Business

Infractions: Sustaining rules’ enforcement

Financial disclosure remains one of the key post-listing requirements quoted firms are expected to adhere to. Chris Ugwu writes

 

Stock markets all over the world are information driven, this is because investors do not see the physical products such as shares and stocks of companies they are buying but rather take investment decision based on information about the companies issuing those shares and stocks.

 

Having so much conviction and confidence in the information received from quoted companies coupled with investment advice from their stockbrokers, investors stake their funds in shares.

 

The importance of information to the market cannot be overemphasised, stock exchanges world over set listing and post-listing requirements for companies seeking quotation.

 

The Nigerian Stock Exchange (NSE) is not an exception. In a bid to stem the tide of corporate governance lapses among quoted companies, there are listing and post-listing requirements issued by the NSE and the Securities and Exchange Commission. One of the major standard requirements includes regular dissemination of information about the financial performances and any changes that can affect their operations.

 

Regrettably, some quoted companies have not been adhering to these corporate governance ethics, thereby keeping investors in trance about their financial health, which had led many investors taking wrong investment position by investing in moribund companies.

 

Lapses in adherence to these principles have contributed majorly to crisis in the Nigerian Stock Exchange (NSE) even as most countries have recovered from the global financial meltdown. Over the years, many stock brokers and other quoted companies have been violating this important obligation, thereby keeping investors in the dark about their financial health among others.

 

Many ignorant investors have burnt their fingers by investing in some of the dormant companies, which do not furnish the market with their financials. Investors cannot forget in a hurry the unreasonable manipulation of share prices, which companies, in collaboration with some stock brokers, indulged themselves, a despicable practice that saw the market bubble to a peak on March 5, 2008, with market capitalisation and index hitting N13 trillion and 66,371.20 points respectively only to reversed speedily to N6.957 trillion and 31,450.78 by December, 2008.

 

However, the exchange in keeping to its regulatory role last week wielded the big stick by placing six firms on suspension following their inability to present their financials to the market for verification in the time stipulated by the Exchange.

 

The suspension of the companies, which also showed the weak adherence to sound corporate governance, was part of NSE’s drive to sanitise operations in the equities market and further ensure investor confidence.

 

Affected firms Following their inability to file corporate accounts as at when due, the Nigerian Stock Exchange (NSE) suspended trading in six quoted companies. The suspended companies are FTN Cocoa Processors Plc, Medview Airline Plc, Niger Insurance Plc, R.T. Briscoe (Nigeria) Plc, Union Dicon Salt Plc and Capital Oil Plc.

 

The NSE suspended trading on the shares of the companies with effect from Tuesday September 1, 2020 over their failure to file their audited financial statement for the year ended December 31, 2019”.

 

Regulatory rules at the local bourse require all quoted companies to submit their annual audited report and financial statement not later than 90 days after the end of the financial year. More than 85 per cent of quoted companies including all banks, insurers, major manufacturers, oil and gas companies and conglomerates use the Gregorian calendar year ending December 31 as their business year.

 

Thus, the deadline for the submission was Monday, March 30, 2020. The disruptions caused by COVID- 19 had led both the NSE and Securities and Exchange Commission (SEC) to extend the deadline for submission of annual report and accounts by 60 days, till May 29, 2020.

 

The NSE stated that the companies were suspended after the expiration of the “grace” period and many notifications demanding the submission of the financial statements.

 

“In accordance with the rules set forth above, the suspension of trading in the shares of the above listed companies will only be lifted upon the submission of the relevant accounts and provided the exchange is satisfied that the accounts comply with all applicable rules of the exchange,” NSE stated.

 

The NSE had in July 2020 warned investors to be wary when dealing with shares of 13 companies after they failed to meet regulatory deadlines for the submission of their financial statements without any explanation.

