HARUNA JALO-WAZIRI:  For Nigeria’s Capital Market Growth to Deepen, Banks Must Be Involved, Stockbroking Firms Need to Consolidate

Mr. Haruna Jalo-Waziri is the Managing Director of the Central Securities Clearing System PLC (CSCS), the nation’s premier securities depository and clearing system. Jalo-Waziri, who was previously the  executive director, Capital Market Division of the Nigerian Stock Exchange and former managing director of  UBA Asset Management Ltd, has  the mandate to drive the strategic goals of diversification of revenue, strategic alliance with peer depositories and financial market entities across Africa and beyond. He speaks with Kunle Aderinokun and Bamidele Famoofo on the strategic plan for the CSCS, diversification of the depository’s revenue base and settlement cycle and addresses other capital market issues and propositions to deepen growth including consolidation of the market and banks’ participation in it. Excerpts:

What is it about the three-year strategic plan for CSCS?

This is a three-year strategic plan that commenced technically in 2018. It started with the board of directors sitting down to define the objectives of the strategy.  We arrived at 13 objectives; we started with much more than that, but we decided to compress and bring out the things we can do within the three-year period. Management took the 13 objectives and distilled them into 84 initiatives, all tied to the 13 objectives. In that context, we defined some of the initiatives into projects. Having looked at all of these things, understanding what our key mission and vision are, we define the pillars of the 13 objectives and those pillars are five.

One is for us to optimise our operations; two is to focus on our customers; three is to improve on our technology and technology use, both internally and externally used internally; and the fourth one is to ensure that we are in touch and connected to our stakeholders and, in this case, the regulators, the market, investors, registrars, custodians and all; and the fifth one, since we are a PLC, we have to look after our shareholders. Those five things I mentioned are the pillars of our strategic objectives. It says everything on how we are going to do everything in the next three years.

What are the targets or goals?

In trying to be specific, for example, we want to ensure that we reduce our turnaround time for generating report to our stockbrokers. It’s typically end of day; we want to reduce that to half a day and in many cases, turn them in real time, that’s on demand. If you look at how we also service the registrars in terms of requests, its 24 hours, we want to reduce it to 12 hours, we want to possibly reduce it to one.  Investors when they come or contact us, what’s the turnaround time in responding to them? In many cases, its 48 hours, we want to reduce it to 24 hours. When we trade, when do you get the alert? For example, it is the end of the day and that has already been achieved. So, trade alerts are real time, within 3, 4 minutes, depending on the gateway or if there is any congestion. When a trader trades your shares whether buy and sell, you get your instant SMS alert and if you subscribed for email, you also get that instantly and that has already been achieved.

These are some of the things that we are building around optimizing operations. That is from external perspective. From internal perspective also, we want to make sure that the handshakes that occur within the institution itself is improved significantly to deliver the services as required. So, when you come to our customer care centre for example, we would want to see that if the average time you spent is 30 minutes, we want to reduce it to 15 minutes in the first year. We want to reduce it to 5 minutes also. To that extent, those are the things we want to improve internally to give all our stakeholders a better experience than you currently have.

Two is the customer focus. We want to ensure that we go out there and talk to our customers in this case, exchanges, registrars, custodians and others. One of the things we are doing is a regular meeting with custodians, regular meeting with registrars, a regular meeting with brokers and those decisions that are taken, we come back and operationalise them in order to improve their experiences to us. Before now, you come to us but now, we go out there and meet with you including the issuances because we service them. We ask them, how do you want it to be done? Is there any improvement that you want? We documented all that and come and put it in place and we put a roadmap on how we want to achieve all of these things. That is currently happening.

Technology. We want to launch an App. We have deployed the process, hopefully within 10 to 12 weeks, we shall have the CSCS App up and running. So, we give the investors total control over viewing their positions, notify when it changes and even add valuation unto it. At a glance, you can see what you are worth within the context of what is inside the CSCS. Stage two is to begin to build other enhancements into the App, including may be, if we have partnership with the banks. You have a bank account in the bank and you can draw information from your bank, whether it is Treasury bill, whether it is bank deposit. You have clear perspective. That is phase two of three. That is where we are going, empowering the investors to have as much information as they can, within the context of the CSCS. The other thing is to ensure that we have true STP with the registrars. We are working on that and I believe that project is ongoing. Right now they put in the data exchange, we collect it, process it and give it back to them in that order.

