Sunday, February 24, 2013 / Olumide Olusegun-Obayemi *
The global financial crisis that began in 2008 caused a severe crisis and exposed several irregularities in the Nigerian Capital Market. Thereafter, Nigerian Central Bank audited Nigerian banks in 2009. Later, the Nigerian Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) instituted various legal proceedings before the Investments and Securities Tribunal (“IST”) against several individuals and entities, involved in securities violations and abuses such as insider dealing and share price manipulation. In 2009, former SEC Director General Al-Faki resigned and was replaced by Arunma Oteh. In August 2010, Oteh dismissed Okereke-Onyiuke and Aliko Dangote as NSE’s Chairman and President, respectively, alleging "inadequate oversight...ongoing litigation, allegations of financial mismanagement, governance challenges". Also, the Nigerian federal legislature set up the El-Sudi Adhoc Committee to investigate of collapse of the capital market, but, Nigerians were shocked in December 2012, when counter accusations between the Nigerian Legislature and SEC went amok
We use practices in the United States and Great Britain as examples to move the Nigerian capital market to greater heights and offer insight into legal theories and practical approaches for curbing incessant manipulations and abuses. Respectfully, we propound reforms.
Recommendations for Improvement and Efficient Capital Market Regulatory Systems in Nigeria
A. Seasoned Practitioners with Track-Records of Knowledge of Securities and the Capital Market Should be Chosen to head both the SEC and the NSE
One of the greatest banes militating against efficient running of Nigerian Capital Market is the choice of acolytes and untested persons to head SEC/NSE. The very first objective is the examination of the criteria for choosing capital market’s helmsmen. A good example is the January 2013 choice of Mary Jo White by President Obama to head the American SEC. White is a well-respected attorney who won high-profile cases against mobsters, terrorists and financial fraudsters over the course of nearly a decade as the U.S. attorney for Manhattan. Upon leaving government work, White became a powerful defense lawyer and represented biggest Wall Street names -- including former Bank of America chief Ken Lewis -- in cases before the SEC. That Mary Jo White is well-tested is evidenced by the fact that in 2005, when Morgan Stanley needed someone with an inside line to the SEC—they chose White. A detailed search of the Nigerian Courts’ websites and databases has not revealed any notable case or issue handled by either Otey or Okereike-Onyuike. We find no reason to expect that either of them would perform wonders after being “selected” as helmsmen of SEC and NSE.
B. The Use of Double-Layered Sanctions Regimes for Practitioners Before the SEC.
In the United States, there is the Double-Layered Sanctions Regime—i.e., the traditional disciplinary authority of lawyers by their states' bar and the second layer disciplinary authority by SEC's Office of General Counsel (OGC). Lawyers who practice before the SEC always faced the double gauntlet of disciplinary authority and double oversight. SEC uses its lawyer discipline authority to hold lawyers responsible for alleged misdeeds of their clients. Lawyers practicing before United States’ SEC face 2 sets of disciplinary proceedings: (a) Follow-On Proceedings and (b) Independent Proceedings of the First (1st) Instance. If a lawyer is suspended from practice for a year by a state bar for client trust fund violations, SEC may institute a follow-on proceeding to suspend the lawyer from practice before SEC for one year, for the same reason. Independent proceedings are those pursued by SEC alone, in the first instance, independent of any other lawyer disciplinary authority. Until the sanctions regime is evenly administered, the Nigerian capital market will not function properly
C. The Need for Whistleblower Laws to Compliment Existing Regulatory Codes.
There are voluminous laws already enacted in Nigeria. We need Whistleblower Laws to compliment Regulatory Codes presently existing. United States has Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Securities Exchange Act of 1934 by, among other things, adding Section 21F, entitled “Securities Whistleblower Incentives and Protection.” Section 21F directs the Commission to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1,000,000, and certain successful related actions. Violators of capital market laws will not self-report. Yet, these violators cannot act single-handedly—they need lawyers, accountants, bookkeepers, clerks, secretaries, trusted aides and other assistants to assist them in carrying out their nefarious deeds. Tempting awards for whistleblowers will enable these “assistants” to come out and expose their masters. There, must also be a system of monitoring these “whistleblowers.”
D. Need to Create Deep Pools of capital and a diverse range of investors
Great Britain’s capital market regulators recognize that as companies grow and mature, sources of capital such as bank loans or venture capital may prove insufficient to support their evolving corporate strategy. Raising public capital in London can increase the ability of businesses to fund expansion in existing or new markets and to invest in growth opportunities ranging from acquisitions to research and development. We cannot afford to continue to have Banks, Agip, Oando and other downstream oil corporations as principal drivers of our capital market. Nigeria can create deep pool of finances for manufacturing corporations via deep pool of capital from diverse investors. Does Nigerian have potentials, scientists and engineers to create similar globally-renowned corporations as Genentech, Ford, Bavarian Motor Works, etc? We make bold to answer in the affirmative so long as the pool of investors to aid and promote research and development are present with anti-insider trading laws to promote even field for competition.
E. Laws promoting Liquidity.
British capital market also recognizes the need for liquidity, i.e., providing strategic flexibility. A liquid market in shares provides a basis for valuing businesses and benchmarking their performances against competitors. Also, a liquid after-market brings new opportunities for remunerating and incentivizing staff by allowing them to participate in the success of the company. Liquidity also enables the use of stock as a powerful currency when planning a company’s future strategic growth.
In Nigeria, we are inundated with conflicting and inconsistent values of stocks being traded on NSE. This causes lack of liquidity. We suggest that valuation of stock must be done by qualified persons to ensure liquidity.
F. Stiff Corporate Governance Laws
Intelligent corporate governance builds shareholder value. Efficient capital markets are not possible without appropriate governance standards. However, inappropriate regulation stifles enterprise and increases the cost of capital. Nigeria market should enthrone highest standards of ethics, disciplinary and criminal regimes to achieve efficient capital regulations.
G. Need for cost effective, efficient and dynamic markets
Nigerian capital market must adhere to high standards of corporate governance at a lower cost of capital than any other major financial center. There is little incentive for companies and investors to commit to a market if they are not confident of its technology and systems.
H. Need for tax efficiency laws.
We need a tax efficiency regime that encourages investor participation. Tax efficiency allows investors to retain more of their profits. It is a further element in encouraging investors to actively participate in our public capital markets.
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