Ms. Mary Uduk, Acting Director General of the Securities and Exchange Commission (SEC), in this interview speaks on knotty issues affecting Nigerian capital market

What are your expectations and outlook for Nigerian capital market in 2020?

The future for the Nigerian capital market is related to the outlook on the general economy. Various estimates of economic growth indicate the Nigerian economy should grow by about 2.9 per cent to 3.7 per cent in 2019. We also expect positive growth in 2020 as the economy improves. Furthermore, the Federal government presented the 2020 Federal Budget Proposal, which is a landmark compared to previous budgets. The budget is expected to sustain growth and affect the capital market positively. As you are aware, the Capital Market Masterplan (2015-2025) guides the policy decisions of the Commission and we expect to further consolidate on the gains of implementing some of our initiatives. Specifically, we expect to ensure the market operates more effectively and rules and regulations are prompt in protecting investors.

As the chief executive of the apex regulatory authority in the nation’s capital market, what have been your challenges and how were they addressed?

As apex regulator of the Nigerian capital market, like any other endeavor faces a number of challenges. Chief among them is paucity of funds. Regulations are evolving, therefore, the need to acquire state of the art technology and framework as well as adequately-trained staff is becoming increasingly expedient. Market related challenges include but are not limited to, volume of unclaimed dividends, private sector crowding out effect, high interest rate on fixed income (government) securities, investor education, lack of market breadth and depth, among others. The commission is working assiduously both within and with other relevant stakeholders in the financial sector with a view to addressing these challenges that is bedeviling the capital market, as enunciated in the responses to many of the earlier questions.

There are other issues like e-filing and multiple accounts, and others. Do you think SEC has made any impact on regularisation of multiple accounts?

The issues around multiple subscription is still on, we have given some time for those affected to regularise their accounts. The stockbrokers and registrars are working on that and we believe that in no time we will identify the owners of those accounts and put them together so that those shares will become tradable again. On e-filing, we are in the process of deploying the software that will help with that. That will make filing more efficient; make it easier for capital market operators to send in returns to us. On dividends, there are no dividend warrants and we do not encourage dividend warrants and that is why we are urging investors to register for e-dividend. What that means is that when dividends are paid, investors no longer have to wait for warrants by post as these dividends are paid directly into their accounts. That is why we are saying that going forward, accounts without full details, that have not been updated will no longer be allowed to trade. This is because we do not want the legacy issues to continue, we don’t want unclaimed dividends to keep growing, and we want it to be such that when dividends are paid investors get it directly to their bank accounts.

In the area of Ponzi schemes, what is SEC doing to ensure that unsuspecting Nigerians are not defrauded?

The problem of Ponzi scheme continued last year and unfortunately, Nigerians still invest in these scams. We identified and closed a lot of them, we thank the police, EFCC and all the authorities that cooperated with us in closing these schemes. They still remain attractive and that is why we are intensifying efforts to educate the public. They are just there to defraud Nigerians and that is why we keep enlightening the public. We will close them down and their promoters would be made to face the law. SEC would continue to work to protect investors and also to ensure these schemes do not see the light of the day and even when they do they are closed down quickly.

Why do you think Ponzi schemes keep coming on?

Ponzi schemes thrive all over the world; it’s not a Nigerian problem. They tap into human greed coupled with the current economic situation. People see it as a way they can easily get out of poverty, it can also be as a result of not being aware of what investments options are out there. That is why SEC and the entire capital market community have this year intensified efforts at investment education. People need to know that it’s easy to open a money market account, a mutual fund account, get stocks and things like that. We want the market to be easier, more accessible and we also want to have more products. We want a deeper market and we believe that with these combinations it will reduce the number of Ponzi schemes coming up and reduce the number of investors putting their money into Ponzi schemes.

Market operations are beginning to embrace fintech as enabler as against being a disruptor, but there are strong concerns in the area of regulations and investors protections. How is SEC looking at these issues?

Fintech is a combination of finance and technology and the world is fast in recognising and accepting the role of technology in the financial sector. One of the major reasons for the acceptance of technology in the financial sector is that it makes thing very easy to access and also to achieve. Fintech has come to stay and the sooner we acknowledge and accept it the better for everyone. SEC constituted of a Market-Wide FinTech Road Map Committee because we have realized that we live in a technologically driven era, and it is only important that the Commission embraces this trend and create an enabling environment for technology to positively impact on our market. We support FinTech by engaging and guiding Fintech start-ups that seek to operate in the Nigeria capital market. As the regulator, we are also working on adopting Fintech and Regtech in our regulatory operations while we encourage those we regulate to embrace Fintech, not as competitor, but as enablers to their existing operations and processes. Specifically, we are looking into the area of crowdfunding, cryto assets, robo advisory and distribution of collective investment schemes product through fintechs. We need to be able to balance our objective of protecting investors and encouraging innovation and development in the market. Dedicated units have also been set up within the Commission to handle fintech.

Has the increasing spate of technology impacted on how much enforcement and oversight SEC has to do compared with 10 years ago?