The custodians also. There are discussions and workaround that we are building whereby we empower the custodians to actually have the capacity to log into a portal, authenticate two levels and can move their security from custody account to trading account without us interfering. Those are the things we are working towards to achieve from a technology and experience perspective.

And, of course stakeholder engagement. We have already started. Like I told you, we have regular meetings with the custodians including regulators now through many channels to ensure that we are in partnership in ensuring that what the CSCS should do is doing and is doing more than the expectation is.

Of course, the shareholders. We have a target in terms of returns for investors and we are working to achieve those targets this year, next year and the third year.

I know when CSCS started in 1997, the transaction/settlement cycle was T+5, but prior to that, it usually took a long time before a transaction could be settled. When a customer wants to transfer shares, he would fill the form, the stockbroker would submit  the form  to the registrar and wait. But later, when CSCS came, the settlement was reduced. How as the reduction in settlement period impacted on the volume of shares traded and processed?

In terms of trade and settlement, today we still operate a T+3 system. I believe when the CSCS started, it was T+5 and we reduced it to T+3. Now, can the CSCS do T+1 or T+2? The answer is yes, but this is a market decision that we have to take. It has to have impact on end results, both the brokers and banks and the way they take money on security and do. But as to whether the CSCS can do it, certainly we can do it. Our systems are equipped to do it. But the issue is when you move your settlement date from T+3 to T+2 or T+1, what is the impact, in terms of liquidity? There are two schools of thought: one says it will constrict liquidity, the other says it will not, and this is what they meant. Our market is supposed to be pre-funded which means before you buy you put your cash down. If our market is truly prefunded, then you can do T+1, with no effect, because there is liquidity already established.  But I think there is an arrangement with the banks, the custodians and all that that trade for me, show me evidence of trade then I will pay you which means somebody is sitting in between the trade and the settlement and ensuring or guaranteeing that something will happen. If you take away one day from that trade settlement, does it mean that somebody is not performing that role and what is the impact of removing that one day to overall liquidity of the market? However, I think we can try and move from T+2 and this is the reason why I said so. Today with your mobile phone using your banking App, 24 hours a day, you transfer money, do you wait till tomorrow or when the business has closed? It’s in seconds. We have to start thinking like that in the capital market for us to improve the liquidity because the more you have the opportunity to settle, the more you are likely to have more trade being done. I am an advocate of that, but the market decides what to do, but that is the way things should be done.

So, what are other things CSCS has put in place to drive capital market growth?

One thing we want to continue to do is to encourage new product. When you bring a product, no matter how complex it, we will design an architecture that will be able to make sure that there is no risk in delivering of the instrument and settling the cash components. Continuously, we have a development team, we have software providers, who constantly sit with us and define or design architecture for new products.

The second part is that, we try as much as possible to be involved in financial literacy in the context of capital market and in the context of the overall financial market. We believe that financial literacy is important, people must know what market all about, people must know how to trade and people must know the benefits and in that way, you are attracting more investors into the market and as such increasing liquidity.

The other thing we are doing is supporting the exchanges whenever they go on roadshows, whether it is a listing drive with the brokers to ensure that we all have a bigger market or others. The third part is about leadership from policy and policy making. We will continue to support what laws are trying to be put in place to facilitate market through our contributions in terms of our expertise and what we think we can add to the value of the laws being created or the rules being created. So, in essence, apart from the physical infrastructure function that we do, we are also supporting from the other side of what we think market should do.

What are the strategic partnerships CSCS have to grow the market?

We have MoUs across the world with other CSCS. We have with Morocco, South Africa, we are signatory to the MoU signed with  WACMIC, West African Capital Markets Integration Council. We also signed up with the CSD committee working on distributed ledger technology, that is commonly called block chain technology adoption in Nigeria so long as it fit into what will help drop cost for transaction and also improve security and as well as integrity of the market. So, we are partners in the global context. We are affiliate member in IOSCO; we have just applied to be affiliate member in ASEA and a host lot of others across the board, all because we want to ensure that we have best practices and ensure that we have proper working market infrastructure that will service our investors.

