Yuguda: We Will Simplify Capital Market Operations, Protect Investors

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Lamido Yuguda

The Director General, Securities and Exchange Commission, Mr. Lamido Yuguda, in this interview spoke on the outcome of the first virtual Capital Market Committee meeting held recently. Goddy Egene brings the excerpts:

Tackling issue of unclaimed dividends

The issue of unclaimed dividends is something that we are actually looking at very carefully. This problem is in two folds. One is that we have the existing stock of unclaimed dividends, and the second is to prevent the accumulation of the unclaimed dividend in the future. Now we have the e-dividend and the mandate at the moment which substantially takes care of the accumulation of the unclaimed dividends in the future. Even though it is not working perfectly but substantially it has reduced the accumulation of unclaimed dividends. But the task now is to work with the registrars, to make it easy for shareholders on boarded onto the system. Although there have been some complains in the capital market that the shareholders are finding it difficult to key in and most probably the registrars are not working really quick enough to get investors on boarded but we are going to tackle these issues. Now the existing stock of unclaimed dividends, some of these have been returned to the companies and a little percentage is still with the registrars. These are issues that we are also looking at and we will come out to the market very soon with a statement.

Know your customers and identity management

On know your customer (KYC), using the stockbrokers’ KYC for identity management, I think this is an issue that is quit broad. At the CMC meeting, we listened to Nigerian Stock Exchange (NSE) and Central Securities Clearing Systems Plc (CSCS) and the kind of work they are doing, I think we need to look at the entire issue, at the moment I don’t know what the stockbrokers have been able to collect from their clients but I think we need to look at it from an industrial wide issue. This is something that is really at the fore front, as we have been discussing it, we have the National Identity Number, the BVN, all capital market transactions start off from a banking accounts and end in a banking account and so on. On the issue of information, the stockbrokers have on their clients is something that we will also need to look at. A lot has been done and more will still continue to be done. The stockbroking community and the Association of Stockbroking Houses (ASHON) working with the CSCS and the Registrars. We are all working together to get this issue resolved. There is a backlog, the first thing or one of the key important things is to make sure it doesn’t keep accumulating and everybody has a part to play, clients should give their details including the bank number, so that the registrars can promptly credit them. And on the issue of backlog as you are well aware the Commission directed, to a good extent, the registrars complied, by making repeated publications, having information readily available on the website of the offices, encouraging clients even with multiple subscriptions.

I am aware in the time past that the Commission had to give about two extensions, allowing multiple subscriptions to be unified so that all these things can be captured. I won’t dwell on the issue but it requires concerted efforts and we will continue to make sure that the unclaimed dividends issue gets reduced. Whether it is the issue of unclaimed dividends or the issue of multiple applications, all the issues are around the issue of identity management, and the Commission is really working to see that the issue of identity management is resolved. There is a committee that has been set up, which is working with other stakeholders, to come up with a single form to be used by all the capital market operators and once that is done, the issue of unclaimed dividend will be an issue of the past. The legacy issue is also connected with this issue of multiple subscriptions and there are a lot of investors who used different accounts and some of them cannot even remember the name they used in applying for shares is the issue. The other issue is in respect of the new issue, so what the commission has done is that the commission has given the directives to all stockbroking firm to get their clients update information in respect to BVN and account number. Also during the boom in the capital market there was no BVN but now that there is BVN which the commission is also trying to use for identity management. The commission has directed all stockbroking houses to get their clients to update their information in respect to BVN and account number. The information will be sent to CSCS and CSCS will send same information to the registrars and the registrars will use in payment of dividends.

SEC’s support to the market during Covid-19 pandemic

Covid-19 presents real economic crisis, not only for Nigeria but for around the world. This is because we have seen massive drop in output. We have seen a collapse in the price of oil, we have seen essentially a halt in economic activities in many, many respects. Now what can we do. First is to make sure that the capital market and the SEC continue to work together. The SEC has been open for business throughout the pandemic and also the major operators in the capital market have been working remotely, so we have not really had a stop in the capital market activities. What can we now do, the thing is that even before the pandemic the capital market really needed a kind of revamp. We need to attract more investors into the market, and we also need to attract more issuers to the capital market. Now, what do you do to attract more investors, you need to demonstrate to investors their investments are very secured, and long terms, the returns are really worth their investments, but we will be able to generate returns that are above the inflation and you can only do this when you invest in the stock market because you cannot have these kind of returns except when you invest in the market. The issuers also, we have seen a lot of issues on coming to the market now, but we know that there have been a few cases of companies that have been delisted from the market. We need to demonstrate to issuers that there is a lot of value in an issuer listing in the market and also listing securities periodically in the market. So we are going to continue to attract investors by making sure that the market is a fair play, that it instruments traded in the market are fairly valued and in the end investor is actually going to make a profit by having their money in this market. For issuers, we are going to make sure that the benefits or listing and issuing in the market far out ways walking to a bank to borrow money.

Pension Funds

On the issues of pension funds, pension have been accumulating funds in a very fast rate and these are funds essentially are deducted compulsory from the salaries and wages of workers. PFAs are supposed to invest a significant amount of their portfolio in the capital market but that is really not happening at the moment. Pension funds are very much underweighted to what actual allocation to the capital market should be, the capital market needs to understand that there is this pool of money waiting to be invested in the market, but what is stopping pension funds from investing in the capital market. We need to have that evaluation and that dialogue with that important class of investors so that we can attract as much of the pension funds as possible. If we achieve that, we will see that even with the pandemic the capital market will really roar in Nigeria, because right now if you look at the number of collective investment scheme (CIS) accounts, with less than 400,000 CIS accounts for a country that has a population of almost 200 million, that tells you that there is really a lot of potentials. So it is really only left for the capital market to show that, there is value in this investment and also there is protection for the investor.

