NSE’s campaign against market infractions

The Nigerian Stock Exchange (NSE), in a bid to improve investor confidence in the Nigerian capital market which was being eroded by incessant infractions by dealing members, a few years ago commenced a strong campaign against these market infractions through the introduction of BrokerTraX, a dealing members’ compliance report.

So far, this innovation, whose goal “is to reduce contravention of market rules to its barest minimum in line with the deliberate and sustained effort to restore confidence”, is said to have led to “an increase in compliance by dealing members​”.

We are, however, saddened that despite increasing enforcement actions by the NSE, stockbrokers have continued to show less compliance. The NSE enforcement actions rose from five in 2010 to 247 in 2011. It was 437 in 2012 and 424 in 2013, BusinessDay checks show.

It is, indeed, a matter of concern that the nation’s capital market is experiencing an upsurge in the number of sanctioned operators despite the NSE’s efforts through closer supervision and monitoring. The Exchange, some analysts say, seems to have been playing catch-up in its efforts to reduce dealing members’ infractions.

Between January 2013 and April 2015, for instance, the NSE has sanctioned seven dealing member firms and three individuals. The number of dealing members’ infractions penalised rose from just one in 2010 to nine in 2011. It was 11 in 2012, 20 in 2013, and 25 in 2014.

In fact, it is on record that some dealing member firms of the NSE have been referred to the Economic and Financial Crimes Commission (EFCC) for unauthorised sales of their clients’ shares. Many of them are under investigation while some are in court.

The suspect firms, as revealed by BrokerTraX, include First Allstate Securities Limited, Lakesworth Securities Limited, Bytofel Trust & Securities Limited, Gosord Securities Limited, Fittco Securities Limited, Securities Solutions Limited, ITIS Securities Limited, Mact Securities Limited, Giljohn Investment Limited,  First Equity Securities Limited, Omas Investment & Trust Limited, and Mayfield Investment Limited.

Conversely, dealing members’ compliance (rendition of regulatory returns) has been unstable in the last four years. In 2010, the compliance level on rendition of regulatory returns was 38 percent. It was 55 percent in 2011, 75 percent in 2012, and 94 percent in 2013. In 2014, the compliance level declined to 76 percent.

Even though BrokerTrax is said to give opportunity to investors to make “more informed decisions about where to invest by viewing names of dealing member firms t​hat have been found liable for contravening market rules”, some analysts argue that the upsurge in the number of culprits is an indication that the policy has not been as effective as expected.

What this shows is that the NSE’s avowed “zero tolerance policy” on regulatory infractions, despite 557 enforcement actions against dealing members last year, may not have achieved the desired result. The NSE, therefore, needs to go back to the drawing board if the much-needed market confidence is to be restored and sustained.

At a time that the two major market indices, All Share Index (ASI) and market capitalization, have been nose-diving due to dwindling revenue from oil which has resulted in capital flight to advanced economies, there is an urgent need for more concerted effort by the regulator to stem the tide of these infractions.