In this piece, JOSEPH INOKOTONG reports that the recent meeting of the Capital Market Committee (CMC) to brainstorm on pivotal matters concerning the market, once again, underscores the enviable role of the capital market as a veritable source of infrastructure financing for development.
Globally, capital markets as an avenue for long term funds are considered a catalyst for economic growth. Therefore, expanding and deepening of the capital market in Nigeria is important to the next stage of the country’s development.
According to the FBNQuest, capital markets are vital because they supplement financing of the economy, allocating risk and supporting economic growth. They also serve as an essential organised system for the free flow of capital raised through debt or equity.
Despite the intermediation and developmental role of capital markets, investors still aim to either build or maintain portfolios that outpace inflation by investing in some other instruments.
It is on this score that one can appreciate the Capital Market Committee (CMC) that convened its second meeting of 2023 last week to engage in comprehensive discussions on pivotal matters influencing the capital market. The meeting also served as a platform for receiving crucial updates from both regulators and operators. The event pointed to the committee’s unwavering commitment to advancing the development and orderly functioning of the Nigerian capital market, reflecting a shared dedication to its growth and stability.
During the meeting, the chairman of the CMC extended heartfelt gratitude to the capital market community for their invaluable contributions and steadfast support. Their active participation has played a vital role in the commission’s relentless efforts to cultivate a resilient and dynamic capital market ecosystem.
Lamido A. Yuguda, Director-General, Securities and Exchange Commission (SEC), Nigeria, highlighted the positive impact of the recent general election on the stock market. He stated that the inauguration of the President Bola Tinubu led to a remarkable 5.23 percent surge in market capitalisation at the NGX on his first day, driven by optimistic anticipation of market reforms.
The chairman acknowledged the prevailing challenges arising from demanding macroeconomic conditions, constrained consumer spending and rising operational costs. Despite these challenges, he noted that a shared sense of optimism persists and that ongoing rigorous reforms will rejuvenate the nation’s economy. He stressed the need for a resolute support of the capital market to the Federal Government in navigating these challenges for the country’s brighter future.
Also, he stated that the road ahead is undeniably challenging and the capital market must step forward in whatever way to lend helping hand to the current economic reforms, adding that the market must make sacrifices to help drive the economic transformation that will change our nation’s fortunes for the better.
On efforts to move the market to a higher pedestal, the chairman gave updates on a series of significant happenings since the previous meeting in April 2023. He informed the meeting that the Investments and Securities Bill (ISB) 2023 is under consideration by the 10th National Assembly. The bill aims to align regulations with the modern dynamics of the market and it is hoped that if passed into law, it will enable optimal contribution of the capital market to national development.
Underscoring the commitment to reposition the capital market as a driver of economic growth in line with the vision of the new government, he stated that a round table discussion had gathered valuable inputs from market participants, which would be put together for the new administration. He highlighted efforts to strengthen the market’s attractiveness, including streamlining listing processes, advocating for smoother issuances and encouraging private equity involvement in the infrastructure sector.
Other important issues were kept on the front burner as the CMC discussed the essence of sustainability that has emerged as a focal point, with Nigeria hosting the African launch of the International Sustainability Reporting Standards, signalling the country’s pivotal role in shaping global reporting expectations.
The chairman informed members on the need to counter unauthorised financial entities, unregistered products and cyber threats and urged the market players to prioritise cybersecurity measures to safeguard sensitive financial data and transactions. He lamented the trend of companies choosing to de-list from the capital market. Stressing the significance of this issue, he affirmed that the SEC actively collaborates with the exchanges to enhance approval procedures, aiming to render listing processes more streamlined, more efficient and economically viable, disclosing that advocacy initiatives were underway to address hurdles related to issuances and to motivate prospective issuers to consider market-based funding options.
He reminded members about a series of circulars issued by the commission aimed at protecting investors from the activities of unregistered schemes. Specifically, the chairman reiterated the commission’s warning to the public regarding the activities of Binance, Luno, PaxFul, Coinbase and other unregistered platforms, as investing in crypto-assets carries a high level of risk and may result in total loss of investments.
