Year After | |
Year After | |
4052 VIEWS | |
![]() |
Wednesday, September 16, 2020 03:00 PM / by Proshare Research/ Header
Image Credit: EcoGraphics
Executive
Summary
"Learn every day, but especially from the
experiences of others; it's cheaper!" - John Bogle
John Bogle's comment is instructive, especially
when it comes to the battles for the heart and soul of Nigeria's stock market
over the last two decades (2000-2020). The market has grown both because and
despite its principal officers, with each era introducing a pungent twist to a
colourful tale. In two decades the market has pivoted between the philosophical
and dramatic and the subdued and innovative with a snap period (2010-2015) of
disruptive intervention. Each epoch represented part of an intense learning
process, but unlike Bogle's admonition, it did not defer to the experience of
others, it required passing through the furnace itself.
At the turn of the millennium Ndi
Okereke-Onyiuke, Ph.D., erstwhile Director-General of the Nigerian Stock
Exchange (NSE) realized that the growing adoption of technology and the
increasing sophistication of tradeable market instruments required a new
trading platform, one with enough flexibility to be scaled up to global
standards but light enough to accommodate the existing state of play of market
operators. She, therefore, consolidated her earlier initiative to digitalize
the Exchange into a broader plan of improving both the trading platform and the
investor's trading experience.
The interface between the market and the
investor was no longer wrapped in obscure practices but became open to the
light of new trading rules and new trading methods (open-outcry and trader
market muscle memory were replaced with keyboards, monitors, charts, research
reports, Fibonacci algorithms, candlestick presentations and corporate market
engagement, 'facts-behind-the-figures'). The new era had started but not
without hiccups.
Problems that stuck to the shoe gum of the
Exchange ranged from institutional inertia (the need to upgrade staff
competence) to professional dispute management (engagements between the
Exchange's managers and the organizations governing Council) and a brief
but uncharacteristic detour into politics. By 2009 and 2010 conflicts with the
management of the Securities and Exchange Commission (SEC) piled additional
pressure on the Exchange's management which was unhelpful. Unfortunately, the
conflict resulted in the departure of Okereke-Onyiuke and key managers of the
Exchange in 2010.
An Inconvenient Truth
One rarely spoken about problem Okere-Onyiuke
faced was the attempt by certain Council members to railroad a demutualization
process that would have allowed owners of bellwether stocks listed on the
Exchange to take up major equity in the Exchange, creating what analysts at the
time had perceived as conflicts of interest. While the Exchange would
inevitably change from a stock broker-dominated Exchange to an
investor-dominated platform, Okereke-Onyiuke was wary of allowing overwhelming
individual financial influence to be the primary factor dictating the
Exchange's ownership within the proposed demutualized arrangement.
Okereke-Onyiuke's reticence to demutualize the Exchange at the time resulted in
a powerful blowback from angry high net worth investors who felt hard done by
as the ex-DG played a game of 'slow is beautiful'.
The game, however, came with a heavy cost and by
the time the dust settled on the manoeuvrings one of the Exchange's most
ebullient and charismatic bosses had been shown the door.
As soon as Okereke-Onyiuke left the Exchange,
Emmanual Ikhazoboh was nominated by the SEC as an interim administrator until
the market would appoint a substantive successor. In the interim, the new boss
worked with the NSE's old management team but without the effervescent presence
of the former DG. The arrangement continued for a few months before the old
guard was nudged aside (See Table 1).
Table 1:
Okereke - Onyiuke's Curtain Call
The Next Drive-By
With Okere-Onyiuke given the heave-ho, Oscar
Onyema, another Alumni of the New York Stock Exchange (NYSE) was brought in to
steer the affairs of the Exchange for an initial five-year term as chief
executive officer (CEO). Onyema quickly went to work on reviewing the Exchanges
structure and processes and rejigged operations to suit the 'touch and feel' he
considered necessary to build on Okereke-Onyiuke's legacy.
Onyema quickly set to work and decided that the
Exchange needed to drive larger volumes in new tradeable assets by way of fresh
listings and the introduction of instruments such as mutual funds,
exchange-traded funds (ETFs) and exchange-traded Index funds. However, four
years before Onyema's foray into product development, the Okekere-Onyiuke team had
introduced a real estate investment trust (REIT) in 2007 called the Sky
Shelter real estate investment trust. In other words, from 2007 the NSE had
steadily built up new asset classes to give the market greater breadth.
