The New Iron Lady   

Published on August 16, 2010 by TheNEWS   ·   1 Comment

Arunma Oteh, Director-General of the Securities and Exchange Commission practically announces her firm resolve to reform the troubled capital market

It may no longer be business as usual at the capital market, as practically proven two weeks ago by Ms. Arunma Oteh, Director-General of the Securities and Exchange Commission, SEC. Penultimate Wednesday, 4 August, Oteh kicked out Ndi Okereke-Onyiuke as Director-General of the Nigeria Stock Exchange, NSE, over allegations levelled against her by billionaire businessman, Aliko Dangote. The SEC is the senior partner to the NSE in both bodies’ capital market regulation and supervision mandate. But Okereke-Onyiuke’s remarkable 10-year tenure as director-general virtually subsumed SEC under the NSE, as the erstwhile DG threw her weight about the capital market. In 2004, she ensured she saw off Suleiman Ndanusa, the then SEC Director-General who struggled to assert the Commission’s superiority, and installed Musa al-Faki, her own crony she wound round her chubby fingers. Even as head of the junior partner, she was the Iron Lady of the entire capital market. Okereke-Onyiuke’s word was, indeed, law.

Oteh assumed office in January this year in the wake of a share manipulation scandal, involving the African Petroleum stock, that consumed her predecessor, al-Faki. Although both SEC and the NSE were widely condemned for their regulatory lapses while the manipulation was being perpetrated, Okereke-Onyiuke emerged from it unscathed. Calls for her sack had been long in coming after a heavy crash of the market where investors lost N8 trillion to questionable market deals within two years. The removed director-general had galvanised the NSE, which she joined in1983, from an unknown quantity, when she became its DG in 2000, to international recognition. In 2004, four years after Okereke-Onyiuke became DG, the market’s All-Share Index was 23,884.45 points. By 2007, it had risen to 57,990 points, although the increase was buoyed mostly by the consolidation programme in the banking industry between July 2004 and December 2005 and the rash of public offers it engendered. Even the international community took note of the surge on the Nigerian bourse, with the participation of foreign investors and favourable ranking of the market by globally reputable rating agencies like USA’s Standard & Poor’s.

But as has been unfolding since the crash of the market began in March 2008, the rise was artificial. Stockbrokers were always conniving with bosses of some quoted companies, largely banks, to manufacture higher share prices to paint a picture of sound financial health worthy of investment. In many cases anyway, it was the companies’ executives, in conspiracy with the stockbrokers, who were trading in their own stocks fro and back, manipulating the prices and giving the public impression of a natural progression. Till now, not a few capital market analysts remain convinced NSE top officials were privy to the criminal transactions. Abayomi Obabolujo, publisher of Stockwatch, confirming on a television programme that illegalities do exist in the market, narrated the experience of a managing director of a quoted company. The MD, he recalled, lamented how the NSE authorities sat for a questionable length of time on his company’s annual results which he had submitted to them. The company boss alleged that while the results, in which the company declared substantial profits, were witheld, NSE officials leaked them to some favoured stockbrokers who began trading in the stock feverishly, mopping up shares on it and hoarding them with a view to trading in them at astronomical profits when the results were made public. The managing director was compelled to leak the results to the media to force the hand of the NSE to release them. Again, startling disclosures after the arrest of Peter Ololo, the stockbroker who owes banks about N88bn largely in margin loans for stock transactions revealed how bank chiefs and stockbrokers collude to manipulate share deals. A   United States Securities and Exchange Commission report attributed the Nigerian stock market crash to dysfunctional enforcement, complicated and entrenched governance problems, clear instances of insider trading, market manipulation that resulted in no action and woeful inadequate surveillance. The crash gave the Nigerian capital market not a little taint and rendered it less attractive for investment purposes.

Oteh came to SEC confronted by the challenge to cleanse a sordidly muddied environment. And she seemed to agree with the US SEC report. She noted that regulation has not been tight enough in the past, hence the need to strengthen regulatory surveillance and enforcement practices. Categorising the challenges into weak governance and insufficient capacity, Oteh emphasised the need for tougher oversight from SEC and more transparency if these would be decisively combated. Significantly, she warned that no crime in the capital market would go unpunished and promised a tough enforcement regime. She vowed she would not hesitate to file civil and criminal charges against any defaulter.

With Okereke-Onyiuke’s sack, it would appear Oteh is beginning to underline her words with action. And already, players in the sector are dubbing her the new Iron Lady of the capital market. Sacking her Iron Lady predecessor did not come easy, as this magazine learnt last week. It was learnt that after SEC received Dangote’s petition on 21 July, it invited Okereke-Onyiuke to deliberate on the issues  mentioned therein with her. Her defence was unconvincing, but she was offered a soft-landing option to resign. She declined. Her obstinacy was based on the fact that she had only a month to turn in her letter to proceed on leave preparatory to eventual retirement in November, and resignation would be a dishonour and an ignominous end to what has been a historic decade, for both good and bad, as DG.

