Plans by the Securities and Exchange Commission (SEC) to raise the minimum capital for capital market operators is causing upset at the Nigerian capital market.Operators who perceive that the commission is contemplating moves in this direction, said the regulators should instead work at improving investor confidence and efficiency in the system.
Lanre Oloyi, SEC's spokesperson, said though the commission had muted the idea in the past, he is not aware of the latest development, he said in a telephone response.
No official communication
Joshua Omokehinde, managing director of Marimpex Finance and Investment Limited, a stock broking firm, said there have been plans in the past for an increase, adding that there is no official communication from the commission to operators on the issue.
Mr. Omokehinde said the commission should shelve whatever plans it has on increasing minimum capital, as the market is in a fragile condition at the moment."It is the anticipation of increase in minimum capital that brought about the problem we have in the capital market today, as many stock broking firms began to undertake margin loans in order to increase the volume of their business and shore up their capital base," he said.
He said while an increase in capital for capital market operators may be desireable, it would not be feasible for now, as it would plunge the market into further crisis."Stockbrokers act as intermediaries and so may not need too much capital to operate. If the market is efficient, we would not have the kind of problems we are faced with today," he said.
Integrity, not huge capital
Mr. Omokehinde said the major issue in the capital market is integrity, and not huge capital."Some small operators even have more integrity than the big firms. SEC should be able to know those firms that have integrity and label them as such," he said.
SEC, in April 2007, announced a new capital base of N1 billion for stock broking firms from N70 million; while issuing houses' capital base was increased to N2 billion from N150 million. The deadline for compliance was December 2008.
Prior to that, the capital was raised in December 2005 from N20 million, and N40 million for stock broking firms and issuing houses. However, with the global financial crisis, which also led to the massive depreciation in the Nigerian capital market, the commission had to put this latest increase on hold.The report of the February 2009 Dotun Suleiman-led SEC committee on the Nigerian Capital Market recommended that capital requirements for different market operators should not be unilaterally set at a uniform amount for all operators within a category.
The report suggested that start-up capital requirements for new operators should be based on minimum required start-up costs plus risk-adjusted weightings (to be reviewed periodically)."For dealers, capital requirements should be determined on a risk-adjusted basis, increasing as levels of risk taking grows for each individual dealer, and weighted in line with the risk profile of instruments traded and assets held," the report said.