SEC, NSE and infractions in capital market
The role of the regulators, the Securities and Exchange Commission (SEC), at the apex of the market as well as the Nigerian Stock Exchange (NSE), often referred to a self regulatory organisation, which holds sway in the secondary arm of the market.
The other market operators, registrars, stockbrokers, reporting accountants, issuing houses, issuing companies and all others have their roles cut out for them in ensuring that long term funds are raised for the development of the economy.
This is by guaranteeing that all trades are efficiently cleared through the Central Securities and Clearing System (CSCS) and investors get their value as and when necessary.
However, developments in the Nigerian capital market over time, particularly in the secondary arm of the market indicate that a series of infractions have been taking place with the investing public made to bear the brunt with little or nothing done by the regulators to arrest the ugly trend.
Cases of reported infraction in the market include instances of fraudulent sales of customer shareholdings in quoted firms by some stockbrokers.
Though this incidence has been drastically minimised due to the automation of the market and the largely dematerialisation of company share certificates, the recent incidence of a suspected defaulting stock broking firm charged to court by the Securities and Exchange Commission for alleged fraud relating to illegal sales of customer shares of some blue-chip stocks calls for closer attention to this vice in the market.
There is an allegation that a stock broking firm illegally sold and converted to its private use, shares valued at over N50 million. This offence, allegedly committed between 2004 and 2014 is a sad development that must have had negative repercussions on investors’ confidence in the market.
Though SEC has often treated such issues by wielding the big stick, a lot still needs to be done to reassure the public that every operator in the market is not left to transact without the appropriate regulations and oversight so that they will subject to market rules or suffer the appropriate sanctions that are necessary.
Hence, the call by SEC, for shareholders to always take advantage of their various initiatives to ensure that proceeds of sales of shares go directly into the investors’ accounts, to avoid mismanagement by operators appear reassuring.
Other commendable initiatives by SEC that the investing public should take advantage of include the electronic dividend mandate system, direct cash settlement as well as recourse to the National Investors Protection Fund.
Another type of market infraction is the perennial non-compliance or flouting of the post-listing requirements established at the NSE by many publicly quoted companies. These requirements are meant to enhance transparency in market operations such that the quoted firms can grow the shareholder value of these companies.
This flouting of the rules is probably due to the lack of the required corporate governance practices in these firms such that the expected periodic returns to the Stock Exchange are not made.
Instead of ensuring that they meet these post-listing requirements, these companies prefer to merely pay the fines and continue with the infraction in subsequent periods. It may be surprising that many big and well-known firms in various sectors of the economy are guilty of this infraction –from banking to cement production, airlines, insurance and manufacturing, among others.
The interesting thing is that paying these fines do not help the shareholder because the funds being used to pay the fines come from the companies and not from the defaulting managers or directors.
Hence, regulatory oversight is very important in these and other similar market infractions. A major post-listing requirement, which many of these companies flout include the required timely disclosure of interim and audited financial performance for the year in question.
A way out of these unsavoury developments among operators in the capital market is the strengthening of regulation across the entire spectrum of the market.
The SEC and the NSE have a strong role to play in enforcing the rules of the market and ensuring that every market player has an immense confidence in the transactions that take place within it. It is improper for the company or the shareholders to bear the brunt of the negligence of the directors or managers of the companies. If one or two directors are severely sanctioned in the event that the company flouts the regulatory requirements, then the directors and managers of these companies will sit up and ensure that their companies are above board in this regard.
Thus strong regularly oversight is very critical, particularly at this period in the history of the market when investors have been losing funds, even before the 2019 elections with market index still falling though the elections are virtually over and the market is in dire need of recovery.
In the main, the regulators should ensure that all hands are on deck to boost the waning investor confidence in the market.
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