What  is  the impact of the market lull on your revenue? What plans do you have to diversify CSCS revenue base?  

That is the common question across market infrastructures and markets, generally. Should we keep relying on fees? And in own case,  we have nice balance sheet on interest income or investment income. No, we shouldn’t, because when market change, it affect, whether in terms of volume value or interest rate. In our case, we have regularised that and it is part of our fifth pillar and one of the initiatives we have taken to diversity our revenue, but this is one key way we are doing it. An average stockbroker may be have 5 kilogrammes of papers; where do you think that 5 kilogrammes of papers end up in a week? It ends up at the CSCS. How do you sort it? How do you archive it, if I have come to ask you for my position you are able to do it? So, we have mastered the act of document management to the extent that we have become very efficient in it and we have partnered an OEM software provider to be able to make sure that we do this very effectively. Doing it effectively mean that we can actually take this our strength and apply it into the market, currently one of the things we are doing to many of these big manufacturers  and banks in Nigeria is document management system. So, we are out there and helping banks and manufacturers to manage their documents.

Do you have subsidiary for that?

It is not a subsidiary, it is the same CSCS, it is just that we have developed a new division that will focus on the new product and sell this product outside the settlement and clearing we actually do. Another product we have out there is the pension management, which we have developed to ourselves and have beginning to sell to the market across board. There are two or three other products  that are being built that I might not be able to say to you until we go to the market so that my competitors will not start looking at where we are going.

Can you let us into the pension product,  and how it works?

We built a system where one of the key issues you have is reconciliation, when you send out your pension contribution, sometimes in an Excel sheet, you forward to them and then you send the money. Now, if there is an error in RSA number, or mistake in your name or the amount or something, it will end up in reconciliation and they will have to come back and reconcile before they applied. This system was built in such a way that there is no reconciliation, there is zero possibility of error and it has no duplication and also makes life easier for both the PFC and the PFA. We have tested it on ourselves and it is what we use, we decided to sell it to others. That also is a working tools that we have diversified. We are seeing interest in that particular system.

As a central security clearing system, is Abuja Commodities Exchange part of your clients?

Yes, we have signed MoU with them to actually clear their securities for them.

This has been somehow controversial- I mean the issue of multiple stock exchanges and capital trade points. This issue has been on since the times of the late Dr. Dennis Odife, who was a proponent of multiple exchanges and capital trade points. Will you support capital trade points? Do you believe that a country like Nigeria, should have other major exchanges, apart from the Nigerian Stock Exchange?

I think what I have seen in our market today, is not necessarily a duplication of role, it is more of other people exploring new spaces and creating exchanges to help facilitate that and I start with Nigerian stock exchange was trading equities over the years even though it started with the fixed income instruments. 

The fixed instruments were traded by the banks, it is inter-bank, bilateral and FMDA, which is the  Financial Market Dealer Association, saw the gap, and say look, we are not trading much on the stock exchange, even though the listing was on the stock exchange, but the trading was OTC and decided let us build an OTC market that will facilitate us to have a more transparent market than we have which is bilateral and the stock exchange is an investor at the FMDQ. So, there was a space, FMD created it and the exchange was built.

The other side is the OTC market for equities. NASD was formed by the brokers, because after the advent of private placements, there were a lot of companies that were not listed on the exchange, who were looking for platform for shareholders to actually trade instruments and NASD was born and today the NASD trades OTC equity securities in the market. The Abuja Commodities Exchange has AFEX now, which is another commodities exchange built in Abuja as well and looking to develop the market in the commodities space. So, the Nigerian Stock Exchange is equities base even though they trade ETFs and retail bond, but they don’t trade commodities. 