 

The 13 companies included Aso Savings and Loans Plc, Deap Capital Management & Trust Plc, DN Tyre & Rubber Plc, FTN Cocoa Processors Plc, Goldlink Insurance Plc, International Energy Insurance Plc    Medview Airline Plc, Resort Savings & Loans Plc, Staco Insurance Plc, Standard Alliance Insurance Plc, UNIC Diversified Holdings Plc, Union Dicon Salt Plc and Union Homes Savings and Loans Plc.

 

“Investors are advised to trade with caution on the securities of these companies in the absence of up to date financial information on them,” the NSE stated. SEC partners stakeholders In a bid to fight the spate of capital market infractions, the Securities and Exchange Commission said that it intended to work with all self-regulatory organisation and all capital market operators to make sure that infraction are reduced to the barest minimum.

 

The Director- General, Securities and Exchange Commission (SEC), Lamido Yuguda, who stated this in a press briefing, said in order to increase the visibility and attractiveness of our market, “we shall work towards maintaining an environment that is enabled by the appropriate regulatory framework, timely and affordable access to the market, zero tolerance for infractions, heightened investor confidence and awareness, innovative product development and good governance practices.” Yuguda noted that SEC needed to restore investor confidence and attract the retail and young investor into the market.

 

“We will ensure strict enforcement of our Rules and Regulations, strengthen our enforcement regime and clamp down on illegal operators luring unsuspecting investors with various ponzi schemes. “Where they happen, we have a very strong resolve to really fight infractions to mete out sanctions as appropriate as quickly as possible.

 

“We have a number of cases that we are looking at, we are reviewing each case in a case-by-case basis, we are working to make sure that these cases are resolved in the shortest possible time. “However, make no mistake about it, we have a zero tolerance for market infractions. We need a capital market that is actually very fair; fair to investors, a market that is not really tilted or biased one way or the other or in favor of any market operator that seeks to make a gain at the expense  of investors.

 

“We have a fiduciary duty to the people that we serve and it is not only by doing that, investors will feel that this market is for them. If you look at the statistics the average age of the client, is over 50 years that tells you a lot of young people today are not coming into this market.

 

“This is really something that we need to reverse, because if young people are not coming to the market, then this market future is doomed. These people have the money and the capital, because they are young so they have the earning power.

 

“So we have to bring them to the market and it is only by making sure that infractions are reduced to the barest minimum that you can really make them know that this market is really a market for them and not for fraudulent operators,” he said.

 

Shareholders’ views

 

According to the founder of National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir. Sunny Nwosu, going by what the exchange said, the companies deserved to be sanctioned. Nwosu noted that the affected companies supposed to have ensured that they meet the requirements as such will help shareholders to understand their financial health for investment decisions.

 

He said: “It is not a new thing and it does not come to us as a surprise. We have constantly written to the exchange and raised the issue at annual general meetings that there is need to know the status of these companies to enable us take investment position”

 

He, however, noted that the NSE was protecting more of its own interest rather than that of the investors, as the NSE placed the sanction due to fees owed it. The president, Progressive Shareholders Association, Mr. Boniface Okezie, while reacting to the development, also said the sanction could have taken place long ago, adding that it was better for Nigerians to have few companies who are ready to play by the rules than to have all the companies in the world who are not ready to satisfy post listing requirements.

 

Okezie said that placing the companies on suspension for non-compliance with the rules of listing on the NSE was a welcome development, as it would lead to more appropriate pricing of securities. He said more quoted entities would be compelled to give information to the market on a timely basis adding that investors’ confidence in the regulatory capacity of the NSE and therefore in the market would be enhanced.

 

Last line

 

A developed capital market is a world class capital market and such market is one that engenders investor confidence, has breadth and depth in terms of product offerings, characterized by market integrity, has a sound regulatory framework, a strong and transparent disclosure and accountability regime, fosters good corporate governance and is fair, robust and efficient market place. Hence there is the need for regulators to tighten the noose on market infractions and other miscellaneous capital market crimes.

 

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