Click to edit Master title style - Nigerian Stock Exchange Journalists Academy.pdf ·...

Click to edit Master title style

Presented by

Adeolu Bajomo

Executive Director, Market Operations & Technology

At The

SEC Journalists' Academy

December 14, 2012

THE ROLE OF THE NSE IN ENSURING AN ORDERLY SECONDARY MARKET IN AN UNSTABLE ECONOMY

12/14/2012 The Nigerian Stock Exchange 1

Click to edit Master title style |


1 • About the NSE

2 • NSE’s Vision and Objective

3 • Ways The NSE Ensures Orderly Market

4 • Questions



About the NSE

3rd Largest Exchange in Africa by Market Cap

Approx. 5 million investors: Foreign (70% of market activity); Retail investors (30% of market activity)

312 Brokers-Dealer firms; 28 Issuing Houses Equity and bond products: 202 listed equities with N8.01t in market cap (195 operating companies); 56 bonds (N3.79t in FGN bonds, N341b in State bonds and N1.39t in Corp. bonds)*

Founded in 1960

14 electronic trading floors around Nigeria

Figures as at 31-Aug-2012


“21st” Century

Technology Strategies

Target-Based Business

Development Efforts

Strong Regulation

and Supporting Regulatory Programs

First-Rate Investor

Protection Strategies

Growth-Enabling Market

Structure

$1T Market Capitalization

NSE’s 5-Year Growth Outlook


Click to edit Master title style | Drivers of Success

12/05/2011

Integrity

• Accountability

• Effective Corporate Governance

• Transparency and Strong Regulation

Durable

Wealth

Creation

• Operational Efficiency

• Modern Technology and Supporting Infrastructure

• Capacity Building

• Demutualisation

Market

Leadership

• Listings Development

• Market Development

• Product Development

• Strategic Alliances


The Organization

Reconstitution of the Board

Fully Operational Board Committees

Board Committee on Demutualization

Formed

Corporate Reorganization

Reorganization for Effectiveness and

Efficiency

Transformation Programs Underway

Four Divisions to Better Position the Exchange as a Commercial Entity

Business Development

Listings Sales/Retention Focus on Growing from $75B to $1T in 5 Years

“5 Products in 5 Years” (Equities, Bonds, ETFs,

Options, Financial Futures)

National Reach via Branch Network of

14 Trading Floors and Offices

Technology

Upgrade of Trading and Market Management

System to NASDAQ OMX X-stream

Build Business Technology Baselines

and Process Automation

Advocating Full Dematerialization

Key Initiatives



Regulation

Tailored Best -in-Class Service for Issuers and

Broker-Dealers

Attention to Rules and Interpretations for

Market Participants

Surveillance Automation (Conduct, Controls,

Systems, etc.) , e.g., SMARTS

Regulatory Program

Better Coordination with Other Regulators

Compliance via Enforcement

(Disclosures, Financial Reporting, Forecasts)

Eradication of Insider Trading, Market

Manipulation and Issuing of False

Statements

Investor Protection

Reconstitution of Board of Trustees of Investor

Protection Fund (N667m)

Trade Guarantee Fund

Additional Support by the SEC’s Establishment

of a Similar Fund

Market Structure

Market Making and Securities Lending, and Development of a Short

Selling Program

Consideration of an Increase in the 5% Band to 10% with an Intraday Auction at the 5% Mark

Longer Trading Day, Sponsored Access, Opening/Closing

Auctions, etc.

Key Initiatives contd.


Click to edit Master title style | NSE Markets and Boards: Five-Year Outlook

• Govt. Bonds-Federal

• Govt. Bonds-State & Local

• Corporate Bonds/Debentures

Bond Market

• Main Board

• Alternative Securities Market (ASeM)

Equities Market

• ETFs ETF

Market (2011)

• Stock Options

• Bond Options

• Index Options

Options Market (2014)

• Currency Futures

• Interest Rate Futures

• Etc.

Futures Market (2016)




Basic Functions of a Capital Market


• Establishing trading facility for all types of securities,

• Providing a fair, efficient & transparent securities market using an electronic trading system,

• Enabling shorter settlement cycles and book entry settlements and

• Meeting international benchmarks and standards.

• Raising capital for business

• Mobilizing savings for investment

• Promoting Corporate Governance


Primary Responsibilities of The NSE

The primary responsibility of The Nigerian Stock Exchange, like other exchanges, is to provide investors, issuers and intermediaries with efficient, transparent and a well-regulated market where capital is raised.



Why Orderly Markets Are Essential

Orderly Market

Any market in which the supply and demand are reasonably equal

Transparent Market

Any market where all relevant information is fully and freely

available to the public.

