Sustenance of Investor Protection Fund (IPF) will bolster confidence in capital market. CHRIS UGWU writes
Here at the local bourse, like its peers world over, corporate governance is one of the key elements in improving economic efficiency and growth as well as enhancing investor confidence. Hence, an effective corporate governance system within an individual company and across an economy as a whole helps to provide a degree of confidence that is necessary for proper functioning of a market economy.
Sound corporate governance helps to lower the cost of capital and firms are encouraged to use resources more efficiently, thereby strengthening growth. Meanwhile, the degree to which corporations observe basic principles of good corporate governance is an important factor for investment decision.
However in Nigeria, lapses in adherence to these principles have contributed mainly to crisis in the Nigerian Stock Exchange, even as most countries have recovered from the global financial meltdown.
Investors cannot forget in a hurry the unreasonable manipulation of share prices which firms, in collaboration with dealing members of the exchanges and other financial institutions, 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 reverse speedily to N6.957 trillion and 31,450.78 by December, 2008.
It was, therefore, not surprising that market regulators have continued to wield the big stick by penalising some companies, especially for infractions and also finding ways to reward investors, who incurred losses as a result of wrong doing by dealing member firms and other quoted companies, one of which was the launch of Investors Protection Fund (IPF).
The IPF is a statutory fund established pursuant to Section 197 of the ISA to compensate investors, who suffer pecuniary losses arising from the revocation or cancellation of the registration of a dealing member firm by the Securities and Exchange Commission (SEC); the insolvency, bankruptcy or negligence of a dealing member firm of the exchange; and defalcation committed by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or received or deemed received by the dealing member firm in the course of its business as a dealing member firm.
The NSE, had on September 21, 2012, inaugurated the new board of the fund, with the late Gamaliel Onosode as the chairman. Also, the Securities and Exchange Commission, in January 2014, approved the proposed rules to govern the fund. However, following the demise of Onosode, the Nigerian Stock Exchange in 2016 appointed Mr. Lawrence Fubara Anga as the Chairperson of the Board of Trustees.
In line with the provisions of Part XIV of the Investment and Securities Act (ISA) 2007, which requires the NSE to establish and maintain an investor protection fund, the NSE launched its IPF with about N625 million in the coffers as at 2013. SEC had in 2015 inaugurated the National Investors Protection Fund (NIPF) worth, N5 billion.
The former SEC’s Director- General, Mounir Gwarzo, at the ceremony, explained that NIPF would complement the existing Nigerian Stock Exchange (NSE) Investors’ Protection Fund (IPF). Gwarzo, said that the global financial challenges makes the new NIPF imperative in the nation’s capital market. Gwarzo described NIPF as a trust scheme established to compensate investors, like those involved in private placements, not covered under the existing IPF administered by NSE.
However, many investors had expressed concerns over the feabeinvessibility, accessibility and compensation process of the fund. A former National Coordinator, Independent Shareholders Association (ISAN), Sir. Sunny Nwosu, had said that retail investors were not aware of the fund. Nwosu said that shareholders’ representative on the IPF board was not appointed by the shareholders to represent their interest, but was selected by the NSE. He said that the fund lacked credibility because nobody had benefited from it over the years.
Nwosu also said that domestic investors had suffered untold hardship between 2008 and 2010 and needed to be compensated. On his part, the President, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, said that besides the constitution of the board, approval of the rules, investor education on the benefits and those eligible were necessary.
Okezie said that many investors left the market because they did not know their rights and needed to be enlightened. He lamented the failure of the regulators to provide information until when there was a problem, adding that investors needed to be carried along by the market regulators.
Beneficiaries get N17m in 2020
Some investors, who suffered pecuniary losses due to activities of capital market operators, have been compensated by Board of Trustees of Investor Protection Fund IPF with N17.02 million during the 2020 financial year. According to a report obtained by New Telegraph, pursuant to Part XIV of the Investment and Securities Act 2007 (ISA), compensated a total of 49 investors claims valued at N17.02 million were paid out to beneficiaries during the year. The NSE also facilitated restitutions and recoveries of shares worth N305.11 million for investors in 2020. The Chief Executive Officer, NSE, Mr. Oscar Onyema, who is also a trustee of the IPF, said: “This milestone gives me great pleasure as it affirms our commitment to the continuous development of initiatives that will bolster confidence in the capital market. Though the compensation payment may not be a complete restoration, it is a show of good faith on our part to investors. I thank the Board of Trustees for their guidance and commitment, the claimants for their valuable patience, and all other stakeholders for their contributions towards the success of this exercise.”
SEC had identified investor protection as one of the cardinal points of market regulation that contribute to deepening the capital market. This was disclosed by a former Acting Director General of SEC, Ms. Mary Uduk, while speaking to journalists. According to Uduk, one of the ways of growing and developing the capital market is to ensure that investors are able to receive the benefits of their investments.
“When people invest, it’s because they are expecting some returns. So, we ensure that no one takes your money away in an illegal manner and also ensure that when profits are declared, investors benefit.
“We also encourage investors to try to diversify their portfolio, try to talk to experts and also explore the different vehicles of investments in the market so in one way or the other they will diversify their risks,” she said. Uduk said it was the responsibility of SEC to ensure that investors are not short changed in any transactions in the market and, therefore, urged them to participate in the market to grow it. She stated that it was to this end that the commission is taking steps to reduce transaction costs in a bid to ensure that investors do not bear unnecessary costs.
She said: “We are doing a lot to boost investors’ confidence in our market. But I want to say that both local and foreign investors are very good for the market. Investors’ fears can be of two folds, firstly they could be afraid because they feel that capital market operators will mismanage their investments, secondly is looking at the volatility of the market that makes investors skeptical.
“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. The Acting DG said investors were also protected through the National Investors Protection Fund (NIPF) Risk Based Supervision that enables SEC to supervise the operators to ensure that they do not do what they are not supposed to do. According to her, the complaints management framework enables investors to know where to complain and how long it takes for such complaints to be resolved. For those of the investors that are averse to risk, they should get their financial advisers to advise them properly on where to invest.