So, the Abuja Commodities Exchange is trying to enter that market significantly and there is also AFEX, who is also trying to enter the market, but I think the approach of the two are separate and their products will most likely be different. In essence, we have trade points, if you like, we have FMDQ, which is OTC driven, NASD which is equities, but not listed on OTC, you have Abuja Commodities Exchange, which is focusing on certain product in the commodities market and we have AFEX. So, in essence every one of those exchanges actually attacking a particular space and as you have seen all over the world, there will be mergers and acquisition, and Nigeria will not be different.

If you could recall, during that time, the late Dennis Odife was really moving for the capital trade points, multiple stock exchanges, the idea was vehemently opposed by some people. I remember when Dr. Ndi Okereke-Onyuike was DG, in fact, Dennis and Okereke-Onyuike were not friendly because of this issue, to the extent that Abuja Commodities and Exchange, which was supposed to be Abuja Stock Exchange, trading in equities and not commodities, had its operation shut down.  The conflict was so fierce that that the NSE appeared to be pushing for a monopoly. My question is: Do you think we should have multiple stock exchanges and capital trade points, trading in equities in Nigeria?

My take is that, like somebody said at the World Federation of Exchanges Congress about two or three years ago, he says a country must have three things; you must have a flag, an army and a stock exchange. Why do you want to have multiple exchanges that trade the same thing in a market that is very small? Why don’t you build it first, have a liquid market and thereafter develop others. Once you fragment, you reduce the concentration and capacity to actually grow it first.

What is your value proposition for deepening the Nigerian capital market?

There are two things that have to happen: One is to have banks’ balance sheet back to the market. We have to have that liquidity back; we have to have credit flowing into the propriety traders, which is what drove our market, without that particular credit to propriety traders, not necessarily brokers, but institutions that do propriety trading whether dealers, brokers, margin loans. We have to come back to that structure. 

You can restructure it in a way that there is better controll than it used to be. But now, the banks are absent, they have to come back. If you go to London Stock Exchange, the banks are the biggest traders in the market. If you go to New York Stock Exchange, the banks are the biggest traders in the market. Why should it be different in Nigeria? Look at the regulatory capital of the brokers.  With N300 million, N500 million, what can you do? Not much. So, the issue is that at the time we had daily trading of about N100 million back in the day, the banks were effectively lending to individuals and brokers to trade. 

There is always credit in the capital market, without that credit, you won’t see the liquidity and that is what we need to bring back into the market and the regulators have to collaborate and bring particular structure in such a way that it will bring back the banks into the capital market.

 Are you  advocating   increase in capitalisation?

I am not advocating increase in capitalisation, but we cannot have a market that is trading at its best let us say N5 billion and you have 220 active broking firms. If we want our market to grow, we have to consolidate and be able to have big, strong, well equipped brokerage firms that will drive efficiency in this market. 220 is way out of range.

Recently, CSCS won an award organized by CFi.co, a UK-based international magazine. How did CSCS make it? How were you chosen?

CFI.co is online and print magazine, which focuses on financial market as a whole. They have focus also on emerging markets and Nigeria being a frontier market they tend to cover, from time to time, contributors to the development of markets and what efforts are you making to change the market. 

Having been appointed CEO last year, I guess they tend to track, especially when you have market infrastructure like we have, to see what is the impact the new CEO is going make? And, if there is a board change, what is the new board going to do? About two or three months to tell us that we had been nominated for this award, having seen what we’ve done in the last seven, eight ,nine months o f the year. And we went through a panel of judges and 

interviews to determine how far we’ve gone; how we are doing and whether what they’re seeing is really what is happening. Fortunately the panel of judges felt that we are contributing significantly to the market and there is a significant improvement in what this financial infrastructure, in this case, CSCS is doing and decided to give us the award. I’m pleasantly happy that we won the award, considering what CFI.co is and the fact that it’s unsolicited makes us very proud.

How many institutions were considered for the award?

Actually, what CFI.co doesn’t do is to disclose who the participants are. It’s not a fashion parade for them; it’s looking at multiple institutions and from the panel of judges selecting, so that it would encourage others to participate next time.  Sometimes when institutions participate, they don’t win. Next time, when they want to do interview with them, they probably would not participate.  I guess that’s what CFI.co is doing and we are very proud of ourselves, we are glad that we won the award.