NSE Post Takeover: A Whole New World-Reimagining Endless Possibilities


Wednesday, September 23, 2020  05:10 AM / by Proshare Research/ Header Image Credit:  EcoGraphics

 Proshare Nigeria Pvt. Ltd.

Stockbrokers are likely to fade away. The world of the future is one in which artificial intelligence (AI) will rip holes in the business of traditional security traders as investors receive reports quickly and seamlessly from mobile devices as market updates, business news, corporate features and financial statements upload in regular loops as information becomes available hourly. AI would likely crawl information that meets the preferences of each service subscriber and provides clients with the information they require in pre-specified "buckets".


In the new order, analysts would only need to 'spec' or spell out periods required for data analysis on such metrics as quarterly GDP growth, monthly inflation rate and daily foreign exchange rates with appropriate charts displayed instantly as analysts give insights into trading patterns and investor behavior. According to Chris Okenwa, Managing Director, FSB Securities "the 'market place' as we know it would become an information sandbox filtered to assess value, risk and returns. The new concerns would no longer be about brokers but investment/market strategists and their strategies. The white spaces of access to timely market information would have been filled by technology, hence making the forward play a matter of information processing and investment positioning".  


In its latest Online Trading Portal Ranking Report 2020 Proshare noted that "with the timeliness of transactions becoming just as important as the particular assets traded, trading houses have had to improve the quality of their platforms in terms of data processing, research, customer interaction and generational segmentation. This has created a sort of J-Curve pattern where service delivery quality at the point of transition or upscaling of digital trading transactions shows early signs of difficulties with service quality which dip briefly at the point of the first-stage implementation and then improve exponentially" (see illustration 9).


Illustration 9:  Climbing the Digital Trading Curve

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The Report goes on to note that "AI can be used for the identification of arbitrage. This is a case where investment managers can potentially take advantage of differing prices for the same assets in different markets. It can search for such arbitrage opportunities and list them out to the investor in their dashboard'. The arbitrage trading improves market pricing efficiency and closes market gaps" (see illustration 10).


Illustration 10:  AI the New King of The Arbitrage Game

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The NSE's proposed foray into the derivatives market will create broader asset classes that would enable investors to balance out their asset portfolios in a more clinical manner. Staying stuck in the water will be an increasingly dangerous place to be as market technology sprints ahead and aligns with the preferred journey experience of financial asset traders and clients. Advisory services will be on the uptick as investors fact-check their market intelligence and broaden their market insight based on traders/analyst's experience. Traders/analysts that do not catch up with client's knowledge of emerging real-time market developments could just as well stay at home sulking into their coffee mugs as clients, fees and revenues disappear (see illustration 11).


Illustration 11:  AI and The Beauty of Analysis

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The emerging changes in customer trading preferences and expectations may explain the decision by the Chartered Institute of Stockbrokers (CIS) to change its name to the Chartered Institute of Securities and Investments (CISI). The proposed name change is understandable but the regulatory framework through a proposed bill sponsored by Senator Ganiyu Solomon has areas that need revisiting. The bill seeks to repeal the Chartered Institute of Stockbrokers Act Cap C.9 LFN 2004.


CIS "Market Capture", the Guerilla Strike


The bill is flawed on many fronts is an audacious attempt at professional "market capture" and monopoly conduct. The bill in Part 1 notes among other matters that:


(1) the principal objects of the Institute shall be:

(a) To advance, direct the theory and practice of securities issuance, dealing, investment management and advisory services.

(b) To determine the standard of knowledge and skill to be attained by persons seeking to engage in, and practice in the Securities and Investment business in the Capital Market in Nigeria, to become registered members of the Institute, and to raise those standards from time to time as circumstances demand.


What 2 (1) (b) means is that the only body recognized to approve professional certification of investment and securities practitioners in Nigeria is the CISI. The section is a breach of the very essence of investment market practice that emphasizes:

  • Market efficiency
  • Price discovery
  • Competition
  • Portfolio diversification
  • Risk mitigation


Professional bodies cannot be laws unto themselves determining the professional livelihoods of capital market practitioners. The bill shows a clear overreach whereby some strange interpretation of financial terminology the "stock market" has become equated with the "capital market". The stock market has traditionally and globally been seen as a subset of the capital market which includes the fixed income market, commodities market and the alternative investment markets such as real estate and asset derivatives.


