New Telegraph

Curbing selective market dominance via innovation

Dealing members reviewing their operational models, creating new products and deploying technology will reduce dominance of a few brokers on the capital market

It remains unhealthy that after several years in operation, major stock exchange transactions in the country are still dominated by a few operators. Specifically, despite efforts by majority players in the market, it is on record that only 10 brokers control over 70 per cent of total value of transaction in the local bourse, a market with more than 250 players. This fact raises a lot of worries to the extent that if more dealing members, especially domestic players, are not expanded, the local bourse might face similar situation witnessed during the global financial meltdown of 2007 and 2008. The outcome of the meltdown saw nation’s capital market lost huge funds, as the Nigerian Stock Exchange’s All- Share Index fell from a height of 66,000 basis points in March 2008 to less than 22,000 points by January 2009. Also, over N8 trillion or 70 per cent of the total market capitalisation of the exchange was wiped out during the period. Analysts noted that one of the major causes of the crash in the Nigerian capital market in 2008 was the massive exodus of foreign investors from the equities market, which these top brokers are also the biggest trading houses for foreign portfolio investments. Market watchers believe the dominance of these brokers appears to be the reasons they are dictating the pace in the Nigerian market for now. Anytime they start buying, the bulls return and when they stop buying and take their profit, the bears take over again, hence one of the reasons for the back and forth movements being observed in the market so far. The dominance has also made some firms inactive, thereby leading them to commit market infractions. This is not unconnected with the management of the Nigerian Exchange’s intention to get tough with any dealing member firm that is not active for six consecutive months by revoking their operating licenses. In order to break the jinx of the dominance, there is need for the dealing members to review their operational models, create new products and deploy technology to upscale operations and skills and professionalism.

Ranking of brokers

In an efforts to stimulating demand and engender competition in the stock broking community, the management of the NGX had in September 2011 introduced the ranking of the brokers by transaction value and volume. Ten top dealing firms in the Nigerian capital market ended the year 2021 with an exchange of 76.266 billion shares worth N1.009 trillion. Available statistics showed that the 10 stockbrokers were responsible for 52.92 per cent of the total value between 04/01/2021 and 31/12/2021. Also, the stockbrokers are responsible for 43.7 per cent of the total volume during the period under review. Analysis of the transactions revealed that Stanbic IBTC Stockbrokers Limited dominated with 11.11 per cent or N211.930 billion exchanged in 7.496 billion shares. Cardinal Stone Limited followed with a record of N143.601 billion or 7.53 per cent in 15.229 billion shares. Rencap Securities Limited accounted for N107.022 billion or 5.61 per cent. EFG Herms Nigeria Limited exchanged 106.142 billion in 5.51 per cent. Meristem Stockbrokers Limited traded N89.460 billion or 4.69 per cent, while Investment One Stockbrokers Limited accounted for N84.136 billion or 4.41 per cent. APT Securities Limited traded N73.316 billion or 3.84 per cent in 8.763 billion shares. FBN Quest Securities Limited traded N71.548 billion or 3.75 per cent exchanged in 5,534 shares while Apel Asset Limited exchanged N68.946 billion or 3.61 per cent in 4.878 billion shares while Cordros Securities Limited traded N54.506 billion or 2.86 per cent.

