Nigeria Content Online

One
menace that investors in the Nigeria capital market have had to contend
with over the years is fraudulent stockbrokers. Many shareholders have
been victims of share sales without authorisation, share price
manipulation and failure to execute orders among others.

The
2003 case which became known as the Bonkolans Scam, involving Lawrence
Okwufulueze and his co travellers, readily comes to mind. Mr
Okwufulueze, then dealing clerk of Bonkolans Investment Limited, cloned
over 3.1 million units of Nestle shares worth over N314 million which
was sold to unsuspecting public. Since then, the major culprit has been
on the run. A more recent case was in 2005 when Kingsley Ikpe, chief
executive officer of Thomas Kinsley Securities Limited collected N135
million from Tony Ezenna, CEO of Orange Drugs Limited for the purchase
of shares of Nigerian Breweries which was not executed. Mr Ezenna
reported the case to the Securities and Exchange Commission (SEC) when
his stockbroker could not provide evidence that his buy-orders were
executed. Mr Ikpe was eventually jailed for 165 years.

Complaints against stockbrokers

Arunmah
Oteh, director general of SEC said recently that as at June, the
commission had received 220 new complaints against stockbrokers which
ranged from unauthorised/fraudulent sale and purchase of shares, to
falsification of clients’ accounts. The drive to mitigate investor risk
prompted the commission to propose the Straight through Processing
(STP), by which transactions in the stock market will be fully
automated and thus eliminate any incident of direct monetary
transaction between the client and the stockbroking firm. This is
designed to get rid of settlement risk and ensure that all trades
settles cash versus securities and will help restore investor
confidence and create a more efficient market. The Central Securities
Clearing System (CSCS), the clearing house of the stock market will
play a more prominent role under the proposed arrangement. The process
is being fine-tuned before its eventual unveiling.

Victor
Ogiemwonyi, managing director of Partnership Investment Plc, an issuing
house and stockbroking firm, said with the proposal, there will be no
failed trade and all trades ideally will settle same day. “The most
important feature of this will be that all cash settlement will go
straight to Investor bank accounts, thus eliminating once and for all,
the nagging issues of rogue brokers, who sell their client’s shares
without authorisation.” Mr Ogiemwonyi said the activities of a few
rogue brokers has created credibility and confidence issues in the
capital market community, “and has contributed to labeling all brokers
as fraudulent even though, the records show that the brokers involved
in these condemnable acts are few and far between,” he added. He said
the fact that this can happen at all, is reason why a solution like
this is desirable.

Improving market efficiency

Joshua
Omo-Kehinde, managing director of Marimpex Finance and Investment
Limited, a stock broking firm said investors under the new platform,
will now be required to open bank accounts which would be one of the
requirements before share accounts are opened for them. “This will
create a custodial so that once shares are sold on behalf of clients,
it would be paid directly to the client’s bank account.” He said this
new approach would go a long way in improving market efficiency.

According
to Mr Ogiemwonyi, the requirement for Investor bank accounts that will
be tied to a CSCS account for every investor will enhance the ‘Know
Your Customer’ ( KYC) rule, as it will be another check for knowing who
the account holder is. “It will eliminate mystery investors who launder
money through the stock market, since all bank accounts receiving money
from stock market trading can be traced to match CSCS accounts of
owners.” He said the implementation will have minimum disruption, since
all that will be required will be for clients to submit their bank
accounts to their brokers who will cross check their validity with the
banks.

The
Chairman, Association of Stockbroking Houses of Nigeria (ASHON),
Rasheed Yussuf, said the issue which dominated discussions at
conference of the Chartered Institute of Stockbrokers which ended in
Abuja at the weekend. According to him, the advantages of such a
venture are enormous. “It will bring us in line with the rest of the
world. It will increase liquidity and confidence and will reduce cost
for stockbrokers.” He said since the brokers were unanimous in
endorsing the new arrangement, it is left for the regulators to
implement it as soon as possible.

David Adonri, managing director of Lambeth Investment and Trust
Limited believes that when the new method is implemented, it will
elevate the Nigerian capital market to world standard. He said a lot of
problems in the market such as buying shares for clients when they have
not paid, or when brokers sell on behalf of their clients and do not
pay or under pay will be discouraged. “Through this method, it will
overcome all the malpractices and crude methods of doing things,” he
said.