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‘Operators must be proactive in risk management’


Patrick Ezeagu

Mr. Patrick Ezeagu is the president of the Association of Stockbroking Houses of Nigeria (ASHON). He is an accomplished professional whose career extends across banking, consulting and financial markets. He had served in various capacities at strategic committees of the Securities and Exchange Commission (SEC), Nigerian Stock Exchange (NSE) and Central Securities Clearing System (CSCS). He spoke to journalists on the relevance of risk management training for capital market operators. Helen Oji was there.

What informed ASHON’s decision to organise training in risk management?
ASHON in its own wisdom looked at the deficiencies in the human capital capacity of operators within the industry and found out that with the kind of economy that we are operating, risks are inherent in the business that 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 sort of shock waves within the industry. Therefore, we cannot continue to fold our hands and sometimes pretend that these are not ominous for our businesses’ survival.

It appears the training programme is also an extension of capacity building initiative of ASHON?
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 barest minimum and in that way, we can ensure that our businesses operate within some level of checks and balances, while risks remain at manageable points at all times. We must therefore, ascertain and evolve mitigants to be applied promptly in a sustainable manner to manage risks. Of course, we are all working to raise the level of capacity across board in the market.


How would you respond to the concept of risks changing with time?
Effective and efficient risk management structure positions stockbroking houses to exist in perpetuity as a going concern. Of course, risks change over time and therefore, tools of identifying and managing them must change over time and the only way you can ensure that we are prepared to manage these 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 risks 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, but they appear more of theoretical framework and do not cover some practical aspects of risk management that are required to tackle the issues on hand. Therefore, we decided to bring in people who have skills and competencies in risk management to conduct this particular training for operators within 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 monies. This is apparent from the post training assessment conducted on the participants, including some chief executive officers of stockbroking firms, who participated.

What are some of 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. But these risk, at whatever level, can be prevented or managed with the right knowledge and that is why we are talking about capacity building.

Could you explain more 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 mitigate against some of these risks we are talking about. But people must understand the rules and regulations and then be able to apply the rules and regulations governing the market appropriately. That is also part of the capacity building we are talking about.

How do you train your members to ensure that at least they will be able to work within that purview of SEC rules and guidelines to avoid sanctions and ensure robust capital market?
The same thing applies to the stock exchange. The exchange is a self-regulatory body that provides the platform under which the trading takes place. They equally have their rules and regulations that help to guide operators in the stock market.

Those rules and regulations partially mitigate 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. The advocacy is on and their responses like the one we have now and we will sustain it.

How would you advise the promoter of Stockbroking firms to ensure compliance with trends in modern risk management?
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 experience and people who are able to run the company.

Then the company 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 ways and manner the business is run. Of course, continuous appraisal of operations and the human capital must be constant.

How can investors in the capital market be protected?
When you have knowledgeable people managing the capital market environment, which in it 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. (IPF). But 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 the rules and regulations guiding the market activities, 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 it. Added to the above is that there are avenues for the ventilation of grievances between parties in the market. These, the investors must know and be able to use them fully. Because in a situation where you have two parties that interact, sometimes there will be conflict.

We have a very robust conflicts management framework, which has been designed and flows from company to SEC and even to the Investment and Securities Tribunal (IST). 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.

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