The bill as presently drafted by Senator Solomon brazenly attempts to collapse different markets under one omnibus professional body which would be a professional 'god' similar to the situation where an Institute of Chartered Accountants of Nigeria (ICAN), for example, decides to include areas of tax and tax administration, financial costing, financial management, financial statement and investment analysis and perhaps corporate ethics as part of its exclusive professional preserve and insist that individuals who embark on careers in investment analysis or reporting, investment management, cost management, financial management and taxation should be officially registered and recognized as members of ICAN.


The situation would quickly and easily have been considered a gross breach of global best professional practice and conduct. Indeed, presently in Nigeria, an accountant can be registered with the Association of National Accountants of Nigeria (ANAN) and those wishing to stretch their expertise to taxation can register with the Chartered Institute of Taxation of Nigeria (CITN) separately. Indeed, the CITN has an arrangement with the Association of Certified Chartered Accountants (ACCA) that allows ACCA members to become CITN charter members after a Nigerian tax examination has been sat for and passed. To add another layer to the collaboration amongst finance/accounting professionals, qualifying with an ACCA charter allows a charter holder to sit for an MSc. Programme of the University of London while in Nigeria. The programme would last for six months and the degree is of the same standard and international recognition as a regular MSc programme at the British University. 


The CISI bill is, therefore, a rather grotesque contraption alien to the free market spirit upon which investment and securities trading is based and may be misconstrued as an effort by a narrow group of vested-interests to compel investment professionals with various other Charter memberships to be subject to fees and levies that would be replicated in other professional bodies. The bill is a clear stab at the principle of the free buyer and free seller and throws dirt into the eyes of the concept of market equity and fairness.


To make matters worse the drafters of the CISI bill appear to have skidded into the trap of arrogance and hubris when they either wittingly or unwittingly undermined the existing laws on investment market adjudication and resolution when they attempted to negate the relevance of the existing Investment and Securities Tribunal (IST) established by section 244 of the Investment and Securities Act (ISA) 1999 (now section 247 of the ISA 2007). The new draft bill of the proposed CISI states in Part 7 section 13 (1-6) which deals with Professional Discipline, as follows (see illustration 12):


Illustration 12: CISI's Proposed Disciplinary Process

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13.-(1) There shall be constituted a body to be known as the Chartered Institute of Securities and Investment investigating Panel (in this Act referred to as "the investigating Panel") which shall be charged with the duty to Chartered Institute of Securities and Investment (Establishment, etc) Penalties for professional misconduct

(a) conduct a preliminary investigation into any case where it is alleged 1 that a member of the Institute has misbehaved in his capacity as a member or shall for any other reason be the subject of proceedings before the Disciplinary Tribunal; or

(b) decide whether the case should be referred to the Disciplinary Tribunal or not; or

(c) submit a report on any action taken in the past to the Disciplinary Tribunal.

(2) The Investigating Panel shall be appointed by the Council as prescribed in the Regulations of the Institute.

(3) The Council may make rules not inconsistent with this Act as regard acts which constitute professional misconduct.

(4) The Investigating Panel shall act independently in receiving and investigating allegations under paragraph (a) of subsection (I) of this section and shall have power to receive complaints directly from any individual or organization.

(5) There shall be established a Tribunal to be known as the Chartered Institute of Securities and Investment Disciplinary Tribunal (in this Act referred to as "the Disciplinary Tribunal") which shall be charged with the duty of considering and determining any case referred to it by the Investigating Panel constituted under Subsection (1) of this section.

(6) The investigating Panel and the Disciplinary Tribunal shall consist of such number of members with such qualifications, appointed by the Council in such manner and to hold office for such period and on such terms and otherwise as the Regulations of the Institute shall direct.


