SEC Nigeria: Deepening the capital markets through innovative reforms

The Director General of the Securities and Exchange Commission (SEC), Mounir Gwarzo, has launched a series of reforms aimed at elevating Nigeriaís capital markets to be the most liquid and efficient in the region. BusinessDayís Patrick Atuanya takes a look at some of these innovations.

Nigeria’s capital markets have witnessed a new burst of regulatory reforms and activities in the past year carefully designed to unlock the tremendous potential it has to change the lives of the ordinary Nigerian, create wealth and finance the country’s inadequate infrastructure stock.

The reforms are being championed by the Director General of the Securities and Exchange Commission (SEC), Mounir Gwarzo, and anchored on the Capital Market Master Plan and the Implementation Council (CAMMIC), the National Investor Protection Fund (NIPF) and inauguration of its board, as well as the unveiling of the SEC Corporate Governance Scorecard for public companies.

Other reforms introduced include the e-dividend policy, dematerialization of share certificates which has a 99 percent compliance level today, recapitalization of capital market operators, strengthening of the investment and securities tribunal, and establishing Nigeria as a regional hub for non-interest finance.

SECs move to end the growing problem of unclaimed dividends of equity market investors estimated at N80 billion at the end of 2015, is particularly commendable.

The idea is to have investors register for electronic dividends that are paid directly into investor bank accounts which can be either savings or current.

The SEC is driving the E- dividend move in collaboration with the Central Bank of Nigeria (CBN), committee of Heads of Bank operations, institute of capital market registrars and the Nigeria interbank settlement system (NIBBS) to ensure that all dividends are now to be paid into bank accounts of investors that have completed the electronic dividend registration.

“E-dividends will be a major game changer for the market, and is very critical in ending the problem of unclaimed dividends,” the SEC DG, Gwarzo told BusinessDay in a recent interview.

The SEC also has committed to underwrite the cost for Nigerian investors to enroll in the new e-dividend platform till September in a bid to reduce the hassle for retail investors.

Domestic investors accounted for 46.2 percent or N880 billion in transactions in 2015 according to data from the Nigerian Stock Exchange (NSE).

Of the amount, domestic retail investors were responsible for N382.7 billion in transactions, equivalent to 43.4 percent, with domestic institutional investors making up the rest.

“We need more public enlightenment to get more investors to enroll in the e-dividend. Today we have seen a more than 4,000 percent increase in enrollment levels between January and April. However we need more of the 3 million retail investors to enroll,” Gwarzo said.

SEC is positioning Nigeria to play a big role in the emerging global market for non- interest finance valued at over $2 trillion and has implemented a number of reforms to enable this take off.

The Nigeria SEC has issued regulatory framework, reviewing the Rules and introducing new ones on Islamic Fund Management and on Sukuk issuance.

The legal frameworks have encouraged Islamic product innovation with the registration of five ethical/shariah compliant funds and the issuance of Nigeria’s first ever sub-national Ijara Sukuk by the Osun State government in 2013 which was oversubscribed.

SEC is also considering modalities for setting up a Sharia Advisory Council as a body of experts to advise SEC and the market on non-interest product and their applications, according to Gwarzo.

The global sukuk market continues to witness remarkable growth since after the 2008 global financial crisis.

Annual issuances have grown from $15 billion in 2008 to almost $120 billion in 2014.

A sukuk is part of Nigeria’s strategic framework through 2017, the Abuja-based Debt Management Office (DMO) said recently.

The SEC DG said the country needs to issue a Sukuk (or non interest bond) to provide the necessary sovereign yield curve for other sub national corporate or state government issuers.

“We are working with the DMO, NSE and CBN to diversify our product offerings to include more sukuk. Countries that have issued Sukuk include Luxemburg, U.K and China and Nigeria should not be an exception.”

To transform Nigeria’s non interest finance potential into reality the Securities and Exchange Commission in 2013 set up an industry-wide committee of experts to develop a strategic blueprint for the growth and development of Nigeria’s non-interest capital market. Their recommendations have been incorporated in the 10-year Capital Market Master Plan which is currently being implemented by the SEC.

The Master plan sets a strategic direction for the non-interest capital market in Nigeria to attain at least 25 percent of total market capitalization.

For capital market operators yet to recapitalize the SEC has given a deadline of 31st December 2016, after which no operator yet to comply with the rules will operate after that date.

“If you fail to meet the minimum requirement, the license will be cancelled, and to get it back you will have to pass hurdles like you are getting a new license,” Gwarzo said.

The SEC also intends to strengthen the investment and securities tribunal and is working with judges to inform them about the workings of the tribunal which was set up by an act of parliament.

Meanwhile the SEC DG has rolled out the 2016 action plan for the commission which includes: Getting the Federal Government to buy into the capital market master plan, issuing a sovereign Sukuk this year, encouraging new listings, increasing the savings rate of Nigerians and deepening the amount of people enrolled for the e-dividend programme.

“We intend to do a robust presentation at the Federal Executive Council (FEC) to get the Federal Government to endorse the capital market master plan as one of its policy documents,” Gwarzo said.

The series of reforms are aimed at building back retail investor confidence in the market as well as growing and deepening the Nigerian capital markets to truly play their developmental role for the economy.

Patrick Atuanya