Nigeria Content Online

The absence of market makers is stifling the growth and efficiency of the Nigerian capital market.

New chief executive officer of the Nigerian Stock Exchange (NSE), Oscar Onyema, has promised to reverse this trend by working with the capital market community to allow market makers play their role effectively.

Market makers are wholesale operators who create liquidity in the stock market by either buying shares when there is a glut, or selling shares when there is scarcity.

Speaking at the monthly breakfast meeting of the Nigeria South Africa Chamber of Commerce yesterday in Lagos, Mr Onyema said he would provide a level playing field for participants to operate within the rules.

“One of the things I have observed is that 20 per cent of the top securities account for about 80 per cent of the market,” he said.

He said the capital market was in need of market makers that would help to deepen it and improve liquidity.

Operational efficiency

“We will look at operational efficiency so that when you want to move a large chunk of stocks or bonds, you can do that easily without impacting on the price of the security. My vision is to position the Nigerian market as the gateway to the African frontier market,” Mr Onyema further said.

The Securities and Exchange Commission (SEC) in 2008 approved five brokerage houses to act as market makers. These include Vetiva Capital Limited; Value Capital Limited; Afrinvest Plc; Diamond Capital; Financial Market Limited; and Chapel Hill Dunham.

Since then, there has been no impact due to the market downturn and the absence of clear operational guidelines.

Mr Onyema said the absence of market makers was affecting market liquidity.

“How do we make sure that securities have a standing bid and offer at any point in time? How do we get market makers that have the right depth and knowledge to provide liquidity in our market place? That is what we are looking at right now,” he said.

The chief executive officer, who assumed office a fortnight ago, said his desire is to build the Nigerian capital market to be comparable to the best in the world in terms of product offerings, adding that his focus would be to encourage telecommunication and oil and gas firms to list on the Exchange.

According to him, apart from attracting new issues, there is also the need to create a deep and liquid market.

“Government would need to put in place policies that would attract investors. We would work with government to make investment friendly policies,” he said.

Business decision

President of the Chartered Institute of Stockbrokers, Michael Itegboje, said the issue of market maker status is a business decision that firms that have the capacity would have to make on their own.

According to him, it is not enough for SEC to appoint firms as market makers without the enabling capacity to perform that role.

“For this market to develop, it needs market makers but they need funds. SEC approved market makers, where are they? It is a business decision you have to take. Nobody can force you to be a market maker.

“You have to take that business decision and if you find out that you can’t, you have to leave,” Mr Itegboje said.

Depositors
of the 103 failed Micro Finance Banks (MFBs) whose licences were
revoked by the Federal Government are to be paid about N9.8 billion by
the Nigeria Deposit Insurance Corporation (NDIC).

Beneficiaries
numbering 731,000 in 91 out of total affected MFBs nationwide are to
receive their monies following the completion of the verification and
authentication of their documents by the corporation, which took over
the banks for liquidation in the wake of the revocation of the
operational licences of 224 “terminally distressed and technically
insolvent” MFBs last year by the Central Bank of Nigeria (CBN).

The
corporation is charged with the statutory responsibility of providing
insurance cover for all money deposit financial institutions in the
country. The affected institutions were those with negative
shareholders’ funds, negative capital adequacy ratios, and negative
liquidity ratios.

Head
of the corporation’s communication and public affairs department, Haji
Birchi, yesterday, said while the NDIC is statutorily mandated to pay
N4.9 billion insured deposits to the affected depositors, the balance
of N4.9 billion uninsured deposits would be disbursed to them on
realisation of physical assets and recovery of debts owed to the failed
MFBs.

Since
the commencement of payment exercise on December 6 last year, the
corporation has already paid N1.492 billion to about 45,000 depositors
of the 91 closed MFBs out of the N4.9 billion of insured deposits due
for payment, Mr Birchi said.

Second round payment

During
the second round payment expected to commence on Tuesday, May 3, 2011,
the NDIC spokesman said about N2.177 billion would be disbursed to the
remaining 393,000 depositors of Integrated Microfinance Bank (IMFBs).

The
corporation had disbursed about N529 million to 21,000 depositors of
the IMFB between January 31 and February 4, 2011 as insured sums of the
affected institutions.