Nevertheless, Onyema has shown an ability to
push for innovation and asset growth as the NSE capitalization rose from
N6.53trn in December 2011 to N13.51trn in December 2019, representing a
compound annual growth rate of 8.41% (well above the average annual growth of
the country's (GDP). The Exchange under Onyema has seen progress with
capitalization and increasing sophistication but it has been trumped by the
massively superior fixed income performance of the FMDQ Exchange which has seen
an explosive growth of treasury transactions and commercial private bonds in
the decade since 2014 (See
Table 2).
Table 2: NSE, NASD and FMDQ - A Tale of Growth and Competition
Fresh off the airplane from JFK and with fire in
his belly, Onyema came to the NSE with a few baseline ideas to upgrade the
local equity market including the following;
The security market administrator's goals at the
time were laudable and mirrored global developments, but after ten years at the
helm of the NSE and with a few months to go from his retirement at the end of
Q1 2021, the outcomes of his early initiatives remain patchy (See Table 3).
Table 3 Inside Onyema's Strategy: The Promise
and The Weakness
Setting Fire To The Rain
A flashback to 2010 unveils an unflattering
period in the life of the Exchange, with SEC and the NSE at each other's
throats and the Capital Market Committee of the House of Representatives of the
National Assembly in an uproar over bribery allegations.
The capital market was in a fiery flux as
accusations and counter-accusations by regulatory managers went flying and
members of the national assembly had their reputations squashed like mashed
potatoes. According to a local stockbroker with 28 years of uninterrupted
market experience, "you had to be scared of the internal regulatory
wranglings going on because foreign investors were growing increasingly wary of
entering a market with supervisory chaos seeing that local investors were busy
holding onto rosaries praying that this 'too shall pass'. As a trader, you had
to be frightened" he said.
The 2010-2015 period saw the Securities and
Exchange Commission (SEC) headed by an elegant, cerebral but domineering
ex-AfDB executive, Aruma Oteh, who took over the ropes with zeal. Oteh had a
clear agenda to quickly introduce private sector management style to the
hallowed bureaucratic traditions of SEC and she could not be bothered with
whose ox was gored, including that of long-standing senior SEC executives. It did
not take long for Aruma's aggressive (some say pugilistic) management style to
rile not only the nerves of her SEC colleagues but also members of the
oversight committee of the market at the national assembly (NASS). Put simply,
Oteh set fire to the rain.
Whatever position analysts may take concerning
the Oteh days at the SEC, she was a force for both good and mayhem. She grabbed
the market by the scruff of its neck and shook it hard, very hard.
A few of Oteh's contributions to the market
included but were not limited to the following:
Oteh's firestorm engagement at the SEC may have
been unsettling but it came with benefits as well as costs.
Section one of this report looks at a
brief history of the NSE, how business activities were carried and what
influenced investment decisions. It also looks at the creation of the CSCS and
what led to its creation, the growth in market operators over the years, improvement
in market confidence through logic rather than passion or 'animal spirits'. The
section also looked at changes made within different management eras, increased
growth in the number of IPOs, LBIs as preferred methods of capital raise by
most companies.
Section two: this section addressed
the issue of the market's unpredictability and investors reaction to market
dynamics. The impact of unexpected shocks on the value of the capital market.
The section also answers the question 'does the Nigerian Stock Exchange reflect
the state of the domestic economy?' and foreign and domestic investor sentiment
on the market. It also looked at the long road to achieving a market
capitalization of US$1bn. This section also looked at the transition from AseM
to Growth Board and its related matters. The section brought to the surface
opportunities presented by the COVID-19 depressed economy, it also answers the
question 'if the political risk is a matter of concern for the market and
market players.
Section three: this section talks about
the need for demutualization, the niggling problems associated with
demutualization and the sustained fear of the power that will be controlled by
the board of directors and potential conflict of interest of a demutualized
Exchange. This section also talks about actions that could lead to the success
or failure of a demutualized exchange and its prospective value chain drivers.
The addressed how AI could be used for the identification of arbitrage
opportunities and the disruption of asymmetric loopholes. The section spoke to
the proposed CISI bill and its implication for the adoption of a professional
monopoly, it disagreed with its proposed disciplinary process which undermines
the Investment and Securities Act of 2007 and the establishment of an
Investment and Securities Tribunal (IST). The section argues that the CISI bill
as drafted was mortally and morally flawed.
Downloadable Versions of NSE Ten Years After Takeover Report (PDF)
1.
Executive
Summary: NSE Ten Years After a Takeover: The Good, The Bad and Undecided -
Sep 16, 2020
2. Full Report: NSE Ten Years After a Takeover: The Good, The Bad and Undecided - Sep 16, 2020
Related News
Related News - Years
After Reports
Proshare's Memos To The
Market and Market Updates
Related News - Online
Trading Ranking Reports
Related News - Capital Market Service Reports