I once sat with Dr Emomotimi Agama, the Director General of the Securities and Exchange Commission (SEC), in his office to discuss the markets.
This was after one of my many rants on market stability, cohesion, and effectiveness.
He came across as a man who could make and take hard decisions, even though he didn’t quite look it, with his State University lecturer appearance.
A few weeks later, he announced the tenor limit policy, which took out some sit-tight demagogues in very critical capital market institutions, such as NASD and FMDQ, to mention a few.
Last week, he went further to announce an increase in capital requirements for all operators, end-to-end.
The increment, according to a SEC report I have seen, is aimed at strengthening the market, boosting efficiency, and, most importantly, safeguarding investments.
This policy met the expected resistance, particularly over the proposed 10% of Assets Under Management (AUM), as anticipated by fund managers.
Critics claimed that, if allowed, the policy could suck the oxygen out of their operations and instigate an artificial upper limit boundary, ensuring they would have to quarantine too much capital as their AUM grows.
Brilliantly, the SEC is said to be coming out this week with a reduction from 10% to 1%, which should bring some relief to the community.
A major player in the capital market—who sits on the board of the premier exchange and has tremendous holdings within the market—reached out yesterday to ask my thoughts on the policy, and I, in turn, asked for his.
He was strongly in support, citing the potential for productive growth in the market.
Now, let me tell you how I see it.
You know how bodybuilders go to the gym, build their upper bodies, and forget to train their legs?
They end up looking funny, and the legs can’t carry the body.
In a fight, one punch lands, the legs wobble, and they come crashing down.
With the All-Share Index cruising past the ₦100 trillion mark, the operators—who are the legs in this case—cannot remain skinny; otherwise, we risk a Humpty Dumpty scenario.
With returns of over 51%, the possible listing of the Dangote Refinery, and potential deepening of liquidity through the work of the Liquidity Committee headed by my brother, Temi Popoola, market operators must prepare for the battle ahead.
They cannot hope to continue with the same puny capital base when the market is growing in Malthusian proportions.
They must also increase capacity—both in capital and in corporate governance—which should positively impact operations and decision-making.
This is especially true for fund managers and asset managers, whose portfolio valuations are rising alongside their exposure to the ASI.
We can no longer afford mom-and-pop asset managers with all the key-man risks embedded in the market.
This policy will likely trigger a wave of M&As and drive out unserious players, especially within the CIS community, which, in my estimation, will ultimately benefit the market.
My only grouse with the SEC is that it can sometimes appear a bit tardy in policy formulation.
When the tenor limit was first announced, there was confusion about who it applied to.
It was later clarified that it was only the SROs.
Now, with this policy, the SEC initially announced a 10% capital retention for asset managers, only to retract it and state that it is 1%.
The Commission should take more time to dot the i’s and cross the t’s before releasing policies.
That said, I believe this twin policy of tenor limits and capital increases is one of the best tools to sustain irreversible market growth, and I lend it my full support.
Well done, SEC.
Thanks.
Duke of Shomolu