According
to Mr Birchi, depositors in the 11 remaining MFBs are scheduled to be
paid as soon as their records are made available to the corporation.

They
include Bristol MFB, Mustason MFB, Newgate MFB, Primate MFB, and South
West MFB in Lagos State; as well as Embrace MFB and Homeland MFB in
Yenagoa, Bayelsa State; while the rest include Cubic MFB in Benin City,
Edo State; Galaxy MFB in Warri, Delta State; Gamji MFB in Birnin Kebbi,
Kebbi State; and Standex MFB in Onitsha, Anambra State.

Under
the deposit insurance system, depositors in money deposit financial
institution are supposed to be protected as well as given guarantee
through the settlement of insured funds when their banks can no longer
repay their deposits. The maximum insured balance payable to
microfinance depositors in line with the 2005 microfinance policy
issued by the CBN is N100, 000 only.

The
2005 policy, which created a platform for the establishment of
microfinance banks, also established a framework for the CBN’s
supervision of MFBs.

Though
proprietors seized the instrumentation of the new policy to float over
800 microfinance institutions across the country, the apex bank was to
discover during the recent reform programme initiated by the Sanusi
Lamido Sanusi management that most of the banks derailed from the
objectives they were set to achieve, resulting in the revocation of
operational licences of 224 of them.

Following
investigation of the activities and records of the 103 MFBs, most of
them were found to have been run aground by their directors and
officials who engaged in insider-related abuses such as outright
stealing, granting of unauthorised credits, and diversion of
depositors’ funds.

The Swiss
government pushed ahead on Wednesday with plans to make UBS (UBSN.VX)
(UBS.N) and Credit Suisse (CSGN.VX)(CS.N) reach tough new capital
standards, saying the benefit to the economy outweighed costs to the
banks.

As it finalised
legislation to go to parliament, the Swiss cabinet said the general
thrust of a draft law it issued in December was unchanged, but it had
made a few minor changes following a consultation period.

Finance minister,
Eveline Widmer-Schlumpf, said Switzerland was compelled to take a
tougher line on bank regulation than other countries as UBS and Credit
Suisse were so big that any failure could bring down the small Alpine
economy.

“There will be
adjustment costs for the banks but all in all, the net effect will be
positive. I am convinced that the Swiss banking sector will be the
winner,” she told a news conference.

The government has
proposed both big banks will need an equity Tier 1 capital ratio of at
least 10 per cent, versus the 7 per cent minimum set under the Basel
III global standards, which will start to take effect in 2013.

Both UBS and the
powerful right-wing Swiss People’s Party (SVP) have warned the plan
risks making UBS and Credit Suisse less competitive, raising questions
about whether the rules might still be watered down during the
legislative process.

Ms Widmer-Schlumpf
rejected suggestions the government was rushing ahead with the
proposals, saying they had taken more than two years of consultation
since the Swiss government was forced to bail out UBS at the height of
the financial crisis.

She said the plans
had been broadly endorsed by experts and the banking industry –
including Credit Suisse – and said only the SVP and UBS had expressed
fundamental opposition.

Ms Widmer-Schlumpf
said the government addressed concerns raised by the SVP and others
about powers proposed for the FINMA regulator in a crisis, saying FINMA
would only intervene to impose an emergency plan if a failing big bank
did not do so.

Competitive disadvantage?

The government
proposed publishing a report on international developments every year
to address concerns about Switzerland forging ahead and Widmer-Schlumpf
said she expected other countries would enact similar regulations.

Jason Nason, spokesman of the Swiss Bankers Association, criticised the formulation of the review provision as too vague.

“The Swiss
authorities should clearly commit themselves to reviewing and adapting
the regulation should Switzerland’s two globally-active universal banks
find themselves placed at any serious competitive disadvantage,” Mr
Nason told Reuters.

Britain too is
considering capital standards more stringent than Basel III, though
these would apply only to big retail banks and its comparatively
lenient treatment of investment banks has provided ammunition to
opponents of the Swiss rules.

UBS chief
executive, Oswald Gruebel, has said the stiff Swiss standards could
force UBS to move units abroad. In response, Widmer-Schlumpf noted the
bank benefited from Switzerland’s other advantages such as low taxes
plus political stability.