SEC is continuing to deploy technology in regulation. Our regulation is becoming better and more efficient. We are able to tap into data we could not tap into before, so these now make regula tion easier and more efficient and make us better able to protect investors. We have also continued to encourage the members of the capital market community to embrace technology to make it easier for themselves and investors to invest. These days we have a lot of improvements, as now most stock broking firms have platforms you can just log in and buy on your own. As technology is improving access to the market it’s also improving the ability of the regulator to better regulate the market.

Are you seeing increased attempt at technology disruptions?

We have specified minimum operating standards for capital market operators, the exchanges and everyone. These standards include risk management tools embedded in them, they include security tools. So, we have not been seeing a lot of these fraudulent activities, its actually on the low and falling. But our enforcement department is up and doing and keep nipping these cases in the bud when they happen. But we believe that as we keep improving our risk management aspects of our operating standards both from the regulatory side and the market side these things will be on the reducing side.

Why are we moving from OTC to exchanges? What will be the difference?

For OTC transactions, they are just between one party and the other so the two counterparts meet and agree and design contracts as it suits two of them. So most of the time these are contracts done between knowledgeable parties and they are able to protect themselves. But for the exchange traded derivatives we have put in place a very robust risk management framework and that is why we brought these rules out. These rules cover in addition to the registration requirements, the derivatives contract themselves and also the participants in the derivatives market. They also specify the risk management framework that the SEC expects that every participant in the derivatives market would have. When I say every participant I mean the exchanges, the central counterparties and even the dealing members themselves. We also expect that the exchanges make rules around what kind of investors can invest in derivatives and what kind cannot. We are watching from every part of it and also learnt from countries that have done this for 40 to 50 years, so we are not re-inventing the wheel. We have also learnt from mistakes that these countries made and I can assure you that we are taking every necessary steps to ensure that this market is safe. We believe that this is the time to have derivatives in the market and we believe that we can introduce them in a way and manner that is beneficial to the entire market.

What is new in the area of capital market holding companies?

We have had the rule that we are working on, I think we should wait a little for these rules to come out. They are in process and will clearly state how capital market holding companies will operate. We think that is an area that has led to some regulatory arbitrage, some companies are structured in such a way that nobody is really looking at them. The CBN handles the banking side while the SEC handles the other side. But some of them are structured in such a way that they fall through the gaps so we are trying to put something together that covers all of them.

Is SEC satisfied with corporate governance codes?

We are satisfied, the SEC had its code and then the FRC came up with the National Code. There is that clear position that where the National code and the code for the sector differ, the entity is supposed to follow the stricter one. For the capital market the SEC has a code which we think all capital market operators should follow. We are satisfied with the code as it is now, but that does not mean that going forward if there is need for amendment we will not amend, but for now we are satisfied with it.

Electronic offering is the in thing all over the world, where are we in terms of rules around it?

Electronic offering is what we support, our rules have been espoused and they are out. We believe that electronic offerings will help solve the problems of unclaimed dividends so it’s something we are backing seriously. Through electronic offerings we will not have the problems of identity as we had in previous listings. Unfortunately, MTN did not go through electronic offering but we are pushing this and believe that in the near future all offerings will be electronic. It has a lot of advantages, it means that people who are not close by can invest, we are able to get the data we need for regulation, the offering is more efficient and it is cost saving. It is something we are working on; the rules will soon be out for everyone to use.

Are you saying if I am in Ghana or South Africa, via electronic offering I can buy into the Nigerian capital market?

That is the idea but when the exchanges finish putting it together that’s what will happen. Ours is to make the rules and regulate, but that’s the idea. We want to open up our market so that more people can invest from different parts of the world. We want a deeper, bigger, more attractive market. We think our economy is big enough to have a much bigger market. The capital market makes up less than 10 percent of the GDP of the country. If you look at other countries even South Africa, its over 100 percent of GDP. We believe we have a large room for expansion and that is what we are pursuing.

Commodity exchanges seem to be the game changer. Where are we on this?

We are ripe for a vibrant commodities market. We produce a lot of agricultural products that we can tap into. But we have not been very strong in that area. Three commodities exchanges have been registered, one has been vibrant in the spot commodities market. But we want a strong commodities market, a derivatives market that trades commodities. We believe that is the way we can strengthen our agricultural sector. While I agree that intervention is necessary, I believe that the market is more efficient and better because the market allocates resources better. If you have a strong commodities exchange, they will ensure that farmers have good price discovery which is one of the problems our farmers have. A farmer plants cassava and he expects to harvest in a years’ time, a good commodities market will give him an indication of what prices cassava will be in a years’ time. Futures contracts will be traded on that cassava and that helps the farmer in his decision making. I think that if we have this it will help us a lot and that is why the SEC has set up a commodities ecosystem trading committee, it’s a capital market committee and this committee has come up with various recommendations that are being implemented as we speak. Commodity trading rules are being worked on right now and we believe that 2020 will be the year when our commodities market will take off full time. Right now we have commodities trading but they are mostly spot, we want a derivatives market, based on commodities. A market that can trade all the commodities we have, the solid minerals, the agricultural products among others. (New Telegraph)

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