SEC’s position on issues of infractions

We have a number of cases that we have inherited. We have been working right from the first day to resolve all cases of infractions. Really, our aim is to have as little as possible the infractions in the market. We intend to work with all self-regulatory organisations (SROs) and all the various capital market operators (CMOs) to make sure that infraction are reduced to the barest minimum. Where they happen, we have a very strong resolve to really fight infractions to mete out sanctions as appropriate as quickly as possible. We have a number of cases that we are looking at, we are reviewing each case in a case-by-case basis. We are working to make sure that these cases are resolved in the shortest possible time. However, make no mistake about it, we have a zero tolerance for market infractions. We need a capital market that is actually very fair. That is a market that is fair to investors, a market that is not really tilted or biased one way or the other or in favour of any market operator that seeks to make a gain at the expense of investors. We have a fiduciary duty to the people that we serve and it is not only by doing that, investors will feel that this market is for them. If you look at the statistics the average age of the client is over 50 years and that tells you that a lot of young people today are not coming into this market. This is really something that we need to reverse, because if young people are not coming to the market, then this market future is doomed. These people have the money and the capital, because they are young, so they have the earning power. So, we have to bring them to the market and it is only by making sure that infractions are reduced to the barest minimum that you can really have people will know that this market is really a market for them and not for fraudulent operators.

The healthcare infrastructure fund

The Capital Market Support Committee on COIVD-19, has been raising funds to support the efforts the combating the disease. In addition, the committee thought to set up a longer lasting fund, one that we can raise through the capital market to build health infrastructure around the country. You bear me witness that during the lockdown many people could not access medical treatment outside the country. So, the idea is for us to raise money through the capital market and put these infrastructure in place on commercial basis or as business that will be self-sustaining, that can return these monies to investors with good profit, good return. So what we have done is to set up a committee. It is a market-wide committee and the committee has been given the task to iron out the modalities and guidelines and objectives for the funds and how we will go about it. The Committee will report to the main committee in the coming weeks and am sure that as we go on, we carry the press along so that you can know what is being done. The most important thing there is that we set this up and we want it to be something that is long lasting and that will provide the needed health care infrastructure to our country. Thank you.

What to expect from new SEC management

In few words I will just tell you these, expect a much simpler capital market. At the moment, transactions in the market are quite complicated and that has really not helped attracting investors into the market. I know how I can walk into a bank and open a bank account. I know that once I put money into this bank account, I can go back tomorrow and get back the money and use it for whatever purpose I want to use it for. Now with opening, let say buying shares, from the point of parting with your money, to the point of getting the benefits of that money either as benefits or as proceeds for the sales of those stocks that you have bought, the process is extremely complicated. And for many people that complication is a turn-off because they do not want to go through that process and you agree with me that along that line a lot of things could happen. So people part with money and they end up not getting any shares. Other people get shares but the shares become worthless at some point. So, there are a lot of things that we need to do to simplify. Today, sitting here, if I want, I can open a bank account essentially on-line, especially if I have an existing relationship with the bank, I can open a bank account here online. With the capital market you don’t really have that simplicity and I tell you the capital market doesn’t need to be that complicated. So expect a lot of efforts from us towards simplifying transaction in the market.

Secondly, expect an increase emphasis on investor protection, both from stock market transactions and for CIS. We have discussed significantly, what we need to do to make sure that investors are actually protected. Right now, there are a lot of loopholes in the capital market and these loopholes have been capitalised on by certain operators to essentially shortchange investors. We are eagerly working to close those loopholes.

Then the most important thing is investor education, we have already mentioned these, and this is something that we are going to really emphasized. You have to educate the investor. I mentioned the infusion of capital market studies, you know the curriculum that has been developed and incorporated into the curriculum of the basic and the secondary school. You have to start educating investors from that young age but also you have a lot of people who are adults earning incomes that are not participating in the market, you need to educate these people. What do you need to do? You need to have both the regulator and the capital market operators to devote significant resources to make sure that investor education takes the pride and place of that it should be in our capital market and that you can expect from us very, very strongly. Then implementing the capital market master plan is actually a priority. This is a plan that has been designed for 10 years and our tenure is coming exactly halfway into this tenure period, which is 2020-2025 will be the second part of the master plan. So expect a very rigorous implementation of the master plan and really using it to make sure that the Nigerian Capital market moves to the next level.

Also, advocacy is very important. The current pandemic has really shown us how really deficient our economy is with a lot of people using our facilities that have been developed in other countries were travelling to those countries to enjoy the facilities. You can use the capital market to develop these facilities at home. If you are talking of good hospitals, good universities or good entertainment centres that we are flocking to other countries to go and enjoy, you can use the capital market to actually develop those facilities. The only thing is that you then have the right policy environment that can promote the development of these types of centres that can really help investors to say okay, I have the right policy environment to invest my money to develop these kinds of facilities. So expect these from our tenure. We are going to work with government and other government agencies to make sure that the policy environment is conducive for infrastructural development.