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The Financial
Services Regulation Coordinating Committee (FSRCC) has issued stricter
guidelines to monitor margin trading and thereby avert a repeat of the
abuses and sharp practices that bedevilled margin trading in the run up
to the recent capital market collapse.

The committee
issued the new rules on trading when they met on Friday May 21, 2010
with representatives of all member agencies in attendance. Among other
issues extensively discussed, the committee noted the need to issue
clear-cut rules and guidelines on margin trading, to prevent further
abuses of the trade.

The New Guidelines

As part of the new
measures, the committee decided that banks aggregate exposure to margin
lending shall not exceed 10 per cent of total loans and advances.
“However, banks are advised to be more prudent by adopting lower
exposure limits. Banks with exposures in excess of the 10 per cent
limit are required to submit to the CBN clear plan of how they intend
to wind down their exposure in compliance with the prudential limit”.

It also stated that
bank shares shall not be used in margin trading. “For the avoidance of
doubt and clarification, the shares of banks would continue to be used
as collateral for bank lending. Thus, the restriction placed on bank
shares are only in respect of margin trading”.

It added that
operators who are interested in Margin trading are also required to
build capacity for margin trading and in this regard are to put in
place adequate technology and expertise that will facilitate on-line
real-time trading, market surveillance and prompt rendition of
regulatory reports.

Operators are
required to open dedicated margin trading account and are to observe at
all times a maintenance margin limit of 120 per cent. They are equally
expected to put in place robust framework for margin trading, which
should include definition of margin and internal rules and procedure
for trading, consistent with regulatory requirements.

Banks are also required to appoint Margin Compliance Officers.

All operators
interested in margin trading are to apply to the Securities and
Exchange Commission (SEC) for re-certification while in the case of
banks and other financial institutions under the purview of the CBN,
are to apply to the CBN for such recertification.

Understanding margin trading

A margin is a
collateral that the holder of a position in securities or its
equivalent has to deposit to cover the credit. Margin trading is buying
stocks without having the entire money to do it. Margin is a high-risk
strategy that can yield a huge profit if executed correctly, just as
one can lose both the borrowed and the owned if things go wrong.

Investopedia, a
Forbes Digital Company, describes buying on margin as borrowing money
from a broker to purchase stock. “Margin trading allows you to buy more
stock than you’d be able to normally”.

To trade on margin,
a margin account, different from a regular cash account is needed, in
which you trade using the money in the account.

The Committee noted
the fact that most operators that suffered losses in margin trading
lacked the capacity, technology and framework to embark on margin
trading, factors that contributed immensely to the fate they suffered
and the spiral effect during the financial market meltdown.

The Central Bank
however stated that a comprehensive guideline is to be issued in due
course and full compliance is expected on or before September 1, 2010.

An Ibadan-based
estate consultant, Sufian Kazeem, has warned governments at all levels
in Nigeria against additional increase in workers’ wages, saying move
will further plunge the country into more crises.

“Salary increase is
not the solution to the problems of Nigeria and her citizens. In fact,
it will bloat the inflationary trend in the country. If the minimum
wage is fixed at N1 million a month today, it will not solve our
problem; it will add more to it,” he said.

Mr. Kazeem, whose
company manages late Moshood Abiola’s estate in Oyo State, made his
position known during a chat in Ibadan on Monday. He stated that rather
than increasing the wages all the time, the country should take
advantage of her rich vast land and huge population to engage in
massive farming in order to solve the ravaging hunger and boost her
foreign exchange earnings.

He said the nation
will achieve tremendous leap in its quest to solve hunger and empower
her citizens financially, if it engages in high profile farming in
which every aspect of the economy will be involved.

To achieve this, he
suggested that all government parastatals and corporate organisations
must be compelled to engage in farming to maximise the use of the
nation’s vast land, saying Nigeria has all potentials to feed her
population and produce enough food for the entire African continent.

According to him,
the government can make corporate organisation, particularly the
multinationals, which have benefited so much from the nation’s economy,
pay back to the nation by compelling them to engage in mechanized
farming, and be prepared to sanction any of them who defaults.

He wondered why the
prisoners whose terms of punishment include hard labour could not be
made to farm and produce food for themselves and the nation, adding
that rather than made them to produce food for themselves, Nigeria
still spends billions of naira to feed them, even when they have erred
the system.

Mr. Kazeem also
advised that the nation should work out a legislation that will ban
politicians from holding any political office beyond the age of 70
years as, according to him, the absence of such rule has made it
possible for the same set of people to be at the helm of affairs in the
country, to the detriment of the system and its people.