NO ORDERLY MARKET, NO INVESTOR CONFIDENCE

NO INVESTOR CONFIDENCE, NO MARKET


• Speculation

• Lack of Transparency

• Genuine Errors

• Fraud

• Investor Sophistication/Awareness

• Operational Sloppiness

• Enforcement of Rules

• Inaccurate and Sensational Reporting


Drivers of Disorderly Markets



Equity Market Performance 2002 – 2011

Speculative Impact in 2008

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

-

5

10

15

20

25

30

35

2-Jan-02 2-Jan-03 2-Jan-04 2-Jan-05 2-Jan-06 2-Jan-07 2-Jan-08 2-Jan-09 2-Jan-10 2-Jan-11

ASI

(D

aily

)

To

tal V

alu

e o

f Sh

are

s Tr

ade

d (

Bill

ion

s)

Share Value ASI

A N1,000 investment in 1996 would

have been worth N13,029.26.

Peak: March 5, 2008 ASI 66,371.20

-17.07

-20.39



Giving The RAIT (Right?) Message

R

A

I

T

Researched

Appropriate

Informative

Timely



Does This Pass the RAIT Reporting Test (1)

“CONCERNS MOUNT OVER NSE TRADING PLATFORM AS EXCHANGE DELAY TRADING SUMMARY” Thisday, page 44H, November 28, 2012 “The Nigerian Stock Exchange (NSE) trading platform may have witnessed serious technical hitches as the Exchange failed to release its daily trading summary at the resumption of trading on Monday and delay the release of the summary to 7 pm Tuesday. Usually, the trading summary is released to the investing public on daily basis between 3pm and 4pm daily, except there is a technical failure that warrants the attention of the vendors of the platform”. Misleading Information: This is a very dangerous speculative writing It does not contain any fact Portrays trading engine of The Exchange as deficient The Exchange has maintained the longest trading service run in its history with 100% trading platform availability since August




“STOCK EXCHANGE SUSPENDS 21 BROKERS WITH INADEQUATE SHAREHOLDERS FUNDS” Businessday, page 1, November 09, 2012 • The story was highly misleading as the facts of the story are skewed • The Brokers TraX report on the website of The Nigerian Stock Exchange provides

the status of Dealing Member firms at the relevant period stated therein. The site is updated periodically, hence information provided on the site changes from time to time depending on the compliance pattern of Dealing Member firms.

• The Exchange did not suspend any Dealing Member firm for not maintaining the minimum liquidity value as the story claimed.

• The report gives the impression that the capital base of Dealing Member firms has been increased..

• The minimum capital requirement for stockbroking firms has not been increased and remains at N70 million.

• The article also suggests that the Exchange took the decision to suspend the operators very recently or in one go, which is not the case and is misleading




Re: “NASD OTC: Collaboration not Competition with NSE-Onyema” Daily Sun, page 34, October 15, 2012 The Correspondent who wrote the story claimed that he spoke with the Chief Executive Officer of The Nigerian Stock Exchange, Mr. Oscar Onyema, even when he never did so. The first and second paragraph of the news story reads: “The National Association of Securities Dealers Over-The-Counter (NASD) market is not going to be in direct competition with the Nigerian Stock Exchange (NSE). And the platform is not a new exchange; neither is it sourcing for its own trading platform. Instead, it is going to make use of the existing trading platform of the NSE as the effort is collaboration between the NASD and the Exchange. The NSE Chief Executive Officer, Mr. Oscar Onyema, yesterday offered this clarification exclusively to Daily Sun, saying that the new platform was intended to increase market participation.” Misleading Information It is a serious offence to attribute a story to someone fraudulently.




“Five Months After, NSE yet to Submit Annual Report” The Nation, Monday May 28, 2012, pages 25 The story states in the third paragraph: “Sources who are entitled to receive the NSE’s annual report and accounts told The Nation that it was not ready and the NSE has offered no timeline for its presentation” Misleading Information: The story’s claims are not only incorrect but highly malicious as the Financial Statements were submitted to the Securities and Exchange Commission (SEC) on April 30, 2012, two clear months ahead of the specified time limit for the submission. The SEC rules permit The Exchange, (being a market operator according to the Investment and Securities Act) to file its audited results and accounts six months after the end of its year end.




“Onyema gets knocks on suggestion to phase out retail investors” The Nation, page 26, May 28, 2012 The second paragraph of the story claims that The NSE CEO suggested that retail investors should not invest in the market directly. He was said to have said this in his presentation to the National Assembly Ad hoc Committee on near collapse of the capital market. Misleading Information The story communicated that The Exchange was planning to prevent retail investors from investing directly in the market. When in actual fact, in the said presentation he advised that retail investors should be encouraged to invest in the market through Mutual Funds because the investment in Mutual Funds would be professionally managed and thereby minimize the risk exposure of retail investors. The writer twisted the story to have different coloration.



