We 'll sustain capital formation through margin loan –Okumagba, President, Chartered Institute of Stockbrokers

By OMODELE ADIGUN

More than six years after many investors and brokers got their fingers burnt in the margin

loans saga, the case still remains a hot-button issue in the nation's capital market today.But this time around, the new leadership of the Chartered Institute of Stockbrokers(CIS) plans to devise ingenuous ways of making the facility crank the engine of wealth creation  again. According to its president,Mr,Albert Okumagba,

CIS under him would engage the new leadership of CBN on how to ensure that

the process of capital formation, as driven by margin loan, is sustained

and used in a way that is mutually beneficial to stakeholders. At an interface

in Lagos, Okumagba also touches on many burning issues around the market. Excerpts:

Returns on Investment

It has been very poor this year. But we need to understand that cycles occur, we have boom period and we have bust period. The third quarter of the year started on a negative  note maybe because some of the financials have not been very positive. We are also aware of increased challenges in the country. Some investors are already weighing their options .Honestly, there are challenges because of the security situation and the election coming up next year. We pray this will not create tension. Nigerians should start looking positive about the future. There are issues surrounding politics, how will that impact on investments? These are the kind of issues we should be looking at. As people benefit from politics monetarily, they can move these monies into savings and investments. People who have amassed money, they should release those monies. For those of us in the financial system, we should come-up with most strategic approaches to capturing those that have benefited from politics at all levels. They should move the money to investable assets. They should move the money to collective investment scheme, insurance, pension assets. The next time you are going to have major political activities is another four years.

Online trading

I think it is a welcome development. It expands the space for capital market operations. Most of the firms that have launched this are launching it to  improve their capacity to distribute securities between those who want to buy and those who want to sell.

As for the connection between online trading and Collective Investment Scheme(CIS), I think it is something that we have to study very closely. But one of the ways of distributing products coming out of the Collective Investment Scheme is for those managing it to have retail and wholesale channels.I believe the Securities and Exchange Commission (SEC) and most market operators are looking at all the avenues for making sure they lure many investors back to the space in CIS. I think we are going to be very active in working with the regulators and operators to see how more Nigerians can participate in the capital market, working with the platform created by the institution that have launched the CIS over the past seven or eight years.

We also want to see a lot of this scheme launched going forward. We believe that those who are going to be launching the scheme (CIS) going forward are going to be availed with more channels for distributing this capital market product because it will be a very strategic way for collective investors who don't have access to professional advisers or investment advisers because of the size of what they are investing. I think one of the biggest problems we have in the past was the fact that retail investors did not have the opportunity of using the CIS.It was not well established eight years ago. I think today, CIS is beginning to be more well established. Those who have approved schemes are taking advantage of  the new channel for more enlightened investors. I think it will be strategic for an institution like the Chartered Institute of Stockbrokers to monitor that process of making sure that Nigerians are better informed about the advantage of using CIS for the retail investors rather than investing directly. That is why we are very keen on this our Diploma program, which we had had before now.

As for its regulation, it seems as we are driving the regulator rather than the regulator driving us. We have a lot of international investors trading on our markets because the market has been opened up. If you want to drive the market the way you want to drive it, I think it is better we open it up a little to make it easier for this class of investors. The local stockbroker trade for these people. With the new initiative, they should be able to trade on their own, having worked with the framework of the local stockbrokers there. I do not see any challenge in terms of regulation because when the regulators sit back, they can see how and where to tie the loose  ends and minimize risks in the market. It has been happening in other markets as well. Forex trading online is basically the same. You can follow the trend and the graph. So, if the Forex trading is not an aberration. In the country now, we are talking about cashless, we are talking about 1T infrastructure. There are lots of things you should be able to do online. And if we what to drive the number we want to come  and operate in our capital market and run in tandem with the Nigeria Initiative, I think we should better go online for our trading.