But Oteh would have none of it. Okereke-Onyiuke, with Oteh breathing down her neck, began to realise that the unassailable influence she had wielded in the capital market and in the corridors of  government which had accorded her official steel was fast evaporating. Confused, she ordered Sola Oni, assistant general manager and NSE spokesperson, to clamp up on speaking with the press, and the next day hurriedly cancelled a briefing with editors scheduled for 11 a.m. She desperately began appealing to Dangote to sheate his sword, stop his strident allegations of financial infractions against her and intervene in the tide that was threatening to sweep her away. Although Dangote gave her his words of support on the noon of that Wednesday, it was too late. The letter removing her had already been prepared at the Abuja headquarters of SEC. Announcement of the sack was dramatically attended by the presence of many armed policemen at the Stock Exchange, Lagos, building of the NSE .

Oteh said local and international investors must be made to be aware that the investing environment in the Nigerian capital market has changed. Bad rubbish, she declared, will always be promptly discarded. Bismarck Rewane, economist and managing director/chief executive officer of Financial Derivatives, a financial research and analysis outfit, was in league, but cautioned her she is in for quite a Herculean task. Removing Okereke-Onyiuke, he remarked, is just a speck in cleaning the cesspool of dirt that has enveloped the NSE.

The SEC director-general is, of course, not unaware of this and is not restricting herself to the human factor. She has been working on restructuring some legal and operational aspects of the market. The issue of margin loans, which was extensively abused under Okereke-Onyiuke, is being addressed. SEC has announced new rules expected to be complied with by stockbroking firms, the new Asset Management Company (AMCON), banks and other financial institutions. This rules apply to all transactions that are carried out in the capital or financial markets where credit is sought and used to purchase securities. The new rule states that margin shall be 50 per cent of the total purchase price of the securities or group of securities or as may be adjusted by the Central Bank of Nigeria, CBN, from time to time. It provides that customers purchasing securities should pay for them in full or borrow a portion of the purchase price from a broker/dealer. It is now illegal for a bank to grant a margin facility for the purchase of its own securities. Market operators who own or operate margin accounts shall appoint a “margin compliance officer” to monitor and adhere to strict compliance with these rules. However, the rule exempts asset managers or investment advisers that operate their margin accounts in the house of other market operators like a broker/dealer. But where a bank or a broker/dealer is trading for its own account and wants to make purchase on margin, it shall do so in a separate margin account.

When opening a margin account, the Know Your Customer, KYC, rule must apply. The margin agreement shall contain the credit agreement, the hypothecation agreement and a valid identification. The rule applies to both a Bank Margin Account and Brokerage Margin Account. With government’s recent approval to establish AMCOM, the CBN has set up a technical team to value bad bank loans it would be purchasing with a view to relieving lenders of their harrowing experience.

Oteh is determined to punish brokers allegedly involved in the stock market downturn. The SEC boss maintained there is need to get the bad eggs out of the system or else, both local and international investors will think every broker is a thief. She disclosed two months ago at the 35th Annual Conference of International Organisation of Securities Commission, IOSCO, in Montreal, Canada that SEC had penalised 92 capital market operators for violating money laundering rules. Another set of 390 operators will be penalised for other offences – 221 for failure to submit their annual accounts and 169 others for late submission of accounts. No fewer than 35 brokers have been queried for not filing their quarterly returns and other related offences.

The Commission had received more than 220 new complaints against brokers and 159 against registrars. The complaints against stockbrokers range from unauthorised/fraudulent sale and purchase of shares, to falsification of clients’ accounts.

SEC has also amended the rules on negotiated settlement. The new rule requires that notification of request shall be signed by the person making the request and not his or her counsel, and where it is a body corporate, the managing director and secretary of the company shall sign the request.

The new rule for Collective Investment Scheme requires that assets of the schemes must be separate and distinct from the custodian’s own assets. And the use of a custodian in any securities transaction has been made mandatory. The essence of creating the rule is to ensure the safety of investors’ assets. This will enable brokers to facilitate the opening of securities accounts by their clients. The custodian shall be responsible for the remittance of the proceeds of sale or purchase of securities to the beneficial owner.

Where there is more than one Issuing House for a public offering, the Issuer shall appoint a head issuing house. There shall be a vending agreement to provide the terms of relationship between the joint Issuing Houses where there is more than one Issuing House. Securities ownership acquisition of additional one per cent to five per cent shareholdings in a company shall be reported to SEC and the company concerned by the registrar. Registrars shall cease to maintain the register of their subsidiary, associate, holding company or any person with the ability to materially influence the policy of the company.

