The Nigerian Stock Exchange has undergone a challenging few years but the lessons learnt are being put to good use under a new regime. African Banker talks to the CEO of the exchange, Oscar Onyema.
African Banker: Please assess the role of the Nigerian Stock Exchange (NSE) in terms of the Nigerian economy and the Nigerian capital markets.
Oscar Onyema: The Nigerian Stock Exchange plays a vital role in the Nigerian economy because we provide a marketplace where lenders and borrowers can discover each other in an efficient manner.
People who have funds can get more returns by investing in companies that are listed in our marketplace. Companies looking to access those funds and use them in productive endeavours can easily find investors in our marketplace in the primary market by issuing new securities, and in the secondary markets buyers and sellers of already issued securities meet to make transactions happen.
Q: Could you describe the main changes and developments on which you are currently engaged?
A: We are embarking on a transformational programme; we are changing virtually everything around the exchange, from corporate governance to the structure of the divisions; we have formed four new divisions that are geared to align to our new goals and targets and to give us a commercial outlook to life.
In those four divisions, we have market operations and technology – which is really going to transform our technological platform; we have business development, which is geared to retaining and attracting companies, producing new products and enhancing existing products. We are also able to distribute our services across the country and, indeed, across the globe.
We are revamping our regulatory side which has four departments: listings regulation, broker dealer regulation, surveillance, and rules and interpretation. There are seven departments in the corporate division and they are all being revamped, even from the physical structure. We are totally redesigning the building so that it’s a place where people want to come and do business. Our goal is to position the Exchange as a gateway to African markets.
Q: And how would you assess the technical development of the Exchange?
A: The new trading platform is actually a next generation trading platform that represents a quantum leap in terms of functionality and speed of execution. It is the basis for introducing straight-through processing.
We are improving the investing experience for our customers and our clients so that when you place an order in the market, the experience is positive and there are no frustrations. In short, you will get a report back that your order has been executed on time.
We’re driving transparency, accountability and connectivity because we want global players to be able to access our market and not just local players. Technology is a major enabler of change and we intend to utilise it.
Q: How important is improving the quality of corporate governance amongst the companies listed at the Exchange?
A: It’s critical. We think that one of the major problems in the Nigerian capital markets today is investor apathy.
There are several ways to bolster investor confidence and one of them is proper corporate governance. The SEC has come up with this code of corporate governance which we wholly subscribe to and support, and we are working on initiatives to make sure that our companies are certifying that their policies and procedures for complying with the SEC’s corporate governance are completely adhered to.
Q: How do you assess the relationship between the NSE and the SEC?
A: We have a good relationship with our regulator; we communicate with them, we respect what they’re trying to do in terms of driving transformation through the Nigerian capital markets. We also like to draw the boundaries and say ‘this is your regulatory purview and so please give us some guidance’, and what is in our regulatory purview. We say this is really what we should be doing and we drive it forward, so I think that has really helped. I believe we have a cordial relationship with our regulator.
Q: As pension funds grow, they are likely to become a stronger force on the Exchange. What are the implications of this for the market?
A: I think they are already strong and have significant impact on what’s going on in the market with over two trillion naira of assets under management. The Pension Act gives certain percentages, caps that they can invest in different asset classes. For equities, it is 25% and for fixed income, it is 30%. Those are the two products that we offer in the market right now – we don’t offer money market instruments, real estate.
Q: The corporate bond markets are expected to grow as investors seek greater stability and longer-term fixed interest instruments. How can you assist in this?
A: We believe that we need to do a better job with investor education, to make it clear that even for companies that are looking to access the capital markets from a debt perspective, they don’t need to be listed on the equity side to participate in the debt side of the market and that there are strict rules, for example, a bond has to be properly rated before we can admit it. There are strict rules around a bond or fixed income offerings at the Exchange and so we will, to the best of our abilities, protect investors that are participating in this market.
So I think it’s an area of investor education, it’s one of making sure that there are robust rules around corporate bond issuance and also allowing companies to know that this facility is available to them and they should not always only think about equities but they could also raise capital from the debt market.
Q: Options and futures are also thought to be sought after by investors to protect against sharp downside stock movements. Do you anticipate this, and what are its implications for traders and for the operators?
A: We not only anticipate it, we are pushing it. Our goal is to have five products in five years. Today we have fixed income and we have equity offerings. We are looking to introduce exchange-traded funds, financial futures, and options; we intend to offer both index options and equity options. We think these tools would have a network effect if we can have all five being offered and traded together.
Q: Do you support the demutualisation of the exchange?
A: Obviously I support the demutualisation effort of the Exchange. I think that it’s going to help us to have a proper company, it will give us the flexibility to raise capital, to attract new talent, to have currency to actually engage in partnership discussions and things like that.
We also believe that it will position us to be more competitive in the global landscape, as you see globally exchanges are demutualising and becoming for-profit corporate entities.
Having said that, the Council of the Exchange has formed a demutualisation committee and that committee is going to work with a demutualisation project team of management to drive the demutualisation process. It is too early to give you any timelines in terms of project timeline because we haven’t started that effort yet.
Q: And what is your perception or outlook for the growth of the Exchange, given the level of economic growth in Nigeria at the moment?
A: We have a very aggressive target in terms of growth. Our target is to reach a market capitalisation of one trillion dollars in five years; it’s very aggressive given where we are today and how difficult the capital market terrain is today. But we believe that capital markets around the world go with business cycles, it goes up, and it goes down.
If we are able to attract the type of companies we think we will attract, if we are able to introduce the product categories that we believe we would introduce and if we are able to keep pace with the growth rate of the Nigerian economy, we should hit our growth targets.
Q: Where do you see the Nigerian Stock Exchange in a decade from now?
A: My goal for the Nigerian Stock Exchange is to position us as the gateway to African markets, one that is based on durable wealth creation, accountability and market development.
We will have what we would term a world-class market, a market that is competitive from a global perspective and a market that can be accessed from anywhere in the world.
We will have a market that has five products, five major asset classes that are functioning properly and that we would have a market with significant liquidity and depth as shown in our market capitalisation.
Q: And what would you, as a director, want to say to the international investing world about Nigeria?
A: Nigeria is open for business and the Exchange is open for business. There is significant growth opportunity, significant returns that can be had in this market, regardless of what we’re seeing in the global exchange market space, where most global industries are in the red, it’s a temporary thing.
And then the other thing I would like to say to foreign investors is that when they come to our market they should show some commitment, they should come in and stay for the long haul and not take off at the slightest sighting of potential downturns in the market.
It’s a business cycle, it goes up, it goes down, but over the long run we have shown that we give significant returns in this market. And, indeed around the world, most equity markets give you better returns than any other asset class, the only difference is that because we are a developing country with an economy that is growing at 7% per annum, the kind of returns we give cannot be had in most jurisdictions of the world