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Reviewed
guidelines on margin lending in the stock market will be released by
next month. Arunmah Otteh, the director general of the Securities and
Exchange Commission (SEC) said the organisation and the Central Bank of
Nigeria (CBN) will jointly issue the guidelines in a bid to correct the
negative impact of margin lending on the capital market.

Speaking
in Lagos at a press briefing at the weekend, Ms. Oteh said the
Financial Services Regulation Coordination Committee (FSRCC), which
comprises SEC, CBN, National Pension Commission, Nigerian Stock
Exchange, National Insurance Commission, Corporate Affairs Commission,
and the Ministry of Finance, have been deliberating on the margin
guidelines.

According
to her, there have been deliberations on the margin guidelines due to
its importance in the market meltdown that happened in 2008.

“We
have got feedback from all and have taken it into account. Our board
have reviewed the draft margin guidelines, CBN board have also reviewed
it, and the minister of finance is going through it and we do expect
that by the beginning of August we will issue the right and specific
guidelines to ensure that what we experienced does not happen again,”
she said.

A
margin loan is a facility given to an investor for the purpose of
buying securities and is secured by the investors’ collateral, which is
usually a portfolio of securities. An investor uses a margin loan when
s/he does not have enough money to buy securities and to take advantage
of a potentially profitable rise in securities prices.

Previous guidelines

The
Financial Services Committee had last May issued guidelines that banks’
aggregate exposure to margin lending shall not exceed 10 percent of
total loans and advances. It also stated that banks shares shall not be
used in margin lending. Operators were also expected to observe at all
times, a maintenance margin limit of 120 percent and also expected to
put in place a robust framework for margin trading, which should
include definition of margin and internal rules and procedure for
trading, consistent with regulatory requirements.

Olusegun
Aganga, minister of finance, said the problem of margin lending in the
past was that there were no strong guidelines in place. “Margin loan is
one of the things that brings liquidity to the market. People build
business around leverage.”

Mr.
Aganga said the error of the past was in not identifying the level at
which to mark and sell off the margin when the stock prices went down
below a predetermined level. “If they don’t pay, you sell off,” he
said, adding that what happened provided an opportunity for learning.
“We seem to have learnt from it. So now, let us put it into action and
let us move forward.

Whistle blowing

The
finance minister said it was time for market operators to take
responsibility for whatever goes wrong in the market and to expose the
peers who are known to commit infractions.

“The brokers collectively decided it was time for them to take
responsibility as a trade organisation. They need to take whistle
blowing as an important part of what they do. If they want to have
credibility, if they want the market to have credibility, then they
must behave in a way that promotes the integrity of the market,” Mr.
Aganga said.