Works have been on in earnest to take Nigeria off the Financial Action Task Force (FATF) Grey-List and the meeting provided ample opportunity to update CMC members. The chairman stated that efforts already made by the capital market included the SEC amending its Anti Money Laundering and Countering the Financing of Terrorism Financing (AML/CFT/CPF) Regulation 2022 in line with the findings from the National Residual Risk Assessment (NRRA) exercise. New frameworks on the implementation of Targeted Financial Sanctions (TFS), Risk-based Supervision and guidance on Politically Exposed Persons (PEPs) were developed for the market. Meanwhile, a sector-specific entity risk assessment framework is being finalised.
To ensure compliance and protect the market from abuse by criminals, the SEC had conducted extensive outreach, sensitisation and training programmes for capital market participants on new obligations, in collaboration with development partners and other stakeholders. Members were informed of this development, in addition to receiving updates from CMC technical committees, as well as heads of various exchanges.
As part of its accomplishments, the technical committee of the Commodities Trading Ecosystem disclosed that a two-day workshop was conducted in Lagos by the commission and Federal Ministry of Mines and Solid Minerals Development, which was well attended by the Association of Issuing Houses of Nigeria (AIHN), Fund Managers Association of Nigeria (FMAN) and commodities exchanges.
The event explored capital market funding options for the solid minerals sector. It brought together 57 mineral companies, government officials and capital market operators. The workshop provided insights into funding opportunities, requirements for mineral companies, the role of commodity exchanges, sector challenges and government initiatives for improvement of the mineral sector.
In a similar fashion, the e-dividend mandate committee provided update on the project to enhance the e-dividend portal in collaboration with the Institute of Capital Market Registrars (ICMR) and the Nigerian Interbank Settlement System (NIBSS). The Financial Literacy Technical Committee disclosed plans to organise a regional investor awareness conference in Kwara State scheduled for October2023 specifically targeting tertiary institutions within the state. Additionally, plans for a pilot test of the Capital Market Studies (CMS) project by the Nigerian Educational Research and Development (NERDC) was made known by the committee to members.
The Non-Interest Capital Market Products (NICMP) technical committee was not left out as it shared significant updates on what had taken place since the last meeting, including, of note, developments such as the release of a revised framework by the National Pension Commission (PenCom) for establishing the Pension Industry Non-Interest Advisory Committee (PINAC) that will ensure the strict adherence to Shariah principles by investments within the Non-Interest Pension Fund (Fund VI).
The technical committees’ discussions also covered strategic plans to enhance awareness about Fund VI and establishing interactions with various entities to facilitate the creation of Shariah-compliant instruments for the commodities market, in addition to highlighting the need for collaboration with the DMO for the development of short-term Sukuk securities. With a strong emphasis on cooperation, the committee underscored the pivotal role of joint efforts among Pension Operators (PENoP), PenCom and other stakeholders to elevate awareness and encourage active participation in the Non-Interest Pension Fund VI.
The registered exchanges present at the meeting informed members that Nigeria outperformed global indices on gains in the All Share Index and market capitalisation. This exceptional performance could be attributed to several factors, such as the appealing dividend yields offered by certain stocks, the recovery of corporate earnings and a notable improvement in sentiments among domestic retail investors. All indicators reflecting investors’ involvement, including volume, value and the number of transactions had demonstrated consistent month-on-month increases throughout the first half of 2023.
Of noteworthy was the recognition by the meeting of the Capital Market Committee’s dedication to propelling Nigeria’s economic growth, fostering collaboration and embracing innovation to build a thriving future for Nigeria. It once again underscored the enviable role of the capital market as a veritable source of infrastructure financing for development.
The seriousness of the event and what to expect subsequently was proven by the about 277 stakeholders that participated in it. They comprise management and senior staff of the SEC, Capital Market Operators (CMOs), representatives of relevant government agencies including the Central Bank of Nigeria (CBN), Debt Management Office (DMO), Federal Inland Revenue Service (FIRS), Investments and Securities Tribunal (IST), National Insurance Commission (NAICOM), National Pension Commission (PenCom) and Financial System Strategy 2020 (FSS2020).
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