Credit Suisse said
it wanted to study the proposal in detail before commenting but
referred to a recent interview by CEO, Brady Dougan, in which he
reiterated his broad support.

“I fear that people
may have forgotten what happened in 2008. The financial system needs to
be made more robust and secure,” he said, adding that he assumed
regulators elsewhere would also demand other global banks hold more
capital.

“If that is the case, we will see the emergence of a reasonable competitive landscape around the world,” he added.

Helvea analyst,
Peter Thorne, said the fear the rules would make Swiss banks
uncompetitive was “a gross exaggeration” but they would have to cut
their investment banking businesses.

“Implementation of
the rules should see CS and UBS downsize their investment banking
operations … and this should liberate capital, which is probably not
earning its cost of capital for the benefit of shareholders,” Mr Thorne
said.

The government said
parliament could vote on the matter before the end of the year so the
plans could come into force by the start of 2012 at the earliest, with
a transition period up to 2018 to allow implementation.

However, in a taste
of a likely heated debate to come ahead of Swiss elections on October
23, the centre-left Social Democrats and Greens both said they wanted
the proposals made still tougher, suggesting they may still be amended
or delayed.

Reuters

Gold shot up above
$1,500 an ounce on Wednesday for the first time ever, as worries over
the health of the global economy boosted the metal as a safe haven.

Spot gold hit a
high of $1,505.21 an ounce and was bid at $1,505.16 an ounce against
$1,493.90 in New York on Tuesday. U.S. gold futures for June delivery
rose $10.60 an ounce to $1,505.70.

Silver tracked gold
higher, extending a stellar performance that has seen the grey metal
outperform other precious metals this year. Silver hit a 31-year high
at $44.56 an ounce and was later bid at $44.51 against $43.89.

Gold prices are up
5 per cent in April and look set to extend gains as the metal’s appeal
as a haven from risk was boosted by talk that Greece may have to
restructure its debt and Standard & Poor’s threat to downgrade
America’s triple-A credit rating.

“There is still
going to be a lot of uncertainty over the strength of growth, in the
United States in particular,” said Macquarie analyst, Hayden Atkins.

“It looks like that
is going to be quite weak in the first quarter, so that may rattle a
few people. Then we have a critical policy point coming up with the
expected end of (the second round of) quantitative easing. There is
enough uncertainty floating around heading into the middle of the year
for people to stick with gold,” Mr. Atkins said.

While investors in
the United States and Europe are seeing the metal chiefly as a safe
store of value and a hedge against currency devaluation, stronger
inflation and rising consumer incomes in China and India are also
boosting demand there.

“The theme of
longer term higher inflation than we have seen in the last 10 years in
China is a pretty solid view, so gold is going to be an asset class
that is probably going to be more in favour in China than it has been
in the past,” Mr. Atkins further said.

China is the world’s second biggest gold consumer behind India, as well as being its biggest producer.

Rising oil, weaker dollar

In the short term,
losses in the dollar on Wednesday are supporting the precious metal
above $1,500 an ounce. The euro rose to a session high against the U.S.
dollar after an auction of Spanish bonds saw decent demand from
investors.

Weakness in the
dollar boosts gold’s appeal as an alternative asset and makes
dollar-priced commodities cheaper for holders of other currencies. Gold
priced in euros and sterling remained off recent highs on Wednesday.

Oil prices also
recovered, rising back toward the multi-year highs they hit earlier
this year as unrest in the Middle East and North Africa sparked fears
of a supply outage.

Higher oil prices
tend to benefit gold, both because they can boost commodities as an
asset class and lift interest in gold as a hedge against oil-led
inflation.

The gold:silver
ratio – the number of silver ounces needed to buy an ounce of gold –
meanwhile fell to its lowest since 1983 at 33.8.

“The last time
silver was this expensive in relation to gold was almost 28 years ago.
Both precious metals are still reaping the benefit of the news of
recent weeks and days,” said Commerzbank in a note. Platinum was at
$1,786.24 an ounce against $1,761.50, while palladium was at $753
against $726.95.Reuters

There are some
words that those who develop dictionary software appear somewhat slow
to catch up on. One of such words is ‘fracking’. While the word is
still kept on the fringes of everyday discourse, the process it
describes is already pitting citizens against corporate power in North
America, Europe, and in Africa.