“Anybody who
reaches the age of 70 years must be retired from politics. He should be
barred from having direct involvement in decision making. They could be
allowed to participate at the advisory level. But they must be told to
leave the stage for younger ones who will inject fresh blood and ideas
to the system,” he said.

Mobil Producing
Nigeria, an affiliate of U.S. oil firm, ExxonMobil, says repairs on its
damaged crude oil pipeline at the Qua Iboe crude export terminal is
still ongoing.

Located offshore at
Ibeno coastline in Akwa Ibom, the pipeline damage has caused a decline
in crude export from the over 400,000 barrels per day to around 250,000
barrels from the crude export terminal since May 1, according to
industry sources.

It has also caused delays in crude loading, they said.

Yemi Fakayejo, the
company’s spokesperson, said yesterday that the repair work which
compelled the oil firm to declare a “force majeure” on May 12, was
still in progress but declined to say when the work would be concluded.

Mobil had in a
statement signed by its External Affairs Director, Gloria
Essien-Danner, on May 12, said that it could not meet its contractual
obligations to crude buyers due to the pipeline damage at the Qua Iboe
oil fields.

Algeria has frozen
a $750 million deal with Egypt’s Ezz Steel, and is in talks with other
investors to replace the Egyptian firm, Algerian Industry and
Investment Minister Hamid Temmar said on Thursday.

“The project has
been affected by financial crisis and problems linked to soccer,”
Temmar told parliament, referring to a dispute between Egypt and
Algeria over qualification for this year’s soccer World Cup. “This has
led to the complete freezing of the project.”

“In order to
replace Ezz, we are currently studying projects from companies
including ArcelorMittal and (Algerian private company) Cevital,” the
minister said.

Zimbabwe has banned
all diamond exports, including those from a Rio Tinto unit, until
gemstones from its controversial Marange fields are certified by
industry regulators, the mines minister said on Thursday.

Obert Mpofu accused
Western countries of using the Kimberley Process Certification Scheme,
which regulates the global diamond trade, to ban Zimbabwe from
benefiting from diamonds.

“It is true that the government has, with immediate effect, suspended all diamond exports,” he told Reuters.

He added that the
ban affected Rio Tinto’s Murowa mine, which produced 124,000 carats
last year, and privately owned River Ranch, both of which are certified
by the Kimberley Process.

Zimbabwe has been
waiting for the certification of its Marange diamonds, and on Thursday
the Kimberley Process monitor, Abbey Chikane, said he would recommend
Zimbabwe be allowed to export the precious stones.

A planned 20,000
barrel per day oil refinery in Equatorial Guinea will cost just under
300 million euros, and the nation plans to invest another $150 million
in petrochemicals, an official said.

Equatorial Guinea
is one of sub-Saharan Africa’s biggest oil producers, although crude
oil production has slipped off peaks at around 360,000 barrels per day
and is looking to expand its gas industry and boost local processing
capabilities.

A feasibility study for the refinery has been completed and the
government will take bids for the project at Mbini, on the central
African country’s Atlantic coast, over the next two months, Vicente
Abeso Mibuy, managing director of hydrocarbons in the energy ministry,
told an energy conference on Wednesday.

Forget the glamour.
It is a hard knock life for the corporate communications department.
Crisis communications, reputation management, community affairs, brand
direction, internal communications, external affairs, sponsorships,
event planning, PR, executive speech writing, corporate voice and media
relations are a short list of some of the tasks literally piled on the
head of corporate communications. Come to think of it, one would expect
that with its multi-tasking résumé, the corporate communications
department would be part of the magic circle for executive management
breeding and CEO selection. Perish the thought.

In the jaundiced
way that all-A students were supposed to go up to university to study
engineering and medicine, parents expressed their dismay when their
first-class graduating wards applied for jobs in what they deemed
PR-topia. If the department was not exactly the equivalent of corporate
Siberia, it has not been the choice career path for apparatchiks
aspiring to climb to the Soviet Central Working Committee. Should this
be the case? Has corporate communications been getting the short end of
the stick and where does the blame lie?

The past 20 months
should have been a glorious era for the communications department. The
economy was in a tailspin, the oppressive odour of executive scandal
was everywhere, consumer spending was in reverse, the stock market was
in panic, earnings had dropped sharply and employee morale was at its
lowest point. The future looked bleak. It was unthinkable that the
department would not seize this opportunity to establish its
credentials as an integral part of the corporate strategy development
process.

