There have been concerns over the performance of the stock market. Are there some initiatives that SEC will be implementing to boost investors’ confidence?
We are doing a lot to boost investors’ confidence in our market. But I want to say that both the local and foreign investors are very good for the market. Foreign investors, for instance; because they trade their shares all of the time, it leads to price discovery as against the local investors that just take a long term view on their investments.
Investors’ fears can be of two folds. First, they could be afraid because they feel that capital market operators would mismanage their investments. Second is looking at the volatility of the market that makes investors sceptical.
For the first scenario, we have a number of initiatives that we have put in place to boost investors’ confidence. We have the E-Dividend mandate system, the Direct Cash Settlement as well as multiple subscriptions in place.
For the second category, investors have to take ownership of their investments. They have to be able to monitor their investments, attend Annual General Meetings, as well as read the annual reports sent out to them.
We also protect them through the National Investors Protection Fund Risk Based Supervision that enables us to supervise the operators to ensure that they do not do what they are not supposed to do. Again, the Complaints Management Framework enables investors to know where to lodge their complaints and how long it takes for such complaints to be resolved.
For investors that are averse to risk, they should get their financial advisers to advise them properly on where to invest.
We also advise retail investors to invest in Collective Investment Schemes and Mutual Funds because they are managed independently by professionals, and they are diversified thereby reducing risks. We are committed to protecting investors in the work we do.
One thing is to have all these initiatives and another is for investors to be aware of them. What specific steps is the commission taking to boost the level of investor education?
An informed investor is able to take advantage of the market in and out of season. The commission regularly carries out various investor education campaigns around the country to inform investors of the benefits of investing in long-term securities among others.
We are also partnering with the Nigerian Educational Research and Development Council to come up with a curriculum for basic and secondary schools on capital market studies. The planning and writing of that curriculum has been completed and the editing has been done.
The adoption of technology is driving a lot of innovation in financial markets; what role is technology expected to play in the Nigerian capital market?
Technology when properly leveraged will reduce the cost of doing business in the capital market. We know that technology is driving a lot of things in the market at the moment. In the banking system, for instance, technology is driving the payment system. Even with phones people can buy, make payments and even obtain loans, among others.
We have seen that there is a lot of innovation and cost reduction in the money market due to technology; we also want to do the same in the capital market.
To this end, the Capital Market Committee has set up a Road Map Committee to come up with a guide for the capital market to enable us also leverage technology to do business and reduce cost.
We already have a division in the SEC dedicated to fintech that will help us look at all the technologies that relate to the capital market, among others.
In the capital market, technology has assisted in improvements of processes like the use of blockchain to do settlement. We also have technology driving the platforms through which people are now able to come in to invest
Innovations in financial technology have made possible the potential of using digital tools to make financial services available to a wider range of consumers and enterprises, promoting financial inclusion and the affordable financial services.
A financially inclusive society will provide increased access to finance, especially for women, help support sustainable growth and will create a million more jobs. The gains of having a more inclusive financial system are enormous as it helps broaden financial markets and make policies more effective.
In recent times, the capital market has not performed optimally; what is responsible for the decline in performance?
A large percentage of those who do business in our market are foreign investors and as of the third quarter of 2018, the capital outflow stood at N513bn as against N477.7bn incoming. We can see that the impact of increase in interest rates in advanced countries not just in the United States has impacted on capital outflow, thereby leading to reduced performance in our markets.
I want to say that the interest rate increase in advanced economies not just the US does not affect only Nigeria but also affects other emerging and frontier markets in the world.
The commission has taken steps to reduce the value of unclaimed dividend. What is the value of unclaimed dividend and how much has been paid out this year?
The law provides that 15 months after dividends have been declared, unclaimed ones should be returned to the companies. As of September 2018, the value of unclaimed dividends stood at about N100bn, and those that were reduced this year stood at about N10bn.
What steps is the commission taking to reduce the level of unclaimed dividend?
The e-dividend Mandate Management System allows investors accounts to be credited immediately they are mandated with the registrars and the relevant banks. Within 24 hours, your dividend hits your account and even the back logs that were not paid for years also hit the account.
You also must have heard of our multiple subscription initiative, which we have extended for another one year because we want investors that subscribed to shares in multiple names to regularise their accounts.
Many of them do not even remember the names with which they bought the shares and this increases the quantum of unclaimed dividend in the market. That is why we are engaging with the receiving agents to check in their records and see how this can be reduced and the owners can claim their dividends.
I urge more Nigerians to take advantage of the on-going e-dividend registration in a bid to reduce the unclaimed dividend profile as well as increase liquidity in the capital market and the economy.
The commission is currently leading the entire capital market industry in an effort to migrate all shareholders to an e–dividend regime.
What does SEC hope to achieve with the e-Dividend Mandate Management System?
The essence is to eradicate or reduce to the barest minimum the incidence of unclaimed dividend. Unclaimed dividend is an undesirable feature of the Nigerian capital market which denies investors and shareholders the gains of participating in the capital market. It denies the economy access to the huge amount of money which should have accrued to shareholders and would have gone into circulation to oil the wheel of the economy.
It is a consequence of the bottlenecks which are inherent in the erstwhile paper dividend warrant regime such as postal system inefficiency, change in investors’ addresses, poor fidelity and human fallibility in dividend payment processes, among others.
