Background

Landmark reforms across the banking, insurance and pension sectors between 1999 and 2007 transformed the Nigerian capital market and led to unprecedented growth. The growth being induced, however, by a new regulation that mandated the recapitalisation of financial institutions, the capital market lost between 2008 and 2009 over 70% of its value. Investor’s confidence were eroded; and by 2009, new stock issues had dropped by 93.5% to only N85.9 billion from the peak of N1.3 trillion in 2007.

Past Reform and Achievements

To restore investor confidence in the capital market, Securities Exchange Commission (SEC) focused considerably on investor protection. The National Investor Protection Fund (NIPF) Rules was reviewed to enable the utilization of the N5b the Commission has set aside to mitigate specific investor losses.

SEC developed a policy of zero tolerance on non-compliance with market rules and regulations, and has handed many capital market operators sanctions and penalties commensurate to their infractions. It further embarked on process improvement, introducing international best practices in the offering of securities such that share offers are now largely through book building while bonds are largely through shelf registration. Whistle blowing that would strengthen confidence in the market was encouraged with an anonymous ‘whistle blowing link’ on the SEC website.

The Administrative Proceedings Committee (APC) of SEC was reconstituted and inaugurated in 2013 to enhance quality and effectiveness in resolution of disputes and complaints in the capital market. The Board of the Commission approved an upward review of the minimum capital requirement for registered capital market operators in September 2013. The Commission also approved a policy change that will strengthen the provision for insurance cover for fraud and malfeasance of capital market operators.

These and other reforms have yielded such positive results as the rebounding of the All-Share Price Index, increase in the equity market capitalization and trading value in 2010, from the 2008-2009 crashed levels. The positive outcomes continued into subsequent years; with Domestic participation at the nation’s stock market increasing to N167.77 billion (about US$1.08 billion) in July 2014, up by 81.77% from the January 2014 level. From its inception in November 2013 to July 2014, the FMDQ platform for trading of bonds and other fixed income instruments has recorded a market turnover of N48 Trillion.

Challenges and Next Steps

The shortage of skilled manpower for key legal and supervisory roles should be addressed. Conflicting regulations should be resolved. Opportunities for fraud and abuse should be checked. More technological innovations should be introduced.