The issues faced by
companies were fed mainly by perceptions. The public was reading ahead
of the script. If the global economy was in freefall, then there was no
way that the local economy would escape. If Company A’s CEO was
involved in a fraud, then such practices must have been widespread
among all CEOs in the sector. If Company X in its sector had downsized,
then it was only a matter of time before Company Y would go under the
knife too. Fears ran riot and took a life of their own. Confidence was
fast evaporating.

The corporate
rationalists scratched their heads in confusion. Excel spreadsheets,
corporate finance models, risk management stress tests, and all the
other numerical kitchen sinks thrown at the problem were unsuccessful
at silencing the anxiety. These Cartesian wizards of numbers were
unfamiliar with problem-solving that depends on the right-side of the
brain. In their usual fashion, they broke the problems down to the
smallest components then lined them up. Still there were no answers in
sight.

All else tried,
they decided it was time to invite their colleagues from the
communications department to take a look at the problems. Then a funny
thing happened. The communications shamans pointed out that the way to
solve the problem was by shifting attention from its content to the
frame. The frame is just as important as the picture. If the frame is
right, then the picture becomes easier on the eye. How neat. ‘Why
didn’t we think of that before?’ they said in relief.

But when it came to
designing and fitting the frame, both sides, and they really are on
opposites, ran into their first hitch. They had spoken different
languages for so long that it was almost impossible for the number
crunchers to explain the picture to the idea munchers. This cultural
exchange of convenience was not producing the hoped for assimilation.
In the end, a sign language of sorts was adopted. The results served
but were not ideal.

This leads to the
question: is the onus on these so-called ‘serious’ departments to learn
the language of corporate communications or the other way round? Call
me partial, but I am on the side of the ‘others’: strategy, finance,
operations. The only thing that unites them is their ease with the
numbers. Figures are their native dialect. Without fluency in it,
corporate communications will always play second fiddle, no matter how
brilliant the last campaign was.

The financialization of markets makes it essential for corporate
leadership everywhere to speak the lingua franca of figures. The
numbers folk are not just another tribe in the org chart. They have
become das Herrenvolk (the ruling race) in the corporate species. To
avoid that cruel fate of mockery of mere men by the Übermensch (overman
or superman) that Friedrich Nietzsche describes in Thus Spoke
Zarathustra the corporate communications department must learn to speak
that language. Until then, its place at the head table remains
‘Reserved’.

Business activities
resumed on Thursday at the Calabar branch of the Central Bank of
Nigeria which was sealed on Wednesday by the Cross River Board of
Internal Revenue Service over tax default allegedly for five years.

Officials of the
state Internal Revenue accompanied by security agents on Wednesday
afternoon ordered all staff to close and locked up the office entrance.
But the staff questioned that their Pay As You Earn (PAYE) which is
deducted monthly by the CBN management is not remitted to the state
government’s coffers.

According to
Akumaye Adie, the Revenue Service Director of PAYE, the amount which
was more than Nl00 million was reduced to N56 million following a
waiver on interest and penalty granted to the bank. The CBN was,
however, said to have paid N30 million but “refused” to pay the balance
of N26 million in spite of repeated demands and representations by BIRS
officials.

But, Mr. Adie, told
News Agency of Nigeria (NAN) that the CBN branch was reopened on
Thursday following a commitment by its management that the money would
be paid next week.

Besides, he said
that the unsealing of the bank was also facilitated by consideration
given to the plea of all the banks in Calabar.

He said, “The
management of CBN had a long discussion with our chairman and at the
end they promised to pay the money next week, unfailingly.

“In fact, the way
the agreement was reached, the money will be remitted to us on Monday
or Tuesday,” he said. He, however, said that if the bank failed to pay
the money as promised, “We may have to go back and seal the place
again”. The News Agency of Nigeria reports that normal business has
resumed at the apex bank which is located on Calabar Road, in the state
capital.

Divine Edim, a
director with the revenue service, who led the operation, said they
decided to shut down the CBN branch because “it has not settled its
liabilities with the state government. These among others include PAYE
which is deduction of income of staff to pay as tax to the host state
government”.

Mr. Edim revealed
that the outstanding PAYE to the state government for the period under
review was N26.5million, adding that this amount may be more as it
covers only 2005 to 2008. When that of the last two years is added, the
bank will be indebted more.

“The management of
CBN”, according to him, “said it is processing the relevant documents
in order to pay. This action is a follow up to series of
correspondence, meetings and even telephone calls all of which yielded
no results. We have documents to show”.

Since the federal
government ceded 76 oil wells of the state to Akwa Ibom state, Cross
River has embarked on an aggressive revenue drive to shore up its
revenue base and thus be able to meet its budgetary commitments.

