Saturday, August 6Inside Business Africa

Stakeholders on investors’ protection in capital market

When investors bring in their money to support the growth of a company, they are conferred with certain rights or powers that are generally protected through the enforcement of regulations and laws.

Some of these rights include disclosure, which provide investors with the information they need to exercise other rights. Every shareholder, be it large or small, need their rights protected.

Indeed, sustaining stakeholders’ confidence is a very critical issue in every business organisation. This is more so, in Nigeria’s fledgling capital market that has strugg, led to emerge on the global front.

The fortunes of a business soar as long as its customers, investors, employees, board members and other stakeholders, who hold various interests, are assured of full protection of their interests, as well as a fair deal in their relationship with the organisation.

The reverse is the case when these stakeholders get the feeling that their interest are no longer protected or that the safety of their investments can no longer be guaranteed in that organisation.

Investor protection encourages the development of financial markets.

Furthermore, when investors are protected from expropriation, they pay more for securities, making it more attractive for entrepreneurs to issue these securities.

Shareholder rights encourage the development of equity markets, as measured by the valuation of firms, the number of listed firms (market breadth), and the rate at which firms go public.

One of the major reasons investors patronise the stock market is the protection of their investments. Once investors feel that their investments are safe, they remain in the market and also increase their participation.

Indeed, the current low patronage of the Nigerian stock market is partly attributed to the losses suffered during the 2008 and 2009 market downturn. Many investors believe the protection they got from regulators in the past was not enough, and are therefore reluctant to return to the market.

Operating with high level of corporate governance is one of the key elements in enhancing investor confidence world over. An effective corporate governance system within an individual company helps to provide a degree of confidence that is necessary for the proper functioning of a market economy.

Sound corporate governance helps to lower the cost of capital, and firms are encouraged to use resources more efficiently, thereby strengthening growth.
Regrettably, lapses in adherence to these principles have contributed majorly to crisis in the Nigerian Stock Exchange (NSE), and ultimately eroded investors’ confidence.

The unreasonable manipulation of share prices of listed firms, in collaboration with dealing members of the Exchange and other financial institutions led to the March 2008 boom with market capitalisation and index hitting N13trillion and 66,371.20 points, which subsequently instigated a financial crisis that crashed the figures to N6.957trillion and 31,450.78 by December 2008.

Therefore, it was not surprising that market regulators, both international and local, find ways to adequately ensure protection of investors from incurring losses as a result of wrong doing by dealing member firms and other quoted companies of the Exchanges.

Although current market regulators have intensified efforts to protect investors to increase their participation in the market, but stakeholders insist more needs to be done in the areas of strengthening its monitoring apparatus, as well as addressing issues arising from various infractions in the market. This would ultimately attract retail investors and reduce over-dependence on foreigners in the market.

On the global level, the International Organisation of Securities Commissions (IOSCO), restated its commitment to maintaining investors’ confidence in all its jurisdictions by ensuring that investors are protected in its regulations.

Chairman, IOSCO Board, Ashley Alder, in his remarks at the official Opening of the 43rd yearly conference in Budapest, Hungary, said the job of securities regulators is to work with the industry to recognise the present realities, and address the problem of risk to ensure that the investor is well-protected.

He said: “The role of the securities regulator is becoming increasingly vital, particularly post the 2008 global financial crisis.

“Our mission is that regardless of technological change, regardless of policy shift, our job is to maintain confidence so the financial system continues to deliver value to the public.”

On financial technology (FinTech), Alder said the opportunitiesare many; hence the organisation needs to explore regulatory response on risk around FinTech.

In his remarks, Secretary General, Paul Andrews, said IOSCO is committed to investor protection, fair and efficient markets as well as systemic risk reduction, adding that the body must be at the forefront of issues that affect capital market operators.

He said: “Right now, we are focused on issues around Initial Coin Offerings (ICOs), market volatility, cyber threats among others. We need to forge greater co-operation among Regulators and that includes assisting Emerging Markets to be able to provide proper regulations.”

Similarly, the Securities and Exchange Commission (SEC), had also reiterated its determination to ensuring adequate protection of capital market investors in all transactions.

The Chief Research Officer, Investdata Consulting, Ambrose Omordion, insisted that capital market regulators have not done enough, despite sanctions against defaulting brokers and their firms.

“The greatest protection is investors’ education. Regulators are not doing enough in the area of education and mobilising new entrants into the market in order to reduce our dependence on foreign investors to drive our market,” he added.

The President, New Dimension Shareholders Association, Patrick Ajudua, said investors’ protection is at the centre of investment drive in the capital market.

He said: “Therefore every investor looks up to the regulator to have efficient and effective investors’ protection committee. Since the inauguration of the committee, they have not lived up to the responsibility of protecting investors.

“The punishment for offenders is not strong enough to serve as deterrent to others. We need to be more proactive in this assignment by ensuring adequate mechanism is in place for early detection of the whistle blower.

“There is a need to work in collaboration with established institute such as stockbrokers, registrars, among others, to ensure that appropriate disciplinary action is taken on their members involved in any professional misconduct through withdrawal of operating licences.”

The President, Ibadan Zone Shareholders Association, Eric Akinduro, while admitting that the regulators have performed well in the creation of the Investors Protection Fund, however added that more needs to be done in terms of disbursement.

He said: “Some of our members were victims of unscrupulous practice of some dubious brokers, although they were settled after rigorous scrutiny. My advice to the committee is that time factor is very important; therefore, there should be a time frame for investigation and settlement period.

“Also those that have huge amount involved should be considered too, publicity on the activities is not adequate; it should be intensified. Many investors are not aware of such a body; they should not be too quite if they really want to achieve success.”

A former Secretary General, Independent Shareholders Association of Nigeria, Adeleke Adebayo, said: “I think the regulators are trying their best. What is lacking is the enlightenment or awareness creation.

“People need to be enlightened on what to do and steps to take to resolve issues. Timely resolution of complaints is also key. Time is money. Regulators with civil service orientation cannot match the speed expected in resolving financial disputes.”

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