Ezeagu: Stockbrokers Must Adopt Proactive Risk Management Strategies


Chairman of the Association of Stockbroking Houses of Nigeria Chief Patrick Ezeagu spoke to journalists on the reasons for the intensive training on risk management recently organised by the association for capital market operators. Goddy Egene presents the excerpts:

What informed ASHON’s decision to organise training in Risk Management?
ASHON in its own wisdom looked at the deficiencies in the Human capital capacities of operators within the industry and found out that with the kind of economy that we are operating, risks are inherent in the business we do. There are risks that are evident arising from the way and manner government policies impact on the market as well as the global vicissitude that had sent out some shock waves within the industry. Therefore, we cannot continue to fold our hands and sometimes pretend that these are not ominous for our business survival.

It appears the training programme is also an extension of capacity building initiative of ASHON?
Absolutely yes. There is the need to ensure that we develop our own local capacities to be able to evaluate risk and then provide mitigants that will ensure that risks are reduced to the bearest minimum. In that way, we can ensure that our businesses operate within some checks and balances and risk is managed at all times. We must therefore ascertain and evolve mitigants to be applied promptly in a sustainable manner to manage risks.

How would you respond to the concept that risks change with time ?
Effective and efficient risk management structure positions Stockbroking Houses to exist in perpetuity as a going concern. Risk changes over time and therefore, tools of identifying and managing risk must change over time and the only way you can ensure that we are prepared to manage risks is to continually train and re-train risk Managers within the Capital Market space.

It is necessary to consistently train those who are involved in the day to day management of risk associated with our businesses. That was why we decided to organise the training workshop on Risk Management. We also looked through the other training programmes and they appear theoretical and they do not cover some practical aspects of risk management. Therefore, we decided to bring in people who have skills and competencies in Risk Management to conduct this particular training for operators with the Capital Market.

How would you assess the training?
Well, from the feedback I am getting, the attendance was very impressive. I understand that the participants got value for their money. This is apparent from the post training assessment conducted on the participants, including some chief executive officers of stockbroking firms who participated.

What are the risk management issues affecting stockbroking firms in Nigeria?
It depends on how you identify them. There is financial risk, capital adequacy risk, operational risk, control risk, technology risk and human capital management risk among others. There are different levels of risks in whatever we do. This explains the overriding importance of risk management for our businesses.

Could you shed light on the roles of Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) in addressing risk management issues among the capital market operators in Nigeria?

SEC is the Head Master of the capital market and it plays the role of a supervisor alongside that of the development of the capital market. It has rules and regulations that guide and also mitigate against some of these risks. But people must understand rules and regulation and then be able to apply the rules and regulations governing the market appropriately,

How do we train our members to ensure that at least they will be able to work within that purview of what SEC expects of them to do in order to have a very healthy capital market? The same thing applies to The Stock Exchange. The Stock Exchange is a self regulatory body that provides the platform under which the trading takes place. They too have their rules and regulations that help to guide operators in the Stock Market. That in itself partially mitigates risk. However, when the people who function within the back office and those who are involved in daily activities are trained to understand what risks are, the issue of risk management becomes easier to handle.

How would you advise the promoter of stockbroking firms to ensure compliance with the modern risk management challenges?
The need for a new stockbroking firm to comply with modern risk management strategy is number one. It starts with capital adequacy, having the right organisational structure on the ground, having the right management team with requisite experienced people to be able to run the firm. Then the firm must meet the Minimum Operating Standard (MOS) stipulated by the regulatory authorities. With these on ground you cannot get it wrong because the rules are there, the markets are there, the capacities in terms of men and materials that you are going to use are there. And then, over time, you will be able to learn and key into the way(s) and manner the business is run.

How can investors in the capital market be protected?
When you have knowledgeable people managing the Capital Market environment that in itself, is protection. It means that the professionals will not lead you astray except those that are fraudulent. The fact is that, we have what is called Trade Guaranty Fund (TGF). We also have Investment Protection Fund. The fund in itself is not the issue, it is the integrity of the market participants that is more important. Once the integrity of the market is assured by the fact that people operate within rules and regulations guiding the market, then you can be sure that the market is well protected.

The market is guided by rules and regulations and there is the apex institution that is like the “big brother” watching you. These are the things that ensure that there is integrity and investors can trust the market and participate actively in the market. Added to the above is that there are avenues for the ventilation of grievances between parties in the market. Because in a situation where you have two parties that interact, sometimes there will be conflict. And we have a very robust conflicts management frame work which has been designed and flows from Firm to SEC and even to the Investment & Securities Tribunal. Once people are assured that they can come into the market and exit whenever they like in an orderly manner, people develop confidence and patronise the market.