an important medium to channel long-term savings into investment in the real economy.

Ugoji lamented that Nigeria’s capital market was faced with high implied costs, low primary issuance, high interest rate environment, illiquidity and lack of legal and regulatory frameworks.

The way out of the daunting challenges, she said, would be to create a stable macro economy environment that would help deepen the market, reduce transaction costs and lower capital requirements for corporate issuers.

“The importance of a strong and viable domestic capital market as an alternative source of finance in emerging economies has been affirmed by the success it has enjoyed in countries such as Brazil, Malaysia, Russia, India and China. With government economic reforms running at full throttle, prospects are high for the sustained developments of the Nigerian capital market as a viable tool for driving Nigeria’s economic growth, she added.

The chairman, Association of Stockbrokers House of Nigeria (ASHON), Mr. Patrick Ezeagu, said the poor savings habit of Nigerians was a major setback for the deepening of the nation’s capital market.  

He believed that lack of discipline on the part of government to develop the economy from within was another obstacle bedevilling the growth of the capital market in Nigeria.  

He, however, suggested that creation of an enabling environment for investment to thrive locally would be the way out for the nation’s capital market.

On his part, acting Director-General, SEC, Dr. Abdul Zubair, said the apex capital market regulatory body, in deepening the market over the years, had continued to introduce initiatives targeted at enhancing the capital market contribution to economic growth and development.

Zubair pointed out that some of the initiatives taken by SEC in recent times to deepen the capital market  include the introduction of dematerialization, direct cash settlement, E-dividend management system, National Investor Protection Fund, Corporate Governance Code and Scorecard, Non-Interest Products and Complaint Management Framework.

He maintained that, the commission was poised to ensure the stability of the Nigerian capital market and maintain the high level of investor confidence observed in the market.

Zubair, who presented the third quarter scorecard of the market said that the total value of issuances in the Nigerian capital market amounted to N1.55 trillion in September.

Equities he said, accounted for 12 per cent of the total value of issuances in the market during the period as the secondary market total equities transactions appreciated by 78.6 per cent to N1.66 trillion as at September 2017.

“Foreign transactions increased by 47.31 per cent during the period while All-Share Index had returned 47.11 per cent as at December 7, 2017 showing a remarkable recovery”, he said.

Stakeholders, who include SEC, Debt Management Office (DMO) and others during the annual workshop of CAMCAN held last week in Lagos, agreed that for the nation’s capital market to grow there must be mechanism for efficiency, accountability and transparency across major economy players including CBN.

However, Ayere insisted that achieving a single license issued by  CBN could only lead to a more robust financial market, a deeper pool of technically savvy operators that could seamlessly transmit monetary policies to all segments of the financial markets with little or no discernible systemic or operational risks.