WHY SEC SHOULD SAVE THE SOUL OF NASD

 Securities exchanges should be hedged from hostile takeover under any guise, argues SOLA ONI

Struggle for ownership and control is brewing at the board of Nigeria’s premier Over-the-Counter (OTC) Exchange, NASD PLC., sending horrendous signals that unless the Securities and Exchange Commission (SEC), wields a big stick to calm the raging storm , the NASD’s 11th Annual General Meeting (AGM), may end up as a theatre of verbal war.

By the SEC’s approved Notice of Meeting, scheduled for Thursday, September 24, 2024, at Colonades Hotel, Ikoyi Lagos, one of the items in the ordinary business, is ” To re- elect the following Directors , who retire by rotation at this meeting and being eligible offer themselves for re-election: Mrs Kenechi Ezezikah, Mrs. Olayimikah Bollo and Mr. Ishmael Ebhodaghe. 

Miffed by the re-election item in the Notice, VFD Group, a major institutional investor, is spoiling for a fight on the grounds that some Directors with recent appointment dates should not be presented for re-election when there are Directors who have been serving for long.

The group also took a swipe at the financial performance of NASD over the years. It argued in a statement signed by its Head, Investor & Relationship Management , Chindima Chukwueke- Okolo, in its 11 years of operation, NASD has posted eight losses, including N79 million and N69 million in 2022 and 2023 respectively . VFD is calling for a strategic refresh. The concern is normal and expected. It is a case of value for money on the part of investors. 

But in what amounts to a ding-dong argument, NASD’s management  says the re-election clause in the Notice of Meeting,  is consistent with the Company’s Memorandum and Article of Association. On the weak balance sheet, typified by losses over a long time it ascribed this to challenges associated with attracting companies for admission into OTC Exchanges in a country like Nigeria. This sounds strong and plausible. It has become a heavy lifting even for a conventional securities Exchange, Nigerian Exchange Limited (NGX) to meet target on quotation per annum for a long time. The Management also maintains that no strategic decision has ever been made without involvement of representatives of VFD and other major stakeholders on the 

The on-going recapitalisation of banks has just begun to revamp the comatose primary market in Nigeria. If there is a silver bullet to attract companies for quotation, NGX would have deployed it to attract many blue chips over the years . But the story has been more of delistment than listing when a quoted company realizes that bottom-line does not justify the cost of post listing requirements. The stark reality is that both NGX and NASD operate in the same uncertain macroeconomic environment, where the economy is the underlying asset and both Exchanges are simply derivatives in a way. Quotation drive is no longer a walk in the park where clamour for fixed income securities is gaining traction .

The unfolding drama at NASD has again brought into fore, the need for the capital market apex regulator, to take a critical look at the shareholding structure of both securities exchanges and the companies that they service by way of listing or admission. 

In  my piece entitled : ” Deconstructing the Transcorp Equity Deal of Otedola, Elumelu”, published by many national dailies and online platforms in June 2023, I highlighted the spate at which hostile takeover by deep-pocket corporate raiders is taking a toll on our quoted companies. This can discourage potential entrepreneurs to bring their companies for quotation . It is true that quotation has many benefits but  nobody wants to toil for a raider to come from nowhere and take over full control.

In a similar vein, I raised concerns that NGX was becoming a target of acquisition by investors with financial muscle. My thoughts and submissions were captured in my piece entitled: ” NGX in the throes of Booby Trap”, published in October 2023 in some tier-one national dailies and online platforms . I cautioned that if care is not taken, stockbrokers shall wake up on one fateful day to discover that NGX is no more. 

NGX accounts for 17 % of the Nigerian Gross Domestic Product (GDP) with potential to contribute higher if the economy improves. The Exchange itself is a national asset. If it becomes a one-man show, what happens in the event that the sole owner runs foul of the law and the market becomes one of the assets to be taken over ? What becomes of the listed companies ? SEC should begin to initiate fresh conversations to address concentrated risk in the securities market. It is all about investor protection.

NASD has to deliver value to its stakeholders. The company has to rebrand so that the target market can appreciate the benefits of admission into the Exchange. It must upscale its visibility. The management has to dangle more carrots to make the processes of admission less expensive. 

The OTC Exchange says it has traded N42. 64 billion by week 34 this year as against N37. 57 bn  in the entire 2023. Its Enterprise Portal platform worth over N2bn has commenced operation on a gradual basis.  The Exchange has also developed endowment CrowdFunding Platform – VentureRamp for alumni associations and community groups to initiate small and large scale projects in structured and transparent way. NASD will soon issue  Digital Securities Platform N-DSP,  which is being implemented under the SEC Regulatory Incubation.  With this trajectory, the Exchange is optimistic to close the year with a profit and likely pay dividend for the year.

But the owners must not subject the management to undue interference and over-ambitious expectation as many cooks spoil the broth. Just like it is happening in some of the quoted companies on NGX, abuse of proxy has become a new wave of hostile takeover. The Commission should  frown at this with time-tested regulatory approach. 

We cannot underrate political clout of experienced professionals. We  should not sacrifice experience with robust industry knowledge on the alter of whiz-kids and Gen Z. through  youthful drive to turbo-boost organisations. Many youths are overrated in terms of depth  and still require tutelage of experienced  practitioners. At 78, Janet Yellen is in charge as the United States’ Secretary of Treasury and the country is the largest economy by GDP.

Ueda Kazuo is the Governor of Bank of Japan. He is 72. At 93, the celebrated American investor and Chairperson of Berkshire Hathaway, Warren Buffett, is making rational investment decisions.

Some highly respected Nigerians in the financial market possess exceptional experience that should not be discarded. These are professionals of all seasons with top-notch achievements. They enhance credibility of a board. There  is no doubt that we must all embrace technology in order to remain relevant. But good as Artificial Intelligence (AI) is, it cannot assess emotion. Everything has a fault line .

NASD must be protected from what is fast becoming a reverse takeover in slow motion. The time has come for SEC to review the policy of shareholding in the securities exchange.

Regulatory agencies have no justification to invest in securities exchanges to avoid conflict of interest. It is an abuse of corporate governance for a Director to serve on the Board of more than one securities exchange

There should be a rule that no shareholder can own more than 5% of the issued shares of a securities exchange. The  5% rule already exists for quoted companies by way of disclosure but heavy capital gain tax can be imposed on anyone that breaches the rule through clandestine means. It is done in other jurisdictions. 

Any investor that holds up to 3% of a securities exchange deserves additional  scrutiny by the Commision. As part of investor protection strategy, there  should be a regulatory limit to  nominee shareholding in a securities market to prevent abuse . Securities exchanges in Nigeria should be hedged from hostile takeover under any guise. 

As SEC’s Director General, Dr Emomotimi Agama has warned market operators to comply with the rules or face consequences , it will be a game-changing intervention, if  the corporate governance gaps in the Nigerian capital market  are addressed with dispatch. 

 Oni, an Integrated Communications Strategist, Chartered Stockbroker and Commodities Broker,

is the Chief Executive Officer, Sofunix Investment and Communications