Technology will Aid Transaction Cost Reduction in the Capital Market – Uduk

Mary Uduk, FCIB
Ag. Director General
Securities and Exchange Commission, Nigeria

January 1, 2019/SEC

What are some the initiatives the SEC is implementing to boost investors’ confidence?

We are doing a lot to boost investors’ confidence in our market. But I want to say that both local and foreign investors are very good for the market. For instance the foreign investors, because they trade their shares all of the time it leads to price discovery as against the local investors that just takes a long term view on their investments. 

Investors’ fears can be of two folds, firstly they could be afraid because they feel that capital market operators will mismanage their investments, secondly is looking at the volatility of the market that makes investors skeptical.

For the first scenario, we have a number of initiatives that we have put in place to boost investors’ confidence. We have the E-Dividend mandate system, the Direct Cash Settlement as well as multiple subscription in place. For the second category, investors have to take ownership of their investments. They have to be able to monitor their investments, attend Annual General Meetings as well as read the annual reports sent out to them. We also protect them through the National Investors Protection Fund (NIPF) Risk Based supervision that enables us to supervise the operators to ensure that they do not do what they are not supposed to do. And again the Complaints Management Framework enables investors to know where to complain to and how long it takes for such complaints to be resolved. For those of the investors that are averse to risk, they should get their financial advisers to advise them properly on where to invest. 

We also advise retail investors to invest in Collective Investment Schemes and Mutual Funds because those are managed independently by professionals and they are diversified thereby reducing risks. We are committed to protecting investors in the work we do.

Is the SEC doing anything new on investor education?

An informed investor is able to take advantage of the market in and out of season. The Commission regularly carries out various investor education campaigns around the country to inform investors of the benefits of investing in long term securities among others.

We are also partnering with the Nigerian Educational Research and Development Council (NERDC) to come up with a curriculum for basic and secondary schools on Capital Market Studies. The planning and writing of that curriculum has been completed and the editing has been done. 

What role is technology expected to play in the Nigerian Capital Market?

Technology when properly leveraged will reduce the cost of doing business in the capital market. We know that technology is driving a lot of things in the market at the moment. For instance, in the banking system, technology is driving the payment system. Even with phones people can buy, make payments and even obtain loans among others. We have seen that there is a lot of innovation and cost reduction in the money market due to technology, and so we also want to do the same in the capital market. To this end, the Capital Market Committee has set up a Road Map committee to come up with a guide for the capital market to enable us also leverage on technology to do business and reduce cost.

We already have a Division in the SEC dedicated to Fintech that will help up look at all the technologies that relate to the capital market surrounding ICOs, among others. 

In the capital market, technology has assisted in improvements of processes like the use of Block chain to do settlement. Afex right bow uses block chain to drive its data. We also have technology driving the platforms through which people are now able to come in to invest 

Innovations in financial technology, has made possible the potential of using digital tools to make financial services available to a wider range of consumers and enterprises, promoting financial inclusion and the affordability of financial services. A financially inclusive society will provide increased access to finance, especially for women, help support sustainable growth and will create a million more jobs. The gains of having a more inclusive financial system are enormous, as it helps broaden financial markets and make policies more effective.

Why has the market not performed so well in recent times?

A large percentage of these who do business in our market are foreign investors and as at the third quarter of 2018, the capital outflow stood at N513b as against N477.7b incoming. We can see that the impact of increase in interest rate in advanced countries not just in the US, has impact on capital outflow thereby leading to reduced performance in our markets. I want to say that the interest rate increase in advanced economies not just the US, does not affect only Nigeria but also affects other emerging and frontiers market in the world.

What is the update on Access Bank/Diamond Bank Merger and what is the fate of shareholders?

Access and Diamond Bank proposed merger, we have received formal notification informing us about their proposed merger but we have not yet received any formal application form them. But some people are worried about the fate of the shareholders. The fate of the merger is actually to be determined by the shareholders, they are the ones to either support it or disallow it depending on the proposals before them. 

What is the value of unclaimed dividends and how much has been paid out this year?

The law provides that 15 months after dividends have been declared unclaimed ones should be returned to the companies. As at September 2018, the value of unclaimed dividends stood at about N100b, and those that were reduced this year stood at about N10b.

What efforts is the SEC making to reduce this unclaimed dividends profile?

The e-dividend Mandate management System allows investors accounts to be credited immediately they are mandated with the registrars and the relevant banks. Within 24 hours your dividend hits your account and even the back log that were not paid for years also hits the account. 

You also must have heard of our multiple subscription initiative which we have extended for another one year because we want investors that subscribed to shares in multiple names to regularize their accounts. Many of them do not even remember the names with which they bought the shares and this increases the quantum of unclaimed dividends in the market. That is why we are engaging with the receiving agents to check into their records and see how this can be reduced and the owners can claim their dividends.

