Electronic offering will make application process easier and friendly for investors. CHRIS UGWU writes
Initial Public Offering market activity has been as vibrant as it used to be for some years now in Nigeria as some firms that, hitherto, would have floated an IPO have continued to gauge the market pulse, taking their time to approach the market for capital based on their valuation of share offer price.
IPO market recorded the highest boom between 2007 and 2008; that was before the global market witnessed financial crisis, which Nigeria was not insulated. From 2016 to date, the primary market recorded unimpressive activities on IPOs.
However, as the activities have started picking in the capital markets and investors regaining confidence, as well as issuers beginning to access the market again, analysts expect to see renewed activity in the IPO market. Regulators are also coming up with innovations that will facilitate the market, one of which is the plan to introduce electronic IPO.
Full automation has become more effective in expanding the outreach of IPOs with increasing popularity of online trading.
The market needs a new application process, which is easy and friendly for investors to use and provide various market participants such as brokers, banks, registrars, among others with a more cost-effective means to conduct their business as it is currently obtained in some countries. In order to follow other markets and align to the new technology, stakeholders in the Nigerian capital market have begun process towards full automation of IPO and other public primary offers in the Nigerian market.
The Nigerian Stock Exchange (NSE) recently announced the launch of X-PO, an online platform for the subscription of public offerings.
How it works in other clime For instance, in Hong Kong, the Securities and Futures Commission (SFC) guidelines for e-IPO showed that different market participants such as brokers, banks, Hong Kong Securities Clearing Company Limited, among others are allowed to offer the eIPO service to their clients or the public. They are referred to as the eIPO service providers. Each eIPO service provider can set up its own website and use other methods (e.g. by phone, use paper instruction forms etc.) to collect applications from their clients or the public for securities in an IPO. Each eIPO service provider will rely on its own business arrangements with clients or the public to effect applicants’ payments for the subscription (for instance a bank may rely on its own system to debit applicants’ accounts; brokers will make necessary arrangements with their clients to ensure that there is sufficient fund for the subscription). The service provider will prepare data files containing all the application information in accordance with the standard data file format specified by the Federation of Share Registrars Limited and submit them either electronically through the SD Net (which is a proprietary network built and maintained by the SFC) to the share registrar or manually through the submission of CDROMs to the receiving banks.
It will also submit the consolidated application forms together with the subscription money to the receiving banks which, in turn, transfer the consolidated application forms to the share registrar for further processing.
Refund of subscription money and delivery of allotted securities will be made to the eIPO service providers or the applicants, among others. Benefits of e-IPO The Managing Director Crane Securities Limited, Mr. Mike Eze, listed the benefits of electronic IPO to include expanding the outreach of IPOs, promoting the culture of keeping stocks in a bookentry form, expediting the IPO process and making it easy to use.
Eze noted that the new system was indeed a welcome development to the Nigerian capital market as it ensures more accessibility for the general public while effectively utilizing the growing concept of online banking. It stated that the centralized electronic IPO system would enable investors to apply for subscription of securities electronically.
“This system will save the investors’ time and effort as they will not have to manually fill and submit the forms. Moreover, they won’t be required to wait in long ques to submit their IPO application while visiting a bank branch. “From the issuer’s point of view, the e-IPO will be very cost effective as they will efficiently raise funds from the market while reducing the issuing cost and increasing the turnover,” he said.
NSE unveils electronic platform for public offerings The Nigerian Stock Exchange (NSE) recently announced the launch of X-PO, an online platform for the subscription of public offerings (POs) following the ‘No Objection’ letter received from the Securities and Exchange Commission (SEC).
The X-PO, the first end-to-end online public offerings platform in Africa, is designed to enhance the experiences of stakeholders in the public offerings value chain, by providing a smarter and efficient way to manage public offers in the Nigerian capital market.
A statement from the NSE noted that as a self-service portal, X-PO allowed investors to conveniently subscribe and make payments for public offers through the web and mobile (USSD), avoiding the hassle of physical completion and submission of public offering applications forms and visiting the bank for payment. Speaking on the development, the Chief Executive Officer, NSE, Mr. Oscar Onyema, said: “The launch of the X-PO platform reinforces the exchange’s commitment to revolutionise stakeholders’ ex-perience in the Nigerian capital market leveraging technology.
The X-PO has been designed to enhance the efficiency of PO subscription process and operational workflow to support Issuers in raising capital and enhance the reach of POs while promoting financial inclusion and retail investors’ participation in the market.
“Furthermore, X-PO will accelerate the reconciliation and allotment process for POs, as well as reduce the incidence of unclaimed dividends, thereby boosting investor confidence in the capital market.” “The exchange will continue to innovate and adapt to new technologies that will not only help companies improve operational efficiency, but also enhance corporate governance which is paramount for sustainable business operations.
“The launch of the X-PO is particularly timely given the new normal occasioned by COVID-19. The platform’s sustainable approach affirms NSE’s commitment to deploying environmentally friendly business practices and promoting paperless public offer subscriptions.
“We have also taken into consideration the vital need for privacy and data protection, deploying the highest levels of security to ensure that stakeholders can enjoy a safe and secure digital public offering experience. “Players within the capital market, investors, registrars, issuing houses, brokers, banks and regulators can expect to enjoy a wide range of benefits with the launch of X-PO,” Onyema further stated. Electronic offering will reduce unclaimed dividends
The introduction of electronic offering in the Nigerian capital market has been described as a major achievement that will help solve the problems of unclaimed dividends. To this end, the rules have been developed and espoused to the market. This was stated by a former Acting DG of the Securities and Exchange Commission, SEC, Ms. Mary Uduk.