Economic Confidential, March 2008

COVER

Another Tug of War: SEC Versus NSE

By Labaran Saleh

This is another tug of war between the Securities and Exchange Commission (SEC) and the Nigeria Stock Exchange (NSE). Players in the industry may be surprised with the turn of event considering the mother-and-son relationship between the two executive officers of these financial institutions: Dr.  Ndi Okereke-Onyuike  of NSE and Mr. Musa Al-Faki of SEC. There is even a claim that Ndidi anointed Al-faki to his present position as the boss of SEC after a running battle she had with his immediate predecessor, Suleiman Ndanusa who attempted to assert the power of the Commission as the apex regulatory agency of the Nigerian capital market.

In one of their ding-dong battles of will, Ndanusa, had in 2001, when NSE purportedly failed to respond positively to several entreaties and directives from SEC to change its name, announced the suspension from office of the chairman and the Director-General of NSE.  In a swift reaction the NSE described the action as “Illegal, contemptuous of court and of no effect.” NSE claimed it had secured injunction from the Federal High Court restraining SEC from taking any steps against it on the grounds of its failure to change its name pending the outcome of the court action.

Apart from disagreement over the change of name, the roots of their face off in the past included conflict in the appropriateness of establishment of another exchange (Abuja Stock Exchange) and on dual listing, multiple trading amongst other policy issues. NSE always has its way while SEC has its say.

It was therefore not surprising that Ndanusa’s reappointment’s bid was thwarted when it was alleged that with a call to the Aso-Villa, Ndidi frustrated his ambition and nominated Al-Faki for the job. Since that appointment, there existed rosy relationship between the two-agencies. While NSE remained very outspoken in virtually every issue concerning the capital market, SEC until lately hardly appeared in the press to the extent that it was erroneously viewed as a subsidiary of Nigeria Stock Exchange.

Though SEC is to superintend over activities of NSE and other operators in the capital market, the latter is more powerful and influential that it has direct access to the Presidency especially during the administration of President Olusegun Obasanjo. Indeed Ndi Okereke-Onyuike, the all-powerful amazon in the capital market has consolidated the influence of NSE on the Nigeria’s economy by playing prominent roles in the creation of the elitist club of Corporate Nigerians and establishment of mega conglomerate, Transcorp which she chairs in mysterious circumstances.

The recent bone of contention was on the alleged share price scam when SEC issued a press statement  that it was investigating some leading companies trading in the Nigerian capital market for allegedly manipulating the price values of their shares in order to deceive the investing public. The companies are AP, Big Treat Plc, Afroil Plc, First Aluminium Plc, Capital Oil Plc and IPWA Plc. The statement further stated that if at the end of the investigation, a case of price manipulation or insider dealing is established against any person or financial adviser; the commission would apply appropriate punitive measures.

While key players in the capital market  claim that the rise in prices of shares are due to increase in the flow of capital to the country and rising confidence of investors in the economy, it is suspicious and baffling in the manner some listed companies make as much as 300% rise or more on their shares within few months. The astronomical increase in share prices raises suspicion in the sincerity of their values. For instance some of the accused companies had their shares rose astronomically from a low share price of N3.30 to N16.99 per share; from N0.63 to N5.09 per share; from N0.33 to N17.50 per share while another closed at N8.57 per share from a low share price of N0.33 per share after a few months. Even with this alarming profit margin, there had been nothing on ground to indicate concrete expansion, innovation and marketing dynamics to influence the rise.

A source in SEC disclosed that insider dealings were suspected in the transactions of these companies, which prompted the commission to investigate them in order to ascertain any incidence of price manipulation aimed at ripping-off investors. The source added that the need for the statement was to remind all operators that insider dealing is a criminal offence in the capital market and urge them to always operate within the confines of the rules to ensure transparency and integrity of the market.

But the Director General of the Nigerian Stock Exchange (NSE), Professor Ndi Okereke Onyiuke swiftly faulted the Securities and Exchange Commission (SEC) on its probe over suspected share price manipulation and described the accusation as speculative and sensational. She added that she was shocked and disappointed that SEC could make such a public statement without verifying from the trading floor. She even wondered that “a statement of that nature was issued without informing NSE. Honestly, it is a surprise to me. I don't know where this is coming from.”