The e–dividend regime bypasses these limitations by ensuring that dividends which do not exceed 12 years of issue are credited directly to an investor’s account after declaration by the paying company and within a stipulated payment period through simple interbank transfer.
Despite the fact that the multiple share subscription deadline has been extended to December 2019, many Nigerians seem not to be coming out to regularise their accounts. What is responsible for this?
I would not say they are hesitant because it is in their interest to come forward and consolidate their holdings.
We are aware that during the banking and insurance sector consolidation of 2005 to 2007, a lot of investors completed more than one application form for particular companies and they did that by juggling their names and sometimes using fictitious names. What they failed to realise is that the capital market has a way of checkmating such violations.
To be able to claim these shares, they have to be able to identify themselves. For those juggled and fictitious names, they do not have identities that are traceable to these individuals and so they were not able to claim their shares.
Therefore, they cannot trade and are also unable to claim dividend and other benefits that may accrue to them. We also realised that a lot of the unclaimed dividend is as a result of this issue because investors cannot claim their shares and are unable to claim their dividends.
A lot of these people bought shares in companies that were doing well and wanted to increase their holdings hence the use of multiple and fictitious names.
What we have done now is to go back to the receiving agents to go through their records, particularly those paid for and let them to be registered. Investors are also advised to contact their registrars.
I want to stress that there is absolutely no penalty attached to multiple accounts regularisation. Investors are enjoined to visit their stockbrokers, registrars, bankers or any other capital market operator through whom the shares were purchased on guidance for the steps to take to regularise them.
We just want it for the sake of the growth of the market and for their own sake, so that they will be able to take ownership of their shares and also reap the benefits of buying those shares. We are not penalising them. We just want the market to grow and boost investors’ confidence.
To what extent will this move help to ensure capital market liquidity?
It will increase liquidity in the market because the shares are just there and there is no trading on them. Not only that, the investors cannot claim their dividends too and that increases unclaimed dividends. Let them come and regularise so that there will be increase in trading of those shares and they will also claim their dividends in order that the balance of unclaimed dividends will also reduce.
The implementation of the capital market master plan has begun. What has the commission been able to achieve with it? What other initiatives is the commission working on?
We are implementing a number of Capital Market Master Plan Initiatives which are aimed at making our market deeper, vibrant and more effective. As you are aware, the commission launched its 10-year CMMP in 2014.
The Master Plan is the outcome of consultations and work with the entire market community to identify challenges and opportunities to help catalyse our market to a world-class capital market. The implementation of the 10-year master plan will transform the Nigerian market, facilitate the diversification of our economy, encourage savings and create wealth.
This will no doubt grow investor confidence, improve the breadth and depth of the market in terms of product offerings, engender market integrity, and contribute to the country’s economic growth.
We have also developed a two-pronged approach to addressing the intractable challenges associated with transmission of shares related to the estate of deceased investors.
The first step would involve engagement with and enlightenment of the Probate Registry with a view to providing solutions to the cumbersome process of transmitting shares. Secondly, rules would be developed around the time frame for transmission of shares and the fee structure.
The commission is working with other major stakeholders in setting up a committee that will look into and proffer solutions to problems around identity management in the Nigerian capital market.
So, for instance, to boost the e-dividend mandate and Direct Cash Settlement initiatives, we are engaging Nigeria Inter-Bank Settlement System on behalf of the capital market community to facilitate identity validation and account validation in an effort to enhance market processes.
On the need to grow the market for trading in securities on unlisted public companies, we are making concerted efforts in collaboration with CAC and other stakeholders to assist public companies that are yet to register their securities to do so without much difficulty.
These initiatives continue to highlight and promote developments and trends in the Nigerian capital market and drive financial inclusion aimed at reducing adult exclusion from financial services.
How far has the implementation of e-annual report gone?
Over one year ago, the SEC spearheading the market saw the need to embrace electronic annual report distribution for three reasons. One, we discovered that the funds being spent on the printing of annual reports, which in many cases get to the investors very late, many months even after the AGM has held, would have been wasted.
We discovered that rather than waste such monies, it’s better to distribute these annual reports electronically. The second advantage is that because technology is taking over the world and wherever you are in the world, once your email address is known, you can receive the audited annual report electronically.
We discovered that the money that was being wasted on printing annual reports could now be distributed as part of dividends. Why do you want to waste such monies when they can be directed to the shareholders as dividends?
We gave the market to implement a pilot exercise for one year. That one year ended in June 2018. When it ended, SEC conducted an impact assessment to see how it went and yesterday at the CMC, it was considered and it was agreed that technology was the way to go.
We observed that shareholders have one or two challenges about the issue. One is awareness and the market has agreed that awareness on this would be intensified. Two, we are making greater efforts to ensure that we get the email addresses of all the shareholders. Thirdly, we have agreed in addition that there should be enlightenment campaigns.
For those who do not have Internet, which is one of the issues that the shareholders have raised, it has been agreed that physical copies will still be distributed as a mix with the electronic versions. We believe that within the next five years, technology will continue to expand and go to remote places.
We have also enjoined registrars that at every AGM, they should take a few minutes to enlighten shareholders on the benefits of electronic annual reports.