Building Capacity In The Capital Market - by Arinze Nwobu

In view of the growing complexity and dynamics of the capital market occasioned by transformational changes, there is a growing need for regular and intensive capacity building among capital market operators in order to keep abreast with evolving concepts and trends, enhance professionalism and explore the vast and emerging opportunities in the market. 

Some of the major changes in the market include, technological innovation and new product development such as Sukuk, Exchange Traded Funds, market-making and securities lending. Securities lending, as defined by Investopedia, is the act of loaning a stock, derivative or other security to an investor or firm which requires the borrower to put up collateral, either cash, security or letter of credit. It is an important means of eliminating failed transactions as well as enabling investment vehicles to sell shares short.


Other changes in the market include enhanced corporate governance, improved liquidity, growing investor confidence and the emergence of three alternative trading platforms namely the National Association of Securities Dealers, National Commodities Exchange and the Financial Markets Dealers Quotation. The FMDQ is a securities exchange and self-regulatory organisation under the supervision of the Securities and Exchange Commission, the apex regulatory agency in the capital market. The new platform presents great opportunities for securities dealers as it appears set to change the transaction landscape in the capital market. In 2014, while the Nigerian Stock Exchange recorded a turnover of N1tn, the FMDQ recorded N68tn the same year, within one year of its operation. The platform has four blocks of ownership with the Central Bank of Nigeria as the largest shareholder, with about 15.6 per cent. Other shareholders include banks and discount houses, the NSE, and the Financial Markets’ Dealers Association.
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Major operators in the capital market include stock brokers, bank treasurers, portfolio and fund managers, investment advisers, issuing houses, merchant banks and pension fund administrators. Others are company registrars, insurance companies, development finance institutions and venture capital companies. There are presently 227 stock broking firms, 110 issuing houses, 26 company registrars and 162 fund and portfolio managers operating in the market with 202 companies listed on the NSE, comprising 190 on the main board, 10 on the Alternative Securities Market.

The capital market is a highly specialised segment of the financial system with a matrix of sophisticated underlying principles and concepts guiding the operation. Experts believe Nigeria has a significant knowledge gap in the areas of securitisation and structured finance. To that effect, SEC and the Chartered Institute of Stock Brokers have set to raise the bar on capacity building. The Commission has a list of reputable financial training providers some of which are based in the United Kingdom, including Fitch, while the CIS, a major stakeholder in the capital market, has intensified its Continuing Professional Development and other strategic and innovative training programmes on the capital market for operators and students. 

The CIS is an autonomous statutory and not-for profit professional body established in 1990 and chartered by Act 105 of 1992 to regulate the conduct and practice of stock broking in Nigeria. The principal activities are the provision of examination leading to qualifications as securities and investment professionals, organising seminars and continuing professional education courses for members and practitioners to improve standards of professional competence, with greater versatility in finance functions, analytical skills, securities analysis, asset valuation and portfolio management, derivatives, problem solving and marketing of financial products. The Institute has over 2,500 qualified members, over 400 professional graduate members, 14,000 registered professional students and 10 qualified graduate members. It is an active member of the Association of Certified International Investment Analysts , based in Switzerland and also aligns its programmes to America FINRA and the Chartered Institute for Securities and Investment, UK , for the purpose of opening global opportunities and career progression in the capital market. The CISI is one of the world’s leading professional services training institute.

Regulatory agencies in developing markets are collaborating with international organisations to build capacity for efficiency and growth. In Tanzania, FSD Africa, a market facilitator, funded by the Department for International Development, worked with the London Stock Exchange Academy in 2014 to build capacity with Tanzania’s capital market through targeted skill development. Three phases of training were delivered to 103 professionals from Dar Es Salaam Stock Exchange, Capital Markets and Securities Association, Office of the Prime Minister, Ministry of Finance and local brokers. Fourteen Tanzanian trainers from local institutions were also trained. And in Sri Lanka, the Securities and Exchange Commission signed a Memorandum of Understanding with the CISI UK, to jointly offer Diploma in Capital Markets programme through the Financial Services Academy- the education arm of SEC.

In Nigeria and East Africa, the Efficient Securities Markets International Development programme, a joint effort of the International Finance Corporation, Swedish International Development Cooperation and the World Bank provided $5.5m to support capital market development activities, as a country programme and regional programme respectively. The ESMID works with Central Banks, Securities and Exchange Commissions, Stock Exchanges and other stakeholders to build capacity and facilitate the regionalisation of securities markets, promote market integrity, boost demand and supply of products through capacity building, simplify regulations and procedures for issuing, investing and trading in bonds, among other things. It supported the National Pension Commission to develop and implement new investment guidelines to allow greater diversification of pension fund portfolios.

There is a growing level of interest in the Nigerian capital market by international fund managers. Trading on the NSE was dominated by foreign portfolio investment in 2009 and 2011, at a high of 66.8 per cent and 64.1 per cent respectively. And in 2012, their activity caused the NSE All Share Index to spike 34.45 per cent year-on year to 28,078 as the NSE emerged the world’s ninth-best performing stock market. The Oxford Business Group noted in a report that, “the number of Nigeria-exposed equity-tracking funds increased in 2012, and the iShare MSCI frontier 100 index allocates 11.65 per cent weight to Nigeria’’ while ‘’the Guggenheim Frontier Market Exchange Traded Fund, run by Bank of New York Mellon has an exposure of 3.66 per cent to Nigeria- the eight weighted on a list that includes mainly Latin American markets alongside Egypt, Lebanon and Kazakhstan.” 

The report further noted that, “the Market Vectors Africa ETF listed on the New York Stock Exchange with 19 per cent exposure to Nigeria, split between banking (21.1 per cent), materials (14.6 per cent), energy(13.9 per cent), telecoms (11.4 per cent), capital goods(7.6 per cent), insurance(5.7 per cent), food, beverage and tobacco(4.1 per cent), and others.” Also, “In 2013, the first offshore tracker dedicated to Nigeria launched on the NYSE: the global X Nigeria Index ETF holds 28 stocks with 41 per cent weighted towards financial services, 24 per cent to energy, 13 per cent to consumer discretionary goods, 11 per cent consumer staple goods and five per cent Industrials.” The ETF, reportedly, grew from $1.5m at issue in April 2013 to $3.1m by June.


- Arinze Nwobu is Head, Research and Technical, Chartered Institute of Stock Brokers