I urge more Nigerians to take advantage of the on-going e-dividend registration in a bid to reduce the unclaimed dividends profile as well as increase liquidity in the capital market and the economy.

The Commission is currently leading the entire capital market industry in an effort to migrate all shareholders to an E –Dividend regime.

The essence of the E-Dividend Mandate Management System is to eradicate or reduce to the barest minimum the incidence of unclaimed dividend. Unclaimed dividend is an undesirable feature of the Nigerian capital market which denies investors/shareholders the gains of participating in the capital market. It denies the economy access to the huge amount of money which should have accrued to shareholders and would have gone into circulation to oil the wheel of the economy. 

It is a consequence of the bottlenecks which are inherent in the erstwhile paper dividend warrant regime such as postal system inefficiency, change in investors’ addresses, poor fidelity and human fallibility in dividend payment processes, amongst others.

The E–Dividend regime bypasses these limitations by ensuring that dividends which do not exceed 12 years of issue are credited directly to an investors account after declaration by the paying company and within a stipulated payment period through simple interbank transfer.

May I therefore implore Nigerian investors to key into the E-Dividend registration exercise by visiting the nearest bank branch or registrar. In addition to migrating to the E–Dividend regime yourselves, kindly tell everybody you know to do same in their best interest.

Multiple share subscription deadline is now till December 2019, why are Nigerians not coming out to regularize their accounts?

I would not say they are hesitant because it is in their interest to come forward and consolidate their holdings. We are aware that during the banking and insurance sector consolidation of 2005-2007, a lot of investors completed more than one application form for particular companies and they did that by juggling their names and sometimes using fictitious names. What they fail to realize is that the capital market has a way of checkmating such violations. To be able to claim these shares, they have to be able to identify themselves. For those juggled and fictitious names, they do not have identities that are traceable to these individuals and so they were not able to claim their shares. Therefore they cannot trade and are also unable to claim dividends and other benefits that may accrue to them. We also realized that a lot of the unclaimed dividend is as a result of this issue because investors cannot claim their shares and are unable to claim their dividends. 

A lot of these people bought shares in companies that were doing well and wanted to increase their holdings hence the use of multiple and fictitious names.

What we have done now is to go back to the receiving agents to go through their records particularly those paid for and let them to be registered. Investors are also advised to contact their registrars. I want to stress that there is absolutely no penalty attached to Multiple Accounts Regularization. Investors are enjoined to visit their stockbrokers, registrars, bankers or any other capital market operator through whom the shares were purchased on guidance for the steps to take to regularize them.  We just want it for the sake of the growth of the market and for their own sake. So that they will be able to take ownership of their shares and also reap the benefits of buying those shares. We are not penalizing them, we just want the market to grow and boost investor’s confidence.

They can also visit our website at www.sec.gov.ng/qa for more on this information.

What other initiatives is the Commission working on?

We are implementing a number of Capital Market Masterplan Initiatives which are aimed at making our market deeper, vibrant and more effective. As you are aware, the Commission launched its 10-year CMMP in 2014. The Master Plan is the outcome of consultations and work with the entire market community to identify challenges and opportunities to help catalyze our market to a world class capital market. The implementation of the 10-year master plan will transform the Nigerian market, facilitate the diversification of our economy, encourage savings and create wealth. This will no doubt grow investor confidence, improve the breadth and depth of the market in terms of product offerings, engender market integrity, and contribute to the country’s economic growth. 

We have also developed a two-pronged approach to addressing the intractable challenges associated with transmission of shares related to the estate of deceased investors. The first step would involve engagement with and enlightenment of the Probate Registry with a view to providing solutions to the cumbersome process of transmitting shares. Secondly, Rules would be developed around the time frame for transmission shares and the fee structure.

The Commission is working with other major stakeholders in setting up a committee that will look into and proffer solutions to problems around identity management in the Nigerian capital market. So for instance, to boost the e-dividend mandate and Direct Cash Settlement initiatives, we are engaging NIBSS (Nigeria Inter-Bank Settlement System) on behalf of the capital market community to facilitate identity validation and account validation in an effort to enhance market processes.

The Electronic distribution of annual accounts by public companies to shareholders continues to record tremendous success, as shareholders have largely accepted the new initiative and are willingly providing their email addresses. Alongside other stakeholders, we have continued sensitization to further enlighten shareholders on the benefits of the initiative.

On the need to grow the market for trading in securities on unlisted public companies, we are making concerted efforts in collaboration with CAC and other stakeholders to assist public companies that are yet to register their securities to do so without much difficulty.

These initiatives continue to highlight and promote developments and trends in the Nigerian Capital Market and drive Financial Inclusion aimed at reducing adult exclusion from financial services. 

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