There is need for government to increase the level of intervention in order to improve the liquidity of stockbrokers. CHRIS UGWU writes
The current situation where 10 brokers still control over 70 per cent of total value of transactions in the nation’s bourse out of over 250 players raises a lot of worry to the extent that If more domestic dealing members are not expanded, the local bourse might face similar situation it witnessed during the global financial meltdown of 2007 and 2008. The outcome of the meltdown saw the nation’s capital market losing huge funds, as the Nigerian Stock Exchange’s All-Share Index fell from a height of 66,000 basis points in March 2008 to less than 22,000 points by January 2009. Also, over N8 trillion or 70 per cent of the total market capitalisation of the exchange was wiped out during the period to which analysts noted that one of the major causes of the crash was the massive exodus of foreign investors. Market watchers believe that the dominance of these brokers appears to be the reasons they are dictating the tune in the Nigerian market for now. Anytime they start buying, the bulls return and when they stop buying and take their profit, the bears take over again, hence one of the reasons for the back and forth movements that is being observed in the market so far. The dominance has also made some firms inactive, thereby leading them to commit market infractions. This might not be unconnected with the management of the Nigerian Exchange Limited’s intention to get tough with any dealing member firm that is not active for six consecutive months by revoking their operating licences.
Ranking of brokers
In an effort to stimulating demand and engendering competition in the stock broking community, the management of the NGX had in September 2011 introduced the ranking of the brokers by transaction value and volume. Ten top dealing firms in the Nigerian capital market ended the first four months of the year 2021 (January to April) with an exchange of 32.977 billion shares worth N452.296 billion. Statistics obtained by New Telegraph showed that the 10 stockbrokers were responsible for 53.90 per cent of the total value between 04/01/2021 and 30/04/2021. Also, the stockbrokers are responsible for 44.68 per cent of the total volume during the period under review. Analysis of the transactions revealed that Stanbic IBTC Stockbrokers Limited dominated with 11 per cent or N92.311 billion exchanged in 4.041 billion shares. Investment One Stockbrokers Limited followed with a record of N69.056 billion or 8.23 per cent.
Cardinal Stone Limited accounted for N55.809 billion or 6.65 per cent invested in 5,966 billion shares. Rencap Securities Limited traded N51.401 billion or 6.13 per cent, while ABSA Securities Limited accounted for N42.542 billion or 5.07 per cent. EFG Hermes Nigeria Limited traded N38.143 billion or 4.55 per cent. Meristem Stockbrokers Limited traded N28.220 billion or 3.36 per cent exchanged in 4.120 billion shares while WSTC Securities Limited exchanged N26.870 billion or 3.20 per cent traded in 1.555 billion shares. FBN Quest Securities Limited staked shares worth N26.161 billion or 3.12 per cent while OPEL Management Limited traded N21.787 billion or 2.60 per cent.
Need to address challenges
Market analysts, who identified volume of transactions as a major challenge facing stockbroking firms in Nigeria, stressed the need for human capital development in finance that would drive the needed local investors’ participation in the market and deepen market and reduce the dominance of few brokers in the market. A financial analyst and Managing Director, Crane Securities Limited, Mr. Mike Eze, explained that the challenge could be addressed by developing people that actually understand the financial market, saying that for the economy to grow, there is need for human capital development. Eze, in a chat with New Telegraph, stressed the need for human capital development in finance that would drive the needed local investors’ participation in the market and deepen market and reduce the dominance of few brokers in the market. “We have serious gap of knowledge and for the market to pick, we need to develop the skill and human capital to drive the market. Innovations are coming up in the market but the skill to transform it is not there,” he said. He pointed out that foreign and institutional investors, who understand the rudiments of stock market, were investing heavily in the market. Eze noted that there was an urgent need for marketers that can explain to the local investors’ reasons they should invest in the market. Eze called on domestic investors in the nation’s capital market to leverage on the current low prices of stocks of companies quoted on the floor of the Nigerian Exchange Limited for future gains adding that the market was ripe for investment going by the current low prices of stocks. He noted that it was obvious that activities will stabilise in the market in no distance time adding that this was the perfect opportunity for investors to stake their funds in the market. “This is the right time for investors to take part in the equities market, with the prices of shares at their lowest levels. Brokers are confident that with the issue of recession being addressed, the market would begin to stabilise and investors would begin to record significant appreciation on their investments. The Chairman, NASD OTC Plc, Mr. Tola Mobolurin, also speaking at a forum, said that if local institutions were expanded, they would generate savings within the country, there by substituting foreign capacity. According to him, it was desirable for government to seek how to moderate the destabilising influence of foreign portfolio investors in the Nigerian capital market by boosting increased domestic participation in the market. “We must generate savings within the country to supplement the foreign investment. We cannot depend on foreign investment if we want to salvage this country. We need to expand local institutional investment capacity and to achieve this, Pension Fund Administrators (PFAs) must play a larger role to do this.”
ASHON recently proposed some measures by which government can revive the securities market through enhancement of stockbrokers’ liquidity and implementation of some policies to boost investment in the market. On how to boost stockbrokers’ liquidity, ASHON’s Chairman, Chief Onyenwechukwu Ezeagu, stated that the Central Bank of Nigeria (CBN) should reintroduce the margin facility to help improve liquidity in the market. “It should, in conjunction with capital market operators, design effective guidelines that will de-risk the product to avert past experiences in margin lending in the market. The margin terms and conditions should also be reviewed in line with the current realities.
“Government should patronise the capital market – the taste of the pudding is in the eating. Thus, will spur others, including foreign investors to believe in the market. Government should urgently consider the proposal by the Securities Dealing Community ably represented by Chartered Institute of Stockbrokers (CIS) and Association of Securities Dealing Houses of Nigeria (ASHON) through the Capital Market Master Plan Implementation Committee (CAMMIC) on the rejuvenation of the market as part of the financial system review currently being worked on. “We do not as a matter of professional policy mention specific sector or stocks. Nevertheless, hedging against inflation cannot be achieved by a singular act, but by a professional management of fiscal and monetary policies by the authorities. This is more reason why investors should be closer to their securities dealers. “The Q1 results could not have been anything better given the conditions prevalent within the period. The Covid-19 pandemic has moderated all activities and the results show clearly in all aspects of the world economy. “The Foreign Portfolio Investors (FPI) are highly sensitive investors. They react to little negatives not to talk of when mainstream media give subtle hints of insecurity in the land by various scary headlines. The penchant for policy somersaults and arbitrariness of actions by the authorities does not give impetus to the attraction of Foreign Portfolio Investors,” he said. He explained that the Lagos Commodities and Futures Exchange was licensed to trade on agricultural commodities, currencies, oil and gas and solid mineral commodities. “We are looking to partner with various stakeholders in the Nigerian commodities ecosystem ranging from farmers, aggregators, cooperative societies, commodities associations, FMCGS, banks, insurance companies, certification agents, ship, tank farms, silos, warehouse owners and many more,” he said. According to him, the Central Bank of Nigeria (CBN) should not allow its proposed intervention to be skewed towards one of the commodities trading platform so that there will be even growth within the commodities market sector. Ezeagu noted that investor education was a continuous process which demands a collaborative effect among stakeholders, saying “ASHON has been collaborating with the SEC in the literacy development programme and we have continually engaged our clients on individual basis, providing answers to their enquires and volunteering information where necessary.”
Given that the industry is highly fragmented with most of the operators lacking both human and capital capacity, it becomes expedient that various processes that have been put in place both by the regulators and other decision makers in the capital market are implemented to encourage and ginger the expansion of local investment base in the nation’s capital market.