Nigeria Content Online

Over
70 stockbroking firms have been found to be operating below regulatory
minimum capital base, an inspection of 247 firms has revealed. The
inspection carried out between May 5 and December 23, 2009 by the
Compliance department of the Nigerian Stock Exchange (NSE) was made
public last Friday. It remains unclear whether the affected firms have
regularised their status. The minimum capital for stockbroking firms is
N70 million. Mohammed Momoh, general manager, Compliance and Risk
Management of the NSE who disclosed this at the meeting held on Friday
between chief executive officers of stockbroking firms and the NSE
management, said several firms failed to comply with the rules and
regulations especially on prompt rendition of financial accounts. “The
inspection also uncovered that several firms were illiquid. It was also
discovered that several firms engaged in illegal sale of their clients’
stocks,” Mr Momoh added. Mr Momoh also said that firms which engaged in
the padding of their shareholders’ funds would be penalised after
assets verification based on responses to assets reporting schedule to
be forwarded to stockbroking firms this week. He said firms that have
not separated their current accounts from clients’ account or who are
yet to appoint qualified accountants as chief finance officers or
compliance officers will be sanctioned.

Mixed custodianship

The
NSE also notified stockbrokers that from April 1, it will begin to
operate the mixed custodianship system to safeguard investors’ assets.
By this, clients’ accounts would no longer be accessed by the
stockbroking firm but will be held by a custodian which will be
separate. This is to prevent incidence of firms selling clients holding
without due authorisation. Director General of the Securities and
Exchange Commission (SEC), Arunma Oteh, who was at the meeting,
reiterated the necessity to safeguard investors’ assets in the market
in line with global best practices. Ms Oteh said 85 per cent of
complaints received from investors were on unauthorised sales, hence,
the need to take far reaching measures encapsulated in the adoption of
mixed custodianship approach currently operational in South Africa.
However, the Association of Stockbroking Houses of Nigeria (ASHON) says
that the matter of capitalisation should be considered in the light of
the current market downturn. Chairman of the association, Rasheed
Yussuff, said the issue of under capitalisation was more complex that
it is made out to be. Mr Yussuff said it will not be fair to assess the
capital profile of stockbroking firms at current market value as the
market downturn has affected the value of the asset upon which the
companies were formerly assessed. “It is not that the businesses have
collapsed but that the market has crashed which has affected the value
of the shares held by these companies. It is not an absolute figure.
Until you sell, you have not actually lost money. If tomorrow the
market starts to go up as it is doing now, the companies can value up
to the N70 million required.”