Ways The NSE Ensures An Orderly Market

Corporate Governance Disclosure Requirements Monitoring and Enforcement Application of Technology Market Structure Investor Education Advocacy



Governance and Regulation at Heart of The NSE

CHIEF, REGULATION DIVISION

LISTINGS QUALIFICATION

LISTING ANALYSTS

LISTINGS COMPLIANCE

BROKER DEALER COMPLIANCE

LICENSING

INSPECTIONS, EXAMINATIONS &

COMPLIANCE

TIPS, COMPLAINTS & INVESTIGATIONS

ENFORCEMENT

RULES & INTERPRETATIONS

MARKET SURVEILLANCE

LEGAL

SURVEILLANCE

CHIEF, LEGAL DIVISION

COMPANY SECRETARIAT

EXCHANGE

SUBSIDIARIES AND AFFLIATES

LEGAL

CORPORATE & ADVISORY

LITIGATION

Executive Director

LEGAL/REGULATION DIVISION



Disclosure and Transparency

• Listing Requirements are robust to ensure full disclosure of information at Listings Stage.

• Post-Listing Rules are of high standards to ensure continuous disclosure of information after listing.

• Information is regulated to

ensure that disclosure is made which would guide investment decisions. Information must be: • Accurate • Timely • Clear • Simple and • Sufficient



Disclosure and Transparency Cont’d

• Can investors see activities of the Issuers?

• Do they know what the Issuer is doing?

• Are they aware of changes which might impact on their investment decisions?

• Is trading on the securities done in a transparent manner?

• Are insiders trading on the securities?

Transparency influences market efficiency



X-Compliance Report

• It is a transparency initiative of The Exchange. • It is designed to maintain market integrity and protect investors

by providing information on the compliance status of listed companies.

• It is a snapshot of information to guide investment decisions. • Symbols are used for ease of identification on companies that are

below Listing standards. • Disclosures on approved applications for capital raising,

restructuring and or de-listings are provided. • Disclosure of penalties imposed on delinquent companies are

stated and sterling companies are also recognized.



Sample X-Compliance Report



Brokers TraX

The Brokers TraX is an insight into the activities of Dealing Member Firms of The Exchange

This consists of the following - • Status of Dealing Member Firms • Dealing Member Firms involved in unauthorized sales of investor

shares • Status of rendition of Audited Financial Statement • Status of rendition of Quarterly returns • Dealing Member Firms with inadequate shareholders funds



Sample Broker TraX Report



Market Surveillance

Market Surveillance is the process of monitoring market activities to identify unusual patterns or market conditions that may indicate violations of rules and regulations governing the capital market and thus impact negatively on the integrity of the market.

Market Surveillance does the following:

• Price Monitoring

– On-line and off-line Surveillance

– Rumor Verifications and Insider trading

• Investigation

• Position Monitoring

• Intelligence gathering.

Click to edit Master title style | Enter The Bull – 2012 to …



• RAIT (or is it Right) Reporting – Researched, Accurate,

Informative and Timely Reporting

• Advocacy to grow the market - Ensure Nigerians Participate

in the Economic Growth of The Country

• Investor Education

• Celebrating best practices

• Highlighting Disorderly Market Practices


The Role of Journalists in Ensuring Orderly Markets

Click to edit Master title style | Worth Advocating For

• Developing a market that is representative of the

economy – Agriculture: 40% of GDP 0% of market cap

– Oil & Gas: 16% of GDP 5% of market cap

(Majority of national revenue, no upstream listed)

– Power: 8%of GDP 0% of market cap

(13 companies recently created)

– Telecoms: 4.5% of GDP 0% of market cap

(> 80m subscribers)

• Advocacy for Listings – Passionately promoting companies and appropriate government institutions

to list on the stock market through appropriate incentives

• Educating the public on the benefits of long term

investment in a well run capital market




Watch This Space

• Issuers Portal

• More Advanced Surveillance Tools

• Robust Investor Protection Programmes

• On-going Zero Tolerance to Enforcement

Click to edit Master title style | Re-emergence of The Nigerian Bull - 2012 to ?




Do The RAIT Thing

“We are what we repeatedly do. Excellence, then, is not an act, but a habit”

Aristotle


Q&A



Thank You

Stock Exchange House

2 - 4 Customs Street

P.O. Box 2457, Marina

Lagos Island, Lagos, Nigeria

[email protected]

Thank You

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