As the sound of the
name suggests, fracking has to do with fracturing. The New American
Oxford dictionary defines fracture as “the cracking or breaking of a
hard object or material … a crack or break in a hard object or
material, typically a bone or a body of rock…the physical appearance of
a freshly broken rock or mineral, esp. as regards the shape of the
surface.”

Fracking has
already raised serious problems in the United States and is being
questioned and resisted elsewhere. The nearest flash point is the
resistance to Shell in their efforts to engage in fracking in the
Karoo, South Africa. The community resistance in South Africa is
especially interesting in the sense that Shell has been confronted
there by their Nemesis: Ogoni activists displaced by their activities
in Nigeria.

In the case of the
plan by Shell for fracking in South Africa, they plan to bore holes 5
kilometres down into the belly of the earth in order to extract gas
trapped in a layer of shale stones. This is another signal that the age
of cheap oil is over.

Fossil fuels are
being sought for in increasingly less accessible locations such as
deep-water locations and in locations previously considered off limits
to extractive activities. As someone said, some of the processes can be
likened to a “societal scraping of the barrel.”

This process is not
exactly new, as it has been going on in the U.S.A. for decades,
according to some records. The causes of current anxieties are
primarily two-fold. Companies involved in this business have not
released the names and quantities of all the chemicals they use in the
fracking processes.

Secondly, the
process uses huge amounts of water, a serious concern in a season of
water scarcity. After pumping in huge volumes of water, about half of
this water is pumped out and the bubbles or gas are removed. The
wastewater with all its highly toxic dregs is then disposed of. The
question is whether this is handled in a manner that assures of safety.

According to the
experts, Shell’s “proposed exploration will apparently entail drilling
8 boreholes in each precinct (i.e. 24 boreholes in total) of up to 5
kilometre depth over a three-year period, extendable to nine years.

It appears that
each well will need between 0.3 million and 6 million litres of water
(i.e. a scenario of between 7.2 million and 144 million litres of water
required). Shell has been extremely vague as to its anticipated source
of water, with no concrete indication being given in the draft EMP or
in the public consultation meetings as to where the multinational
intends to source the requisite water from.”

While some people
argue that there are yet to be analyses showing actual water
contaminations related to chemicals used in fracking, there are several
confirming water contamination due to fracking processes.

For one, some of
the chemicals used in the process are known as carcinogens. The US
Environmental Protection Agency is examining the potential impacts on
drinking water of the various stages in the hydraulic fracturing
process. Such stages include when drillers mix water with chemicals and
sand and inject the fluid into wells in order to release oil or natural
gas.

Some 46 House of
Representative Democrats sent a letter to the Secretary of Interior in
which they stated, “communities across America have seen their water
contaminated by the chemicals used in the hydraulic fracturing process.”

Other concerns over
fracking plans have been raised in Canada and France. A report from the
Tyndall Centre in the United Kingdom, and an enquiry by the House of
Commons, has trailed the fracking business in that country.

The Tyndall Report
found a paucity of information on which to base serious analysis “of
how shale gas could impact on GHG emissions and what environmental and
health impacts its extraction may have; that there is a clear risk of
contamination of groundwater from shale gas extraction.”

Fracking folks have
enjoyed exclusion from regulation in the USA for years and are very
reluctant to accept accountability today. With Barack Obama’s intent to
accelerate the weaning of his country from heavy reliance on crude oil
imports, the shift to fracking seems good to some investors,
irrespective of its highly toxic and water-guzzling nature.

The exportation of
that anti-regulation operational latitude to other lands is meeting
serious resistance. The people of Karoo are basing their resistance,
among other things, on the indelible footprints that Shell’s operations
etched into the hearts, veins, and blood of the Ogoni.

The linkage between
the Ogoni and the Karoo deserves an applause as ordinary people rise up
to ask to know “what the frack is going on” and link hands across
political boundaries to globalise the struggle and hope for the
security of humankind in a globalised world.