Yuguda’s Two Years of Capital Market Development

Since assuming office June 2020, the current Executive Management team of the Securities and Exchange Commission led by Mr. Lamido Yuguda has made tremendous strides and achieved a good number of set goals for Nigeria’s capital market development and sustainability.  Kayode Tokede writes on how the current management achievements in the two years is expected to improve the Commission’s capability in adapting to changing economic and market conditions and ultimately delivering on its mandate.

The function of the Securities and Exchange Commission (SEC) is to regulate investment and securities business as the capital market which the commission supervises plays a critical role in the development of a nation’s economy.

Two years ago, President Muhammadu Buhari appointed the Yuguda-led management team of the SEC, the Commission has no doubt made tremendous strides and achieved a good number of set goals expected to improve its capability in adapting to changing macroeconomic and market conditions.

Since resumption, the current management of the capital market regulating body has further looked into the capital market-wide issues such as: enhancing primary market activities, making sure capital market was finally demutualized, strengthening corporate governance, and creation of a Fintech and Innovation Division dedicated to products and services rooted in information technology, among others.

These initiatives are frameworks targeted at boosting local and foreign investors’ participation and creating room for more companies to thrive. The key highlights below underlined Yuguda’s milestones in two years.

Key market-wide issues under current DG of SEC

During Yuguda’s two years in office, the Commission drafted an amendment to the Investments and Securities Bill ISA and the Bill that is already at an advanced stage.

The bill has been presented to the National Assembly and Its essence is to enhance the regulatory framework of the Nigerian Capital Market. Furthermore, it would lead to the introduction of new products into the market and greatly enhance the regulatory powers of the Commission.  In addition, the Bill is expected to increase the effectiveness of the Investments and Securities Tribunal.

At the international level, it introduces legislation that ensures the Commission’s compliance to the requirements of the IOSCO Enhanced Multilateral Memorandum of Understanding (EMMoU) concerning consultation, cooperation and the exchange of information. These updated laws are necessary to increase cross-border enforcement cooperation and assistance among securities regulators, thereby enabling them to respond to risks and challenges posed by globalisation and advances in technology.

Furthermore, the ISB introduces necessary amendments to financial Markets operations around netting and insolvency with relation to the development of derivatives. It also seeks to strengthen legislation in the commodities sector as more depth and transactions are achieved within the sector.

The Commission has been implementing the initiatives contained in the Capital Market Masterplan (CMMP) (2015-2025) as a road map towards the development of the capital market in Nigeria. Numerous initiatives to improve the contribution of the capital market to the national economy, market structure, competitiveness, attractiveness, regulation and oversight were embarked upon in the first five years of implementation with remarkable successes in some initiatives and added focus on the implementation of key issues in others. The Commission has successfully completed the review of the CMMP as intended by the CMMP 2015-2025. The review was supported by FSDA and was carried out by PWC Nigeria.

The review of the CMMP was recommended in the Masterplan itself to realign the initiatives/deliverables to prevailing market conditions and keep the document relevant in the dynamic capital market due to issues related to Fintech, sustainability and regional integration. The review is expected to guide further development of the market so that it can attract more funds for economic growth and development.

One of the major results expected from the implementation of the Capital Market Masterplan was to ensure competitiveness by establishing practices and systems that improve efficiency and attract interest from both foreign and domestic investors. Resolving legacy issues of Identity Management is a crucial driver of improving market participation and solving problems like the Unclaimed Dividends issue.

Resolving legacy issues of Identity Management is a crucial driver in improving market participation and solving problems like that of Unclaimed Dividends.

The Commission inaugurated a market-wide Identity Management Committee with a mandate to harmonize the various databases of investors in the Nigerian Capital Market, facilitate data accuracy in the Nigerian Capital Market, mitigate fraud, improve KYC requirements and manage AML/CFT risks, among others.