Senator Solomon's effort at pushing a bill that castrates professional competition is odd and worrisome as it tallies with an emerging narrative of a drift towards central control and management of the economy by creating a multiplicity of monopolistic structures. Currently, the Nigerian National Petroleum Corporation (NNPC) is the primary importer of refined petroleum products thereby making it a near-monopoly supplier of refined white oil products in the domestic downstream wholesale market. The Central Bank of Nigeria (CBN) is the primary source of foreign exchange supply to the domestic economy, therefore, making it a near-monopoly supplier of foreign exchange. The electricity distribution companies (Discos) in various parts of the country are monopoly distributors of power supply to manufacturers, households, and other economic agents. The canopy of monopolies thrown over the economy may create a massive wave of pricing inefficiencies across domestic markets leading to rampant corruption, inexcusable product/service rationing, resource misallocation, and destruction of service delivery quality.


The desire for the CIS to upgrade its curriculum and the quality of its market intervention is laudable but its attempt at swiping a guerilla claw at the very heart of free-market enterprise upon which securities and investments are based, at best is dubious and at worst represents a horrendous attack on professional market practices and institutional integrity.


The desire of the CIS to improve the quality of financial market professionals is desirable and applaudable but in doing this allowing the organization to control the buy and sell-side of the capital market would be undesirable and would breach the standard of care embedded in the financial market agency functions. It is an implausible argument for the proposed CISI to provide oversight over the buy and sell-side of financial transactions, more so that this would be usurping the regulatory functions of the SEC (an argument that is represented and reflected in the conflict between SEC's IST and the proposed CISI's Disciplinary Tribunal).


While professional institutions such as Nigeria's Corporate and Individual Investment Advisers (CIIA) may see merit in the total control of the sell side of the capital market by the proposed CISI, many analysts demur. Local capital market analysts spoken to for this report insisted that an omnibus institution controlling the supply side of the entire capital market has no precedence anywhere in the world, and represents a brazen overreach by an institute whose primary mandate was the training of stockbrokers for the stock market and not the training of all capital market professionals. They argue that if the CISI was passed in its current form professional members of the Chartered Institute of Bankers who have Corporate Finance responsibilities in their respective banks would have to become members of the CISI to carry out their legitimate banking functions even if they have no interest in being stockbrokers. 


Indeed, Charter holders of the CFA Institute (the world's premier and largest Investment Institute) would also be herded into the CISI program and made to register with a local institute whose certification would be in competition with the CFA Institute locally but would have no professional traction abroad. 


The information available to Proshare suggests that the CFA Society of Nigeria has declined to be affiliated with the proposed CISI. This is understandable as the local affiliate of the international institute noted in a letter to the CIS some salient points. The bill as proposed by Senator Solomon would virtually ensure that the CISI would:


  1. Become a monopoly in directing the theory and practice of Securities and Investment in Nigeria [2(1a)]
  2. Compel all practitioners in the Securities and Investment business in the Capital Markets of Nigeria to become its members [2(1b)]
  3. Be the sole entity for certifying prospective practitioners and those already practicing in the industry [2(1c)]. [2(1f)] and [2(2c)]
  4. Determine individual and institutional Capital Market Operators [16(1)] for the purpose of compelling them to become its members
  5. Commit investment professionals who are otherwise qualified but elect not to become members of CISI to jail and/or fine [18(1)]

The letter also noted that the Chartered Institute of Securities and Investments (CISI), United Kingdom, has applied for recognition to a credential in Nigeria but has not requested for a monopoly position that excludes other professional financial Institutes, this is in line with best global corporate practices. 


Obviously, in an enlightened 21st Century Nigeria allowing the creation of a Godzilla professional institute has no place in the statute books. The Federal Competition and Consumer Protection Council  (FCCPC) needs to brace up to its responsibilities and engage the promoters of the CISI bill in a market-friendly discussion to revise the contents of the proposed law in a way that does not create a professional monopoly that could hurt consumers of professional investment education and knowledge.  


 Proshare Nigeria Pvt. Ltd.

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