‘The Capital Market Will Bounce Back’
Oscar Onyema, chief executive officer, CEO, Nigerian Stock Exchange, NSE, took the mantle of leadership of the exchange at the worst of times – when investors in the market have lost a great deal of their investments to a downward spiral of stock prices; and a time when the exchange was passing through a phase of leadership crisis. As these issues linger, the CEO in this interview with Tony Manuaka, associate editor and Abiola Odutola, reporter, says he will surmount the problems and make the exchange the financial gateway to Africa. Excerpts:
Since you assumed office as the CEO of the NSE what has been the most challenging of the issues you met on the ground?
I will probably look at two different sets of issues. The first one is obviously lack of investors’ confidence in the market place. Second one is probably the legacy issues that surround the exchange. Those are the two most challenging issues I have had in the exchange.
What is being done to address some of those issues, especially restoring investors’ confidence?
I think investors’ confidence is a factor of so many things. Obviously people watch the market indices to see whether they are going up or down. There is also a need for a lot of education at every level of the capital market in terms of the risk-reward that is associated with trading on equities and bonds among other instruments we are going to introduce. How you structure your portfolio, taking into account modern portfolio principles that will diversify your risks and also how to use some of these exotic products. I think we need a lot of education on that. Another thing we are doing in order to attract investors’ confidence is to make sure that we have strong, firm but fair regulation. You will see changes in our regulatory actions and not words. We recently gave technical suspension to 48 companies for not reporting their end of the year financial result to the exchange on time after we served them notice and reminders. We actually took that action three months after the deadline. We intend to continue to tighten the amount of leverage we give. So the next time around it is not going to be three months, it might be two months or one month. And I must say, since we issue the technical suspension the feedback has been very positive. We have received 20 results out of 48 results. We will see how we can assist them in making sure they report on time because we have given them one month to comply. And at the end of the one month, defaulters will face full suspension. Technical suspension means there will be trading in the shares but the price won’t move while full suspension is that there will be no trading in the company’s shares but the shares are not delisted. People need to understand that this market is governed by rules that will be enforced.
Investors in the Nigerian capital market have lost so much money in the last three years; is anything being done to assist them in recovering part of what they have lost in the market?
This is a major area of concern for me. If you look into the history of this market in the last 50 years, equities have been giving very good returns. So we shouldn’t be short-sighted. Equity securities are long-term investments by nature. If you are a real investor it is a long-term business. If you are a trader or market maker then you can go in and out of the market but you will need to know what you are doing. Overtime in different jurisdiction, the equity has given the highest return. We need to put things in proper perspective. We have had a three-year blink and I have no doubt in my mind that it is going to turnaround. In the US, they had their Great Depression in the 1926 through 1929, but they came out of it. Where the stock market was in terms of the index compare to where it is today is huge. So this is a place in the development of the Nigeria capital market and the Nigerian economy. There is no question in my mind that it will rebound.
From what you have put in place, do you have anytime frame in mind as to when the market will rebound?
If I have that crystal ball, I would be a millionaire. As you know, where market goes or don’t go depend on a lot of factors starting from macro-economic factors to micro-economic factors to what the individual expectations are and where economy is going, what the interest rates are among others. The Nigerian capital market has really developed. Gone are the days when what was happening around the world did not have any impact on our market. Today 70 per cent of our market activities are driven by foreign developments. So what is going on in Europe, China, South Africa and the rest of Africa, America, we cannot ignore them because they will have impact on our economy and by extension, the capital market.
Working in the Nigerian financial system must be a different ballgame for you given the fact that you are coming from the New York Stock Exchange. What are the differences and the similarities?
Let me start with similarities. The temperament of a trader is the same anywhere in the world whether in Nigeria or in the US. It takes a certain type of personality to make a good trader. Another similarity is that the Nigerian capital market to a large extent, Securities and Exchange Commission, SEC, Nigeria, is fashioned after the US SEC. Those are the two similarities I can quickly tell you. There are significant differences. The US market is the most sophisticated market in the world. It is highly automated and most of the trading activities are driven by a software programme called Algorithms. But here even though it is electronic, it is still a lot of paper and human interaction. Another difference is that we have only one exchange today but in the US there is a minimum of 11 exchanges and we have what they call alternative trading system. You have the brokers/dealers matching some of their trades reporting to what they call trade-reporting facility that is run by FINRA. We don’t have that type of market structure in Nigeria. It is a complex market structure anyway. In Nigeria, all the matching is done here when there is a cross at the brokers’ office upstairs, it is still reported at the trading floor.
There is a subsisting court case on the removal of your predecessor. How does it affect you operation?
There are so many court cases, so this is just another one. The way we see it is that the exchange and life and business must continue. When we came, we came with an attitude to develop the market. We want to quickly bring the Nigerian market to where it needs to be from a global perspective and our goal is to position it as a gateway to African market. That is if you are thinking to come to Africa, you are thinking of Nigeria first. We are focused on that and very determined to succeed. Until we are told that we are no longer needed here or until we decide we don’t want to work here, we want to be seriously focused on that.
Quoted companies under the Dangote Group are said to be valued at about N2.3 trillion in capitalisation. That is about a quarter of the total market capitalisation. There are concerns that this could have negative impact on operations at the stock exchange should there be a major dislocation or policy change in Dangote Group. What is your view?
It is just like a company that has one major supplier or one major customer or consumer of its product. It is a thing of concern to us but we are also very happy. We are working very hard to have other big companies like that to list on the exchange and also to have smaller companies listed on the exchange. It is a double-edged thing, you are happy to have them but you want more of them so that your fortune is not completely tied to one particular player. The same can be said on the trading side where we have less than 10 brokers/dealers firms controlling more than 50 per cent of the volume that are traded on the exchange. We want to ensure we have more companies so that there is diversity even within each of these constituents of the exchange.
A company was recently licensed to operate Islamic financing in the Nigeria capital market. How will that be done?
My understanding is that when you are talking of Islamic financing, we are looking at Sharia-compliant investments. We have scheduled a meeting with Lotus Capital. We will discuss with them about the fund. They will come up with funds that are tradable funds and comply with Sharia requirements so that investors that want to buy into those funds will do so just like any other fund. That is all I can say for now. We certainly welcome the idea. We welcome the diversity of products that can be offer at the exchange.
Before you assumed office there were several cases of market infractions for which so many operators are being questioned by SEC and the Investment and Securities Tribunal. What has happened to those operators and what are you putting in place to ensure that such things don’t happen again?
We have introduced lot of things. We have just upgraded our surveillance unit to a full department. We are looking at different surveillance systems out there. We can automate surveillance programmes. We have beefed up the level of skills and knowledge in our regulatory programme. And just recently we have re-organised our regulatory programme into four departments. We now have listing regulation, which is responsible for pre and post-listing compliance, broker/dealer regulation, which is responsible for compliance. Another department is rules and interpretations. We believe that it is critical. If you are going to hold people to a higher standard; that the rules of the game are transparent and that people understand the intent.
With the level of confidence investors have in the market now. Is it possible for any public offer to succeed?
My answer to that is a good company is a good company. It doesn’t matter whether the company is in a downward portion of the business circle or in the recovery section of the business circle. A good company is a good company and a bad one is a bad one. If you bring a bad company in the market when it is booming, the chances of not raising the fund are there. Despite the state of the market, a company has raised money from the market today. If a company is good and they want to come to the market, people will see the value in it and buy it.