Author Topic: NSE RESTRUCTURING: CLEARING THE AIR OF UNCERTAINTY  (Read 927 times)

Offline furtune

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NSE RESTRUCTURING: CLEARING THE AIR OF UNCERTAINTY
« on: October 27, 2008, 02:35:41 PM »
NSE restructuring: Clearing the air of uncertainty
By Yemi Kolapo


The once bustling Nigerian Stock Exchange, has in the past seven months, become a source of anxiety to investors, who have continued to incur losses on their investments, as well as the regulators, who have implemented several measures meant to turn the market around without much success.

But experts have said that even though it is every investor’s wish to see a quick rebound of the market in the light of the 32 per cent in price movements reportedly lost between March 5 and the first week of October, the seemingly irreversible crisis, did not start in a day and would not also end so quickly.

According to them, the bubble that had made the Nigerian market a coveted bride, yielding the highest returns on investments and gaining unflinching investor confidence, was not also created in a day. Therefore, re-fixing the market to regain its old accolades may require some time to achieve.

Although the decline being witnessed in the Nigerian market cannot, be separated from the global financial crisis that has continued to hit hard on stocks, analysts maintain that the Nigerian problem can be traced to two primary causes.

The President/Chief Executive Officer, Value Fronteira, Dr. Martin Oluba, in his paper on, “The Nigerian Equity Market Crisis: The Causes, The Solutions,” published recently in The Fronteira Post, said the lingering turmoil could be traced to a primary cause, which derived from domestic monetary and financial policies.

The problems, he said, included the untimely reversal of the margin trading policy, which halted the fuelling of the bull market as well as the consequent increased pressure on banks a few months from the halt of the policy to start recalling their funds; the increase in the Monetary Policy Rate from 9.50 per cent to 10.5 per cent; and the increase in the Cash Reserve Ratio from two per cent to four per cent “to curb the seeming excess liquidity, which was part of the underlying reason for halting the margin facility.”

He said the abandoned CBN policy of banks’ year end harmonisation also triggered a desperation in the industry for fund mobilisation, which bid up the interest rates and made the money market even more attractive.

Many have also linked the current decline to the activities of international hedge funds, which invested massively in the market and made for the door as soon as it started becoming clear to the discerning investor that the bears were at the gate.

However, in the event of a crisis of this magnitude, experts note that the important thing is to get round the situation and not to brood over some irreversible causes. This has made various stakeholders to take several measures to put the market back on its strong footing.

After the NSE’s all gainers, no losers one-week outing failed to correct market anomalies in June as experts had predicted, several other measures were adopted, which only relieved the market for a short period. In August, after four close rate increases, the CBN boosted liquidity in the economy with the reduction by 50 basis points of the MPR from 10.25 per cent to 9.75 per cent. The reduction was meant to make lending rates drop so that funds could be accessed by more businesses.

The reduction in the Cash Reserve Ratio (the minimum reserve a bank must hold relative to customer deposits and notes) by 200 basis points from four per cent to two per cent, expected to inject additional N150bn into the economy; and the liquidity ratio, reduced from 40 per cent to 30 per cent, were all done in the same period to boost liquidity in the system and increase market activities.

The Securities and Exchange Commission, on its part, approved guidelines for share buy back; the NSE and SEC reduced fees on all transactions, while various market operators offered to reduce their fees in order to make the market more attractive to investors among others. But these hardly achieved results with the market deteriorating to a one-gainer position for the most part of last week.

The latest move to salvage the market situation might be the announcement on Wednesday of a restructuring that would see the NSE being listed on the exchange as well as on other exchanges (demutualisation), although the NSE spokesman, Mr. Shola Oni, denied this in a telephone interview with our correspondent.

A statement by the Secretary to the Council of the NSE, Mrs. Josephine Igbinosun, however, said the new structure, approved at a recent council meeting, was a consequence of the re-organisation, which the council approved early in 2008.

Under the new structure, there would be a group chief executive officer and three executive directors, with the three directorates being compliance and surveillance, quotations and listings, and market operation/IT.

The restructuring plan, which is expected to terminate in December 2010, will involve the transformation of the NSE’s governance and IT platform, and diversification of its listings and market development product offerings into derivatives and exchange traded funds.

Speaking during the stockbrokers’ conference in Ilorin on Thursday, the Assistant Director-General, NSE, Mr. Lance Elakama, said that the restructuring, which could not have come at a better time, would help in addressing the current market crisis.

But the President of the Chartered Institute of Stockbrokers, Mr. Dipo Williams, said that he could not see any connect between the newly approved organisational structure and the persistent market decline.

“Since the move will not bring in the required liquidity that may help move the market forward, I don’t see how that will help the downward trend of the market,” Williams said.

Apart from its effect on market activities, the announcement had also led to speculations that the job of the Director-General, NSE, Prof. Ndi Okereke-Onyiuke, might be on the line, particularly with the perception that the market crisis began with regulatory lapses.

And although the NSE discarded the allusion, saying it was a strategic plan that had been on for over five years, observers are still not clear on the restructuring details. And with stockbrokers refusing to talk on the issue, saying that they had been banned from speaking to the press, the reorganisation remains vague.

“If they can tell us the strategy they want to adopt and when it will exactly commence, it will help. Any comment at this time will be speculative,” the Chief Executive Officer, Financial Derivatives, Mr. Bismarck Rewane, like other analysts contacted, said.

Some stockbrokers, who preferred not to be named, insisted on Saturday that the reorganisation was a plot to elongate the tenure of the DG, whom they said was facing a hard time as regards acceptability.

“We know how these things are done. Someone will just wake up one day and think of ways to ensure that he or she does not get his or her finger burnt as a result of the crisis. The next thing is to map out defensive strategies to hold the market to ransom, while protecting their own interests,” one of the stockbrokers had said on Thursday.

Is the NSE being listed on its own floor and on other exchanges because it wants to raise enough funds to function better? Is the restructuring to allow more people have a say in the running of the exchange with part ownership? Will the new structure give investors the long-awaited succour? Or is it merely to elongate the tenure of the DG like some have insinuated? These are some of the questions begging for answers from the concerned authorities.

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NSE RESTRUCTURING: CLEARING THE AIR OF UNCERTAINTY
« on: October 27, 2008, 02:35:41 PM »

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Offline beibee

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Re: NSE RESTRUCTURING: CLEARING THE AIR OF UNCERTAINTY
« Reply #1 on: October 27, 2008, 04:00:21 PM »


not yet uhuru...
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Re: NSE RESTRUCTURING: CLEARING THE AIR OF UNCERTAINTY
« Reply #1 on: October 27, 2008, 04:00:21 PM »

 

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