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Some operators at
the Nigerian Stock Exchange have argued that the nation’s capital
market does not really follow the trend of the economy like its
counterparts across the globe.

Referring to the
bullish trend which the market had witnessed in the past, Egbo Amaechi,
an executive member of the Shareholders Association of Nigeria, said,
“Whether the Nigerian government is spending or not, it doesn’t really
reflect in our capital market.”

Market performance
in the first quarter of year also shows that while economic activities
were slow due to no budget allocation or implementation, the capital
market witnessed bullish trend; an indication of inequality in the
nation’s economic system.

Mr. Amaechi said
the liquidity driving the market does not come from the budget because
“the banks, before now, have been the main driver of the market which
is not so in other countries,” adding that “presently, the source from
the banking sector has dried up.” However, he said that fund managers
and institutional investors are the ones driving performance because
“they now see kickers of hope in the market.”

“Hopefully on the long run, budget implementation will trickle down to the market and further enhance liquidity,” he added.

Not true

Meanwhile, Rasheed
Ola Yussuff, chief executive officer of Trust Yields Securities
Limited, said the market reflects the situation of the economy at any
particular time. “Even when the budget is not formally approved, the
ministries are still allowed to spend up to certain percentage of what
they spent the previous year, and that is what is keeping the economy
going,” he said.

However, Mr.
Yussuff, who is also the chairman of the Association of Stockbroking
Houses of Nigeria, said that budget approval does not necessarily mean
the market is going to be more liquid. “The market will only be more
liquid if as a result of the approval, each ministry starts to execute
the projects of which the budget is signed,” he said.

Explaining the
situation in the market, the stockbroker said, “What has been happening
since the first quarter of the year is that some institutional
investors have turned to the capital market to make money.”

This he said is as
a result of the money sitting with the banks that are not been loaned
out because the Central Bank rate went down. “Banks are not anxious to
take more deposit from customers. And to discourage us, they lower
their interest rate. That is why attention has been shifted to the
market,” he added.

The managing
director of Financial Derivatives Company Limited, Bismarck Rewane,
also believes the “expansionary nature of the 2010 budget should have a
positive impact on the equities market” since “it is designed to
stimulate the economy out of the recent global economic crisis.”

Asset Management Bill

In its “Monthly
Economic Update” for April, Financial Derivatives said, “The passage of
the Asset Management Company bill by the senate and its expected accent
by the Acting President will establish a basis for cleanup of bank
balance sheets of toxic assets. Cleaned up balance sheets should make
the affected banks attractive and meet acquisition targets from local
and foreign investors. We can expect to see investors taking position
in some of the troubled banks in anticipation of mergers, acquisition
and consolidation.”

According to the
report, it should take up to six months for the framework of an Asset
Management Company to reach an advanced stage upon passage of the bill.

Restoring confidence

Meanwhile, the new
rules and regulations issued last week by the Securities and Exchange
Commission (SEC) are expected to further boost confidence in the
capital market.

Arunma Oteh,
director general of the SEC, said, “The new rules are part of the
efforts to transform the Nigerian Capital Market into a more efficient
and internationally competitive market with high level of integrity and
investor confidence. It is our hope that these efforts will further
strengthen the market and restore the confidence of both local and
foreign investors.”

Some of the key
provisions in the new rules include the following: the requirement for
approval by the Commission of appointment of Executive Directors of
market operators; the rule on validity of accounts submitted to the
Commission requires that it should not be more than 9 months for
corporate bodies and not more than 12 months for governments and
supranational bodies; the requirement to make underwriting of issues
the discretion of the issuer has made underwriting of issues in the
market no longer mandatory.

Others are: issuers
are now required to list their securities not more than 30 days after
allotment clearance; another key amendment relates to a reduction in
the cost of issuance; separate rules now issued for corporate bonds;
new rules issued for the regulation of money market funds, etc.

Ms. Oteh said it is
a well known fact that in financial markets, periodic crisis bring
forth regulatory reforms. “It was as a result of this that the
Commission in September 2008 constituted some industry-wide committees
with the objective of repositioning the market for greater efficiency
and international competitiveness.”

“One of such
committees was the Dotun Sulaiman Committee on the Review of the
Capital Market Structure and Processes. The committee submitted its
report in March 2009 and the implementation of the accepted
recommendations has since commenced. The rules being presented today
are in furtherance of the implementation of the recommendations of that
committee and in fact with these new rules, about 95 percent of the
rule-based recommendations of the committee have been implemented,” she
said.

She added that the
present amendments, which comprise 23 new rules and 8 amendments to
existing rules, cover a wide range of issues in the market.

The Commission is empowered under section 313 of the Investments and
Securities Act (ISA) 2007 to, from time to time, make rules and
regulations for the purpose of giving effect to the provisions of the
Act.