She pointed out that only the Stock Exchange could say whether there is manipulation or not because it has a trading floor and trading mechanism where if complaints are lodged on unethical practice it could be investigated to ascertain the veracity or otherwise and could provide print out on the transaction sheet in a few seconds.

Also reacting, the Chairman/CEO of African Petroleum Plc expressed dismay at the allegation and said all transactions on AP shares are transparent and were conducted at the floor of the Stock Exchange. He wondered why AP is being accused while other oil companies' stocks have been on a steady appreciation. "I am shocked by this allegation. AP is not the only company that has witnessed share price appreciation in the oil sector. The stocks of most companies in that sector have been on a steady rise. So, I'm really at a loss about the allegation. Nothing was communicated to us with regard to the alleged probe; we only saw it in the newspapers".

The only time Al-Fakai, a seeming introverted personality ever made very strong and categorical remarks on his agency’s oversight function was at SEC quarterly press briefing in August 2007 in an attempt to curtail the excesses of some industry players in the booming capital market. He informed the nation that SEC in collaboration with anti-graft agency the Economic and Financial Crimes Commission (EFCC) had commenced investigations and subsequent prosecution of some companies. The statement was a reaction to unlawful collection of funds from unsuspecting members of the public and was aimed at sanitizing the capital market and activities around the Nigerian Stock Exchange (NSE).

He stated that the action is necessitated on the need to entrench a transparent and accountable capital market. He disclosed emphatically that they would prosecute principal officers of firms that raise funds from the public by way of sponsoring illegal collective investment scheme. He went further to state that the commission had stepped up its surveillance and enforcement processes so as to be able to effectively deal with issues and activities that will erode investors' confidence in the market.

He also informed his audience that "We have identified the Registrars frequently linked to these problems who are surprisingly among the big players in the market. A meeting with them will soon hold where all pending cases will be cleared while strategies will be put in place to move forward," he explained.

Many had expected that more development could have taken place until the recent imbroglio. Not that the Securities and Exchange Commission has not be doing anything. Some may accuse SEC for not being fully proactive to assert its authority as perpetrators continue with their speculative games, it nevertheless had sanctioned some companies and operators in the market without making too much noise out of it. In the recent case it mentioned suspected six perpetrators who are corporate giants: African Petroleum (AP), Big Treat, IPWA, Afroil, First Aluminium and Capital Oil. In the past through its Administrative Proceedings Committee (APC) some other companies had come under its hammer. It punished several stock broking firms and operators on alleged scam especially on the sale of Nestle Food and Unilever which shook the nation on the discovery. The punishment ranged from warning, suspension and banning from participating in the capital market.

One of the vocal public figures who has consistently raised alarm on the over-exaggerated profit being made on the floor of the capital market is a politician and Chairman of the House of Representatives Committee on Capital Market, Hon Ahmed Aliyu Wadada. Recently in an interview with the press he disclosed that National Assembly will soon commence an investigation over serious manipulations and insider trading taking place at the Nigeria Stock Exchange. He suspected that the fear of the unknown is what is making some players to be on their feet to ensure that they protect themselves and their organisations.

Hon Wadada also categorically stated that before the exposure of malpractices in Cadbury, the company had been cooking its books in the system for over 15 years but ironically was not detected by any of the regulators; rather the fraud was detected by Cadbury International when they came to look into their books. He went on to query the basis that could justify the astronomical increase in the share price of an indigenous oil company when it neither has oil block nor in joint venture agreement with any oil prospecting company.

It is encouraging the recent call by the Finance Minister of State, Mr. Remi Babalola that the two institutions SEC and NSE should ensure high level supervision of capital market to ensure the capital market remains a key barometer of the nation’s economic health and well-being. The Minister, who made the call while delivering a key note address at the launch of the electronic dividend payment system in Abuja, noted the need for both the SEC and the NSE to upscale their level of good corporate governance, while ensuring that other players imbibe the culture as well.

It becomes necessary to also urge the Nigerian Stock Exchange, as a self-regulatory organization and Securities and Exchange Commission as the official capital market regulator to put their acts together in order to sustain the confidence of the public especially the investors on the booming capital market. While the National Assembly is encouraged to undertake thorough investigation on the investors’ fear and complaints, the timely intervention of Federal Ministry of Finance is a welcome development.