In
view of the growing complexity and dynamics of the capital market
occasioned by transformational changes, there is a growing need for
regular and intensive capacity building among capital market operators
in order to keep abreast with evolving concepts and trends, enhance
professionalism and explore the vast and emerging opportunities in the
market.
Some
of the major changes in the market include, technological innovation
and new product development such as Sukuk, Exchange Traded Funds,
market-making and securities lending. Securities lending, as defined by
Investopedia, is the act of loaning a stock, derivative or other
security to an investor or firm which requires the borrower to put up
collateral, either cash, security or letter of credit. It is an
important means of eliminating failed transactions as well as enabling
investment vehicles to sell shares short.
Other
changes in the market include enhanced corporate governance, improved
liquidity, growing investor confidence and the emergence of three
alternative trading platforms namely the National Association of
Securities Dealers, National Commodities Exchange and the Financial
Markets Dealers Quotation. The FMDQ is a securities exchange and
self-regulatory organisation under the supervision of the Securities and
Exchange Commission, the apex regulatory agency in the capital market.
The new platform presents great opportunities for securities dealers as
it appears set to change the transaction landscape in the capital
market. In 2014, while the Nigerian Stock Exchange recorded a turnover
of N1tn, the FMDQ recorded N68tn the same year, within one year of its
operation. The platform has four blocks of ownership with the Central
Bank of Nigeria as the largest shareholder, with about 15.6 per cent.
Other shareholders include banks and discount houses, the NSE, and the
Financial Markets’ Dealers Association.
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Major
operators in the capital market include stock brokers, bank treasurers,
portfolio and fund managers, investment advisers, issuing houses,
merchant banks and pension fund administrators. Others are company
registrars, insurance companies, development finance institutions and
venture capital companies. There are presently 227 stock broking firms,
110 issuing houses, 26 company registrars and 162 fund and portfolio
managers operating in the market with 202 companies listed on the NSE,
comprising 190 on the main board, 10 on the Alternative Securities
Market.
The capital market is a highly specialised segment of
the financial system with a matrix of sophisticated underlying
principles and concepts guiding the operation. Experts believe Nigeria
has a significant knowledge gap in the areas of securitisation and
structured finance. To that effect, SEC and the Chartered Institute of
Stock Brokers have set to raise the bar on capacity building. The
Commission has a list of reputable financial training providers some of
which are based in the United Kingdom, including Fitch, while the CIS, a
major stakeholder in the capital market, has intensified its Continuing
Professional Development and other strategic and innovative training
programmes on the capital market for operators and students.
The
CIS is an autonomous statutory and not-for profit professional body
established in 1990 and chartered by Act 105 of 1992 to regulate the
conduct and practice of stock broking in Nigeria. The principal
activities are the provision of examination leading to qualifications as
securities and investment professionals, organising seminars and
continuing professional education courses for members and practitioners
to improve standards of professional competence, with greater
versatility in finance functions, analytical skills, securities
analysis, asset valuation and portfolio management, derivatives, problem
solving and marketing of financial products. The Institute has over
2,500 qualified members, over 400 professional graduate members, 14,000
registered professional students and 10 qualified graduate members. It
is an active member of the Association of Certified International
Investment Analysts , based in Switzerland and also aligns its
programmes to America FINRA and the Chartered Institute for Securities
and Investment, UK , for the purpose of opening global opportunities and
career progression in the capital market. The CISI is one of the
world’s leading professional services training institute.
Regulatory
agencies in developing markets are collaborating with international
organisations to build capacity for efficiency and growth. In Tanzania,
FSD Africa, a market facilitator, funded by the Department for
International Development, worked with the London Stock Exchange Academy
in 2014 to build capacity with Tanzania’s capital market through
targeted skill development. Three phases of training were delivered to
103 professionals from Dar Es Salaam Stock Exchange, Capital Markets and
Securities Association, Office of the Prime Minister, Ministry of
Finance and local brokers. Fourteen Tanzanian trainers from local
institutions were also trained. And in Sri Lanka, the Securities and
Exchange Commission signed a Memorandum of Understanding with the CISI
UK, to jointly offer Diploma in Capital Markets programme through the
Financial Services Academy- the education arm of SEC.
In Nigeria
and East Africa, the Efficient Securities Markets International
Development programme, a joint effort of the International Finance
Corporation, Swedish International Development Cooperation and the World
Bank provided $5.5m to support capital market development activities,
as a country programme and regional programme respectively. The ESMID
works with Central Banks, Securities and Exchange Commissions, Stock
Exchanges and other stakeholders to build capacity and facilitate the
regionalisation of securities markets, promote market integrity, boost
demand and supply of products through capacity building, simplify
regulations and procedures for issuing, investing and trading in bonds,
among other things. It supported the National Pension Commission to
develop and implement new investment guidelines to allow greater
diversification of pension fund portfolios.
There is a growing
level of interest in the Nigerian capital market by international fund
managers. Trading on the NSE was dominated by foreign portfolio
investment in 2009 and 2011, at a high of 66.8 per cent and 64.1 per
cent respectively. And in 2012, their activity caused the NSE All Share
Index to spike 34.45 per cent year-on year to 28,078 as the NSE emerged
the world’s ninth-best performing stock market. The Oxford Business
Group noted in a report that, “the number of Nigeria-exposed
equity-tracking funds increased in 2012, and the iShare MSCI frontier
100 index allocates 11.65 per cent weight to Nigeria’’ while ‘’the
Guggenheim Frontier Market Exchange Traded Fund, run by Bank of New York
Mellon has an exposure of 3.66 per cent to Nigeria- the eight weighted
on a list that includes mainly Latin American markets alongside Egypt,
Lebanon and Kazakhstan.”
The
report further noted that, “the Market Vectors Africa ETF listed on the
New York Stock Exchange with 19 per cent exposure to Nigeria, split
between banking (21.1 per cent), materials (14.6 per cent), energy(13.9
per cent), telecoms (11.4 per cent), capital goods(7.6 per cent),
insurance(5.7 per cent), food, beverage and tobacco(4.1 per cent), and
others.” Also, “In 2013, the first offshore tracker dedicated to Nigeria
launched on the NYSE: the global X Nigeria Index ETF holds 28 stocks
with 41 per cent weighted towards financial services, 24 per cent to
energy, 13 per cent to consumer discretionary goods, 11 per cent
consumer staple goods and five per cent Industrials.” The ETF,
reportedly, grew from $1.5m at issue in April 2013 to $3.1m by June.
- Arinze Nwobu is Head, Research and Technical, Chartered Institute of Stock Brokers
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