Why The NSE Wants More Transparent Funds And REITS

Nairametrics| The Nigerian Stock Exchange (NSE) recently issued amended guidelines for Closed-End Funds and Real Estate Investment Trusts (REIT). They are now to submit quarterly and yearly financial statements which will be posted on the NSE website. Closed-end funds are mutual funds with a limited number of shares from inception. A REIT combines contributions from individuals and invests in real estate.

The NSE may have decided to enforce these rules to enhance transparency in the market, as well as protecting retails investors who may not have the time to carry out proper due diligence and scrutiny. Several of the REITS last published audited results five years ago, while others with poor results tend to delay submitting them to the exchange. The downturn in the economy and the stock market itself may also have contributed to the non-submission of results by many listed entities.

Transparency will considerably increase market participation in these instruments as investors will be able to compare returns across different funds and trusts. The management of the exchange should have instituted this regulation at the inception of these products like the REIT in 2008.

Beyond making them present their results, the NSE must ensure that the results are presented on time. Many companies on the exchange are perpetually late in filing results and the fines are insignificant. Having a separate tier for them, won’t create positive investor sentiments if results are not released on time. The tier created for small and medium scale enterprises has not resulted in increased trade. The motive for creating a premium tier is also unclear. Investor conference calls and facts behind the figures are mostly carried out by big companies. In several instances, company results and press releases are published in the news media before the exchange is notified. The stock market is down 5.08% year to date.

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