CIS diploma

I think we used to conduct exam for the Diploma program twice every year. But beginning from this year, we are going to do it every month, beginning from September. We have a strategy of reaching out to target students to take the exams. Those who have the minimum qualification of school certificate will be able to take the exam. We want to use the program to support the back office of most capital market operators. All workers in stockbroking firms are eligible for CIS certification either in diploma , associate or graduate cadre. That will be for those who work in stockbroking  firms. Beyond stockbroking firms, we also expect that our certification will also cover those who play in different aspects of the capital market. We have an ambitions target of bringing in 150,000 students before the end of the year. Restricting ourselves to university graduates alone will be wrong, although that is our primary target. The program will also target school leavers who have not entered universities because the minimum qualification is school certificate. If you are in or out of university, jobless or looking for job, you are covered by the Diploma program. If you have a job and not happy with the challenges of the job, you are also covered by the programme. What we have done was to sit back and repackage the diploma. We believe that if you are a holder of our diploma certificate, you should be able to sell financial products across financial industry like pension products , Treasury Bills(TBs). You should also function well in bonds and all financial instruments generally. And so, what we have done was to look at the whole syllabus and repackage everything. This tallies with what the Exchange said we should look at. We will be looking at the backroom office of stockbroking firms and other financial stakeholders. We believe that if you are a backroom person and you are not involved in the activities, there is a basic level of education that you need to have to function effectively and efficiently in those firms. So, that education crusade  is going to harvest about 150,000 students between now and January. From diploma, you can take on professional line, and so on and so forth. When talk about financial products, a stockbroker should be able to talk about pension funds, you can even talk about insurance and other financial products. You don't have to be a straightjacket stockbroker. When you are talking, you are talking generally of financial  products across all the sub-sectors of the financial industry.

Recapitalisation

SEC has raised the issue, released guidelines on recapitalisation. I think stakeholders are engaging SEC on steps to make sure that the market and people should respond to issues surrounding this new recapitalization positions. My advice is that one should give this engagement  process some time. Let us come back to you, maybe, before the end of the third quarter on the recapitalization update. I believe it will be a win-win resolution;a situation that will be good for the regulators and also good for the operators.

Delisting

I believe that is an ongoing process, the Stock Exchange normally reviews the institutions that are registered with it. We would monitor the process to make sure that our members are not affected by the reduction in the number of registered stockbroking firms. We have a very good working relationship with the Nigerian Stock Exchange. The Chief Executive Officer of NSE is on the council of the Institute, a very active member of CIS.We also have some of her top executives in our various committees. So we have a very disciplined process of relating with the Exchange. We would make sure that our members who operate as dealers in that platform have the best operating environment. We are also connected to other trading platforms, like the two OTC platforms - NASD and FMDQ - and the Commodity Exchange platform. So we will be looking at our members operating in the four platforms and making sure that their capacity to make money is enhanced by our very constructive engagement with the governance structure of the four platforms.In realization of this new position, we have visited the NSE about a month ago and last week (then), we visited  the NASD Plc and also addressed the registered operators of that platform.

NSE demutualization

We are in advanced discussion with the leadership of the Exchange as regards the ownership interest of stockbroking firms and the process for mutualizing and demutualizing the Stock Exchange. And from the kind of discussion we have had so far, we believe that stockbroking firms will be protected; their equity investment that they made over the years will be captured in whatever processes that would be put in place to demutualize the NSE.

University affiliation

Our aim as regards the diploma program is to mobilize aspiring Nigerians who are interested in becoming professionals in financial market. We are going to mobilize a lot of them across the country. Our strategy is to make sure we reach to as many as possible. One of the strategies is to go into the higher institutions and speak to them. We are