Need to upscale operations and skills

The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Sam Onukwue, advised dealing member firms to review their operational models, create new products and deploy technology to upscale operations and skills. Investment through the Nigerian capital market has been moderated by the inclement operating environment, characterised by impacts of Covid-19 and its variants on corporate earnings, misalignment of monetary and fiscal policies, high production cost and low purchasing power of consumers, currency devaluation, forex scarcity and high inflationary pressure among others. In a statement by ASHON, Onukwue explained that the current investment climate required innovative approach that meets the needs of clients. According to him, every dealing member should deepen its research and development and create innovative products, especially to attract the millennials and Generation Z in order to widen customer base and ensure business continuity. Onukwue harped on the deployment of modern technology to enhance operational efficiency of ASHON members, noting that Covid- 19 had institutionalised digital transformation for every business. He noted that millennials and Generation Z engage via digital channels as they do virtually everything on their smartphones. “Our members have realised the imperative of digital transformation of our operations. With the impacts of COVID-19 on our business environment, demutualisation of the former Nigerian Stock Exchange to Nigerian Exchange Group Plc ( NGX) and tough operating environment, our operational models have to be reviewed. “We must create more innovative financial products that attract millennials and Generation Z. They are digital natives that do almost everything on smartphones. “Our business models must take this critical class of investors into consideration. We need to deepen our Research and Development base to be on top of the latest development in the global financial market. We appeal to our regulators to address the observed impediments to full digitalisation of our market such as the issue of identity management,“ said Onukwue. He noted that many investors were yet to recover from the meltdown of 2008, saying we must sustain efforts at rekindling their confidence towards bringing them fully back to the fold through investor education. “As a trade group, ASHON shall continue to join hands with other market operators, platforms and regulators to ensure harmonious relationships among the stakeholders in the capital market ecosystem. “The capital market remains a veritable platform for wealth creation in any economy. We shall continue to appeal to the government to leverage the market to raise medium and long term funds to fix the economy as there is a nexus between the economy and the market. This is why enabling environment is key,” said Onukwue.

SEC harps on professionalism

The Securities and Exchange Commission, last week, restated the need for capital market operators to maintain professionalism and good ethical conduct in the discharge of their duties. The Director-General of SEC, Mr. Lamido Yuguda, who stated this during a meeting with the Chartered Institute of Stockbrokers in Abuja, added that it would make the market more transparent and attract investors. Yuguda, while soliciting the support of the CIS in the Commission’s quest to improve professionalism and good conduct in the capital market, also commended the Institute for working in tandem with the Commission, expressing the hope that the collaboration would continue.

“CIS has supported the SEC in our various initiatives in the past and we hope that this support will continue with the various initiatives we plan to roll out this year. “We, therefore, urge CIS to encourage its members to uphold the Code of Ethics of the profession and as contained in the Rules and regulations of the commission,” he said. The SEC DG stated the importance of a harmonious working relationship between the regulator and the selfregulatory organisations adding that it would translate into a more vibrant capital market. According to him, “it is very important for us to work harmoniously we want a harmonious capital market where the regulators and the self-regulatory organisations complement each other. We want a harmonious capital market where the forces compliment and rein-enforce each other and not fight. With all the initiatives we are bringing out in place, we are all heading towards a more robust and vibrant market.” Only recently, in a bid to curb poor market conduct, the SEC had resolved to intensify monitoring and surveillance of the market and vowed to apply stiff sanctions to any operator who engages in unethical conduct. Yuguda said capital market operators were the face of the market and they interact daily with investors, adding that it was, therefore, important that they prioritise interest of investors over their own and be seen to demonstrate the highest level of integrity and transparency in conducting their activities. According to him, “poor conduct dissuades investors from our market and therefore counters our collective objective of broadening and deepening the market. “We also expect that the institute will continue to make it mandatory for its members to undertake annual professional development programs that address emerging issues. I believe that this will go a long way in ensuring that the practitioners in the market are highly skilled and are equipped to make real impact towards growing the market.” In his remarks, the President of CIS, Mr Olatunde Amolegbe, commended SEC on the various initiatives it has been carrying out in a bid to deepen and develop the market, adding that the CIS would continue to provide the necessary support in areas where it is required. Also speaking, a former President of CIS, Mr. Ariyo Olushekun, said CIS was committed to working with SEC to ensure professionalism in the capital market, improve ethical standards and weed out bad eggs in the market. This, according to him, will strengthen confidence and lead to more investors coming back to the market so that the market can play the role it is supposed to play in the economy of the country. He, therefore, pledged the commitment of the CIS to always work with the SEC to develop the market and also to police the market.

Last line

Given that the industry is highly fragmented with most operators lacking both human and capital capacity. It is time the various processes that have been put in place both by the regulators and other decision makers in the capital market were implemented to encourage and ginger the expansion of local investment base in the nation’s capital market.

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