THE battle over the proposal of the Securities and Exchange Commission (SEC) to raise the capital base of stockbroking firms continued yesterday in Abuja, with the brokers pleading with the Senate to categorise broking firms into three and capital bases of N250 million, N500 million, and N1 billion, depending on the volume of business.
The firms, through a joint position by the Chartered Institute of Stockbrokers (CIS) and the Association of StockBroking Houses of Nigeria warned that accepting the SEC position of a N1 billion capital base would erase broking firms that cater to the needs of the average Nigerians that the lawmakers represent.
"This categorization will enable the market to evolve without causing any disruption" their position said yesterday.
They added that the vaccum created by a similar policy in the banking sector led to the introduction of Micro-finance banks to meet the needs of the common man.
The Senate Committee on the Capital Market headed by Ganiyu Solomon, promised to look into the proposal, adding that it will study all the arguments for and against the move.
The brokers accused SEC of going about the issue of capitalization without any dialogue with them, while applauding the Upper House of the National Assembly for doing what the commission should have done.
The Director-General of SEC, Musa Al-Faki, had in his position to the Senate last March explained that it was pushing for the billion capital base because of the to strengthen and reposition all sectors of the financial market to cope with emerging local and global challenges; adding that there were too many fringe players who are mainly responsible for various infractions in the market; and
Furthermore, Al-Faki said stockbrokers and market makers have been identified as high risk participants as many of them are entrusted with large volume of fun and control investment assets far in excess of their shareholders' funds.
The CIS and Association of Stockbroking Houses warned however that the policy in addition to shutting out small investors from the market because the stockbroking firms will find it unprofitable to deal with small holders, it will also further heat up the market and engender speculative trading of the few securities available giving rise to prices that have no bearing w the situation of the companies whose securities are being traded.
"A lesson to be drawn from the banking consolidation. At the formation stage of the implementation of the banking consolidation, it was assumed that a strong banking sector would support and energize the real sector of the economy. But the reality is that the real sector has been neglected by the 'mega' banks, because the policy emphasized more on share capital than the operational structure of the banks," the brokers added.
The stockbrokers maintained yesterday that while it supported the need to strengthen and reposition the capital market with a view to meeting local and global challenges it kicked against "one-size-fits-all" minimum capital base adding that on the issue of too many fringe players in the market, it could not stand because the firms were registered by the regulatory bodies after meeting the set standards.
They said further: "For any stockbroking firm to qualify for registration, the operators and the firm must have been adjudged to be fit and proper people to operate in the capital market. We do not believe that raising the capital base to N1 billion will curb the activities of unscrupulous players. Our associations would like to collaborate with SEC to enforce market discipline by ensuring that no erring firm and operators go unpunished if they infringe on any rule of the market."
On the reference made by SEC to the 246 registered stockbroking firms dealing in 213 equities, the stockbrokers said it was an an oversimplification of the matter.
Their words: "In a vast country like Nigeria , the nation requires a large number of firms and stockbrokers to reach the teeming population that is still ignorant about the capital market. In our opinion we believe that our economy requires more stockbroking firms and branches to cover the entire country. Presently about one per cent of Nigerians are shareholders in quoted companies compared with 70 per cent in developed economies. As a result, we require more stockbrokers to extend services to large proportion of our people.
"It is not the number of firms in relation to the number of securities that matters but the volume of transactions. The number of listed equities in the market is currently 215 and is still growing. An enabling environment neec to be put in place to ensure that more companies are listed in the market.
For example, many companies have refused to seek quotation because of the high cost of issuance. The recent reduction in charges notwithstanding, the cost of issues in Nigeria is still very high and in particular the proportion of these charges that go to the regulators when compared with other regulator."Ends.