already discussing with a number of higher institutions who are willing to work with us and  ensuring that we collaborate in running the program together. So they are showing a lot of interest to make sure we have a large number of candidates. Our target is 150,000 young people in the next few months before the end of 2014.The CIS is covered by a law passed in 1992 and what we are trying to do with this program is to bring value to young people; give them an opportunity to become a major partner in the financial system. And this opportunity will place them, while they are in the university, to explore avenues to be part of the financial system. Every student of Nigerian universities that has interest to be part  of the  financial system can take the exam. And while they are in the university, they  can participate in the financial system by being affiliated with either capital market operators or working on their own as part of agency network to sell financial products, they will be knowledgeable enough to sell the products across the entire financial industry.The capital market have a better structure to assimilate them and work with them, but we are not going to restrict them. Knowledge  will make it possible, the knowledge impacted will put them in a position to sell products that are connected with Collective Investment Scheme and other products that have to do with the four platforms in the market; whether it is the OTC platform, whether it is NSE platform or Commodity Exchange. We are also working with banks, mortgage institutions to sell financial products. So what we are going to do is to reach out to trade groups that service the entire financial system to let them understand that we are producing diploma holders that will help you drive the sale of your products. We are already in discussion with trade groups for stockbroking firms, issuing houses and registrars. We have had discussion with the trade group for pension- both PFA and PFC. We are also going to engage the trade group for Insurance and we have two banks represented on the Council of CIS. We also made it open to them to use these diploma holders in the agency banking arrangement which the CBN has approved. We are also going to engage with a number of institutions that will guide these students as  they prepare for this diploma exams.  They will also have processes for hand holding these people when they eventually have this certificate, to know whether they will be part of agency arrangement established in any one of the trade groups that I have talked about or whether they will operate as entrepreneurs in their own right with the platforms to sell financial products across the entire spectrum. There is financial inclusion plan that the CBN launched, you need people to make sure that this financial system work. We also expect that when the national savings strategy is put in place by the stakeholders that are currently working on it, this diploma certificate holders will be a major force for making sure that we can drive savings and investment  across the entire financial system. There will be massive enlightenment to ensure those young Nigerians take advantage of this opportunity that we are creating.

Investor Protection Fund

I think the structures that will make the fund work were put in place by the new leadership  of the Exchange. I think we have to give them opportunity to make it work.

CISI

We have a law, and we have an amendment going on now at the National Assembly. That law-Chartered Institute of Securities and Investment(CISI)- is expected to accommodate other stakeholders in the capital market. Because of our projections into the future, that engagement of trade groups commenced before the amendment of the law. We are already reaching out to issuing houses and stockbroking firms to participate more in our activities.

As AIHN ex-leader

So the issue you raised on the impact of my leadership of Association of Issuing Houses of Nigeria (AIHN) on CIS is already manifesting. Bringing issuing houses and stockbrokers  to the platform is going to be very easy for us because, before joining the Council of CIS, I was already a leader of AIHN. We are also very involved with ASHON (Association of Stockbroking Houses of Nigeria). So in a number of meetings that we currently had, there is a greater collaboration in a way  that will benefit the market.

Margin loan

The Institute worked with AMCON, NSE, SEC and the Federal Ministry of Finance to address issues around margin loan. I believe there is progress with the latest development coming from AMCON in the resolution of issues surrounding the margin loan. That engagement will continue with AMCON. AMCON has been very supportive of the institute and its activities. We also plan to engage with the new leadership of the Central Bank of Nigeria (CBN), especially with regard to the new guidelines by SEC working in conjunction with CBN on how margin loan should be handled. I think that structure was not in place 10 years ago. So there is a new structure that is supposed to drive margin loan by banks. I think CIS will review what has been done and since we live in dynamic world, we will engage with the new leadership of CBN to ensure that the process of capital formation as driven by margin loan is sustained and used in a way that is mutually beneficial to those who take this loan , the banking industry and the financial system. I believe constructive engagement will address a lot of grey areas as relate to historical issues around margin loan and also address where we are today and going forward.

Encroachment

The financial system is supposed to be open. The diploma holders selling financial products will not stop those selling insurance, those selling pension or capital market products from doing so in as much as you are aligned with the regulations. I don't expect you to sell capital market products without aligning with capital market regulation or selling insurance products without being aligned with insurance regulation. Those who sell insurance products today are not educated. They just attached themselves to insurance companies as agents. But here, we want to train people to have better appreciation of financial services. I don't think we are encroaching on other people's business. We are just being expansive in our ideas to mobilize savings. We have a target of 150,000 this year, our target for next year is multiple of that. Before the end of next year, we expect a million students to have registered for the program. It is a well thought-out strategy on how we are going to open up the financial space. The diploma programme is for people across the country and for the people outside the country. We are even structuring some of our programs to be bi-lingual - English and French - before the end of the year. This will open to Nigeria and entire West Africa. We also expect those interested in the Nigerian economy and the West African economy but not resident in Africa to also take the program.

CIS is a strategic way of moving those who are currently a shareholders associate to move into CIS. By that they will have story voice at meetings where they can get 3 per cent of shareholding  structure of company rather than less than one per cent.