The inaugural meeting of the Committee was held in July 2021. Following deliberations at the meeting, the Committee established some additional points to enrich its Terms of Reference.

Further driving primary market activities

The Commission led by Yuguda has approved 41 new equities issues valued at N656.9 billion, 37 bonds valued at N776.2 billion, 28 applications for shelf programs valued at N2.5 trillion and 21 Exchange Traded Derivatives Contracts during the period.

The commission in two years recorded a total of six Schemes of Merger, seven acquisitions, 21 Corporate Restructurings, and three takeovers processed. The capital market under him has ensured that over N11 billion of untraceable shareholders’ funds arising from Schemes of Arrangement in the custody of Registrars were transferred to the National Investor Protection Fund (NIPF).

As part of the process of improving time to market of transactions and fast tracking the review process, the Commission conducted a training for issuing houses to help with improving the quality of applications usually submitted. A new approval strata was also introduced during the period to improve pace of approvals.

As part of the process of improving time to market of transactions and fast tracking the review process, the Commission conducted a training for issuing houses to help improve the quality of applications submitted. A new approval strata was also introduced during the period to improve pace of approvals.

 The Commission recorded a landmark achievement on the first electronic offering with a combined feature of both book building to Qualified Institutional and Retail Investors. The Commission also granted approval for the first derivatives contract application which has seven  and 14 different contracts from both the NGX and FMDQ Exchanges respectively.

The Commission recorded a landmark achievement on the first electronic offering with a combined feature of book building to Qualified Institutional and use of the price discovered from the book-build for sales to Retail Investors. The Commission also granted approval for the first 21 derivatives contracts which had seven and 14 different contracts from both the NGX and FMDQ Exchanges respectively.

Achieved NGX demutualisation in 2021

The Demutualization of the Nigerian Exchange Limited (NGX) in 2021 was a milestone in the development of the Nigerian capital market. The benefits of the process have been highlighted, including the opportunity for investors to participate as shareholders of the Exchange. Also, the structure of the NGX should improve corporate governance and attract more capital to the market.

The discussions on demutualisation of the Nigerian Stock Exchange (NSE) had been ongoing since 2001 although there were no deliberate efforts made in advancing the process until 2011. In 2011, demutualisation was discussed again after having been covered in a paper presented by the NSE titled, The Roles and Expectations of Regulators in the Demutualisation Process. A 21-member technical committee was then inaugurated that year by the Commission and charged with the responsibility of developing a legal framework for the demutualisation process.

In 2014 the Commission issued draft Rules on Demutualisation of Exchanges in Nigeria and the final rules on demutualisation were released on April 27, 2015. The Rules provided the regulatory framework under which the demutualisation process would be implemented.

One major challenge faced by the NSE was the absence of the appropriate legal basis in the CAMA 2004 to support the demutualisation model of the NSE considering that it was a company limited by guaranty. The NSE had a few options but in the end, it settled for having a Demutualisation Bill which was eventually passed into law as the Demutualisation Act of 2018. The Act provided the legal framework for demutualisation of the Exchange and thus addressed the gap in the CAMA.

Technological innovation is also expected as the Exchange attempts to diversify its business mix. The Commission anticipates further deepening of the market in terms of product offering and size which would require increased regulation and oversight towards investor protection.

Market supervision

The SEC presently supervises eight main Exchanges in Nigeria: Nigerian Exchange Limited (NGX), FMDQ Securities Exchange, National Association of Securities Dealers (NASD), AFEX Commodity Exchange, Gezawa Commodity Market & Exchange, Lagos Commodities & Futures Exchange, Nigeria Commodity Exchange (NCX), and Prime Commodity Exchange.

The Commission under the current DG has made important strides in monitoring market activities, management of Return monies and confirmation of the quantum of Unclaimed Dividends during the period. Unclaimed dividends:

The Commission was able to ascertain the quantum of unclaimed dividends of publicly traded companies that fall within the categories eligible to be borrowed by the Federal Government. This amounted to N56.58billion and $8.153million respectively.