Some operators at
the Nigerian Stock Exchange (NSE) have said that the prosecution of
infraction practices in the market will serve as deterrence and reduce
criminal activities at the exchange.

Bola Oke, a finance
analyst at WealthZone Limited, an investment management company, said
the work of “the law enforcement agencies is extremely important in the
investigation and prosecution of criminal cases” following the naming
of some perpetrators of sharp practices in the market.

Some market
analysts say the successful prosecution of such criminal cases will
undoubtedly, serve as deterrence and reduce criminal practices in the
market.

A recent case was
the suspension of Diamond Securities Limited, a dealing member of the
NSE, on Wednesday, by the Securities and Exchange Commission (SEC)
after it “observed unprofessional conduct by the company.” A suspension
which the SEC said would “remain in force until the company is cleared.”

Egbo Amaechi, an
executive member of the Shareholders Association of Nigeria, said a
country that has an “infraction-free” character would attract more
foreign investors because “its exchange will serve as a barometer to
measure the performance of country’s economy.”

Mr. Amaechi said
the success of the market reforms by regulators will further boost
investors’ confidence, provide integrity, good corporate governance,
and sound regulatory framework.

‘Broker-dealer monitoring’

Meanwhile, SEC
recently said it is currently engaging the NSE management to be more
responsive to ‘broker-dealer monitoring,’ while it has set up a
committee of both institutions to work out the modalities for the
process.

Arunma Oteh, SEC’s
director general, said the success of the process with the NSE, a Self
Regulatory Organisation (SRO), will restore investors’ confidence in
the nation’s capital market. Ms. Oteh said SEC will also place strong
responsibilities on other SROs in monitoring brokers-dealers and
enforcing their rules.

“In this regard,
the capacity of the SROs and trade groups shall be enhanced to
complement the monitoring and enforcement activities of the SEC,” she
said. “The SROs must be alive to their responsibilities in dealing with
complaints affecting broker dealers. In other jurisdiction, such
complaints are primarily handled by them which free the statutory
regulator to deal with other important market issues. As part of the
market reform, the SEC will develop a framework for SROs to deal with
such complaints under its oversight with sanctions for failure to
effectively discharge these responsibilities.”

Ms. Oteh also revealed that the Commission was strengthening relationship with law enforcement institutions.

“We believe that
closer collaboration will improve understanding and capacity of law
enforcement agencies to expeditiously handle capital market matters and
strengthen the Commission’s zero tolerance policy on infractions,” she
said.

Market rebound

Meanwhile, after six days of losses, market indices bounced back to profitability on Thursday.

The indices for
measuring market performance, the market capitalisation and the
All-Share Index, at the close of proceedings yesterday appreciated by a
1.07 per cent each.

The market
capitalisation recorded over N67 billion gains on Wednesday’s figure of
N6.220 trillion, to close at N6.287 trillion; while the All-Share Index
gained 275.76 points up from 25,573.66 basis points to close at
25,849.42.

A total of 48
stocks appreciated in price on Thursday compared with the 30 recorded
the previous day while 27 stocks shed their prices; lower than 51
recorded on Wednesday.

Nigerian interbank lending rates
eased to 1.16 percent on average this week from 7.33 percent last week after
about 390 billion naira in monthly budgetary allocations to states and local
governments was injected into the system, traders said on Friday.

The secured Open Buy Back (OBB)
eased to 1.05 percent from 6.5 percent, after initially dropping to 1.10
percent on Wednesday when part of the funds hit the system.

Overnight placement fell to 1.20
percent from 7.50 percent, while call slipped to 1.25 percent from 8.0 percent.

The finance ministry announced
the disbursal of 750 billion naira from the federation account to the three
tiers of government — federal, state and local — on Monday, but part of the
funds meant for states and local governments came into the system between
Wednesday and Thursday, helping to ease the tight liquidity in the market.

“The system closed with a
surplus balance of about 310 billion naira, this is more than sufficient to
keep the system liquid for the coming week,” one dealer said.

Banks in sub-Saharan Africa’s
second biggest economy depend largely on monthly cash inflows from budgetary
disbursals to its agencies to fund their operations.

Africa’s biggest energy producer
shares oil revenues between federal, state and local governments each month in
order to pay salaries, fund development projects and keep government running,
providing the bulk of liquidity in the economy.

The federal government’s portion
of the funds is kept with the central bank, while that of the other two tiers
goes in the accounts with retail banks.

Dealers said the cost of
borrowing among banks could remain stable next week despite plans by the
central bank to sell treasury bills at the secondary market in a bid to reduce
the impact of excess liquidity on the economy.