A rule on internal restructuring has been created to empower SEC to determine whether a transaction relating to the internal restructuring of a company is an exempt transaction within the meaning of the Investments and Securities Act, ISA, or not. Underpayment of SEC fees for market transactions shall now attract a penalty.

SEC is reviewing the composition and competence of the audit committees of all quoted companies in a bid to instill accountability and good corporate governance in the financial system. This is in line with the provisions in the draft code of corporate governance. Under the new regime, at least a member of the board must be financially literate as to be able to interpret financial accounts. The Commission is also working on a new Code of Corporate Covernance. The code will spell out the composition and responsibilities of the board of directors and also make provision for independent directors. Cross membership of boards of two or more companies is to be discouraged, just as not more than two members of the same family can sit on the board of a public company.

Stakeholders advised that Oteh will need to work harder at implementing the rules. They wanted SEC to implement its enforcement approach without discrimination and to communicate its seriousness to investors. Speaking on behalf of the Association of Stockbroking Houses of Nigeria, ASHON, Alhaji Rasheed Yusuff, its chairman and managing director of Trust Yields Securities Limited opined that now that SEC is opening a new era of capital market reforms, there is need to arrive at a consensus as to whether to adopt the British or the American capital market system. ASHON said SEC should adopt a definitive system of market operation. In the United States, for instance, the SEC chairman cannot hold a similar appointment in quoted companies, while the English model allows it. If there had been a definitive system, the controversies that surrounded the appointment of Senator Udo Udoma, chairman of SEC, as well as of some quoted companies like the United African Company of Nigeria, Unilever Nigeria and Linkage Assurance plc would not have arisen.

Dr. Martin Oluba, financial analyst and managing director of Value Fronteira, a financial consultancy firm, believed the prospects of a capital market reform without government liberalisation of the areas involving heavy industrial engineering infrastructure that will provide the needed support for the real sector and overall economic growth and development are doubtful in the long-run. He said liberalisation holds the key, as it enhances competition and inevitable efficiency in resource allocation and output to the concerned sectors. By this, the institutional structures and other processes should be put in place in order to produce the best results.

According to the analyst, SEC’s role in the market should be much more proactive and collaborative, with a robust early warning model upon which it can detect imminent disruptions in the normal and expected path of the capital market. To achieve this, SEC has to collaborate with other regulators like the CBN and the Ministry of Finance that can enhance the overall quality of its final policy and programme output. Oluba stressed that SEC’s relationship with the NSE should also be consistent with expected reporting line structure, as against the practice of the past.

Oteh stressed she is striving to build a world-class capital market where there is investor confidence, adequate product offering and efficient processes, market integrity, sound regulatory framework, strong and transparent disclosures and accountability regime, good corporate governance and a fair and efficient market place.

Oteh is insisting that the advert for the successor to Okereke-Onyiuke be thrown wide open and transparently done to allow even Nigerians working abroad interview opportunity. Okereke-Onyiuke had, while in office, given public impression that the NSE was collaborating with Accenture, a reputable consultancy firm, on a recruitment process to appoint her successor. But Accenture had clarified there was no such thing, and a source hinted last week that Okereke-Onyiuke was rather engaged in high-wire intrigues to pick who would replace her. With her out of the way, Oteh’s commitment to seeing a sincere process in picking the new NSE DG from anywhere is on track.

An ally of hers told this magazine she is rooting for a candidate that flaunts not only an internationally-endorsed professional pedigree similar to hers, but also possesses the same business philosophy about the need to reform the Nigerian capital market decisively.

Oteh, 41, has over 16 years of capital market experience working for the African Development Bank Group and is its Vice-President (Corporate Services). Before becoming VP, she was its Group Treasurer for five years (2001-2006) with overall responsibility for its fund-raising and investments in major international capital markets. Prior to the AfDB job, she had worked in corporate finance, consulting, teaching and research for many institutions, including the Harvard Institute for International Development, USA, and Centre Point Investments Limited Lagos, Nigeria. She bagged an MBA from Harvard University, USA, and a first-class Bachelor of Science degree in Computer Science from the University of Nigeria, Nsukka. She has received both a Harvard Fellowship Award and a National Merit Award.  Some capital market operators are cautioning it is too early to dub Oteh the capital market’s new Iron Lady. Segun Fawole, an economist and stockbroker agreed that though the SEC DG may have been exhibiting some actions that recommend her as possessing the will to reform the market, she still has some way to go in earning that appelation.

Indeed. Fortunately, Oteh has age on her side to do the marathon. What she requires to last it is the will. Does she have it?

—Clement Oriloye