This process was carried out in accordance with the provisions of the 2021 Finance Act, which mandates that all unclaimed dividends between the ages of 6 and 12 years be transferred to the Trust Fund established for the purpose of borrowing by the Federal Government to support the 2021 appropriation.

Return Monies: The total amount of N2.3billion in excess of return monies and N11.4 billion in Schemes consideration money, both of which had previously been held in the custody of the Registrars have been transferred into the SEC/CNB NIPF Account. The Commission has developed procedures that must be followed in order for eligible owners of the money to be able to make claims on it.

Investigation into capital market activities

Out of the 250 complaints brought forward into the period, 182 were resolved. 58 complaints in relation to Ponzi schemes were received during the period and 45 were resolved. The Commission was able to recover 10,659,168 units of various companies’ shares. Also, N1.38billion was recovered for investors during the period under review.

Capital market enforcement

Fight against Ponzi Schemes: The SEC has over the years implemented many sound initiatives aimed at promoting genuine, wealth-creating platforms while fighting against fraudulent and deceitful investment schemes, including Ponzi Schemes. The proliferation of Ponzi Schemes and the need to relentlessly fight them has been central to our focus on investor protection. Although the Investments and Securities Act empowers the Commission to register capital market operators and to regulate securities businesses in Nigeria, these illicit schemes shy away from regulation to avoid detection.

The menace of Ponzi Schemes continues unabated partly because most of their victims do not heed the Commission’s relentless warnings and advisories delivered through traditional and new-media outlets against such investments. As part of our efforts to curb this menace, the Commission successfully hosted a 2-day stakeholders training webinar on Ponzi Schemes in collaboration with Attorney General Alliance Africa and Punuka Associates to educate stakeholders about these schemes. During the two-year period, the Commission also sealed up the premises of 4 illegal operators. Currently seven companies are facing criminal prosecution.

Capital market development

Investor Education and Public enlightenment programmes:  Given that the primary mandate of the Commission is investor protection, the Commission continues to broaden its investor education and public enlightenment programmes.  This is particularly important as we must strengthen investors’ understanding of their rights and the risks associated with investing in the markets. 

During the period under review, the Commission organized Workshops on infusion of Capital Market Studies into the Basic and Secondary Schools in Nigeria that would usher in a pilot test of the proposed Capital Market Studies Curriculum and Teachers’ Guide in select schools in the six geo-political zones.  SEC also collaborated with the Standards Organization of Nigeria (SON) and other partners to organize Stakeholders’ Sensitization Workshops on Commodities Standards in Lagos and Kano.

Presence in international community

During the period under review, the Director General took over the mantle of leadership of the West African Securities Regulators Association (WASRA). Under his leadership, rules for the integrated West African Capital Market were developed and reviewed. The West African Monetary Institute (WAMI) in collaboration with the African Development Bank (AfDB) organized the review sessions and the documents are awaiting the approval of the WASRA Executive Council.

Also, the second edition of the Biennial Conference of the West Africa Capital Markets Conference (WACMaC), with the theme “Deepening and Strengthening the Capital Markets across West Africa through Effective Regulation” took place from 23rd to 24th May 2022 in Accra Ghana.

Africa/Middle East Regional Committee (AMERC): the Commission participated in two meetings of the Africa/Middle East Regional Committee of IOSCO (AMERC). The AMERC is one of four regional committees constituted by IOSCO to focus on regional issues relating to securities regulation in the Africa/Middle-East region. Amongst the issues discussed at the meeting were issues around market fragmentation which may undermine the effectiveness of the financial markets and boost cross border regulations as the markets continue to evolve.

Yuguda, is a member of the IOSCO Board, representing the Africa/Middle East Regional Committee of IOSCO (AMERC) on the Board. In the years under review, the Commission participated in five Board meetings held virtually and contributed effectively in arriving at the various decisions made at the board.