Q3 2010 commentaries on the Market from Proshare

8/8/2019 Q3 2010 commentaries on the Market from Proshare

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ISSN 1597 - 8842 Vol. 1 No. 49

The Q3 Compilation of Reports on the NCM

July to September 2010


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The Qtry Report of Contributions on the NCM - July to Sept 2010 www.proshareng.com Page 2

Contents

1. AP Plcs Share Price Uptrend What is going on? 32. Dissecting the SLS Market as a Casino Paradigm 53. Comments on Regulatory Action Impact on the NCM. 104. Investor Protection: Strengthening the Trade Alert Service 125. Protecting Nigerian Investors Case Review 146. The State of the Nation A Picture of Chaos! 177. Investors and Suspended Stockbroking Firms Advisory 248. PENCOM Moves to Expand Investment Options for PFAs 259. Understanding what is going on in our Markets 2610.The NCM The Week After! 2811.Listings, Speed Limits, and Other Depressing Outlook for NCM 3212.The Listing by Introduction of the M&A between DCP and BCC (1) 4113.The Listing by Introduction of the M&A between DCP and BCC (2) 45

ISSN 1597 - 8842 Vol. 1 No. 49


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ISSN 1597 - 8842 Vol. 1 No. 49

AP Plcs Share Price Uptrend What is going on?

It all started with an e-mail from a foreign subscriber to the service, a private equityinvestor who asked the question -Is someone compensating AP or on what basis is

the share appreciating? Here we go again!

Source: http://www.proshareng.com/investors/company.php?ref=AP

We then asked our technical analysts to look into the movements in the AP Plc shareprices and at the end of the exercise, we could not rationalise what was driving theuptrend of a company that:

1. Has not yet released its financials for 2009 financial year end;2. Has relieved the CEO, Financial Director and Company Secretary of its duties;

3. Had its Chairman declare that he was staying in exile due to threats to his life;4. Has a petition against it at the SEC and NSE;5. Has a petition of its own against some individuals over unpaid shareholding: and6. Has a case of price manipulation ongoing and yet unresolved.

There appears to be no fundamental basis or market information on what is driving theshare price of African Petroleum Plc.


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The up trend in AP appears very suspicious. If you look at towards the end of thedecline, 4 million shares were dumped (primarily some investors gave up becausethey could not bear the pain any longer).

However, the price has been going up on more than the average volume (i.e., averagevolume through July 15th was 423,000).

The stock price has moved upward by 54.81% in eleven (11) trading days from N21.20it closed on August 20th to close at N32.82 as at September 6th 2010. And this isagainst a financial performance report of a net loss ofN5.476bn and a negative EPS ofN5.07 as contained in the Companys Q3 2009 results.

What is going on with the AP Plc shares is a question on everyones lips.

Why is the AP Plc stock the only one within its sector experiencing such an up trendwhen a cursory look at Oando Plc during the same period and by the way, a better run

company shows that share prices have been declining? Is there any big news or event inthe horizon?

Questions are now being placed before the SEC and NSE in the open court because if theregulators are really serious about curbing price manipulation, they should be able to tellthe investing public what is moving this particular stock at this time. Very strange for astock to have an un-abated 14 days up trend.

REFERENCES:1. African Petroleum Plc The Aviomoh Papershttp://www.proshareng.com/articles/2115

2. The AP Investor Relations pagehttp://www.proshareng.com/investors/company.php?ref=AP


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Dissecting the SLS Market as a Casino Paradigm

"It is generally agreed that casinos should, in the public interest, be inaccessible andexpensive. And perhaps the same is true of stock exchanges." - John Maynard Keynes inhis book A Tract on Monetary Reform (1923) Book 4, Chapter 12, Section 6, pg. 159

In past posts, Ive argued that the cycle of negativity from regulators cant help themarket no matter the good intention driving it, especially if the objective is to promote

the re-emergence of a virile and functioning financial market for Nigeria that can hold itsplace in a new world economy.

Today Im turning my attention to the reactions from the market place about the realand imagined unintended consequences and wider ramifications of the statementattributed to the CBN Governor, Mr. Sanusi Lamido Sanusi, on Saturday, July 10, 2010in Asaba where he had presented a paper on The Economy In Perspective:Consolidating The Gains of The Banking Sector Reformsand for which the presscoverage had presented the market in such a prose that it necessitated a rebuttal within24hours from the apex regulators communication team.

Nigerian newspapers and online newswires (local and international) had picked up on

aspects of the comments made during the session on Saturday, July 10, 2010 withscreaming headlines causing maximum panic and apprehension to the investmentcommunity, depositors, bankers, stockbrokers, regulators, investment professionals,market operators, analysts, and the general public.

Catching our breadth

Would it have made a big difference if the CBN Governor had used the phrase bankerstook unnecessary risk in place of the word gamble; or if he had used the term

poorly supervised capital market instead ofcasino?

By the way, we had used the terminology as an analogy with reference to whattranspired then just as it has been used by other responsible persons hoping to draw a

link with what must change. The Director General of the Securities & ExchangeCommission had said publicly that it was unfortunate that people thought that the stockmarket was a one directional casino that never traded down.

At the same forum, a serious minded financial journalist had also expressed concernswith the state of affairs describing the Nigerian Capital Market (NCM) regulatoryframework as an analogue regulator in a digital market to much acclaim by thestakeholders present sometime in February 2010.

Symbolisms have always been with us though. Prior to the new DGs appointment, theMusa El-Faki led SEC had on February 14, 2008 or thereabout made allegations againstsix firms it termed as enjoying unprecedented capital appreciation in their stock


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prices - AP Plc, Afroil Plc (a decided case), Big Treat Plc, Capoil Plc, First Aluminium Plc,and IPWA Plc (page 52 of the Proshare NCM 2009 Report -http://www.proshareng.com/reports/view.php?id=1940). This in itself generated a hugemedia exposure owing to the exchanges between the NSE and SEC.

Not just this once, the Director General/CEO of the Nigerian Stock Exchange, Dr. Ndi

Okereke-Onyuike had openly complained of price manipulation and had taken decisivesteps to address this sore but usual infraction in any capital market a developmentthat occurred with such frequency that led to a situation where market playersthemselves likened the aftermath of actions in the capital market to that of a casino.

In general, the thinking then and now was such that an open admission of the rot wehad dug ourselves into would amount to a first step in the cleansing process that wasneeded to rebuild the market, laying the foundation for a rescue and reform agendaneeded from the money and capital markets as a bridge to what must happen to avoidsuch a nomenclature being ascribed to this important institution of wealth creation in theeconomy.

Thus, the CBN Governors statement should naturally amount to nothing more than anacknowledgment of our reality as at that time. The reaction that took placesubsequent to the Saturday publication must therefore be located somewhereother than in what the CBN Governor said, and how he said it - but perhaps in howoften he repeated the same clich, the stature of his office, and concern aboutthe intended purpose.

So what was it SLS was reported to have said?

I will rely on the exact wordings as used by a leading newspaper, in its cover page storyreproduced here http://www.proshareng.com/news/11316

Immediate deductions to be made from the publication and rebuttal

The rebuttals basic assumption is that the news report was deliberately misrepresentedfor sensationalism. It then goes on to place in proper context the exact news as itwas used. There are a few reasons why this position, justified as it is, should be placedin context and the matter dealt with once and for all.

First, the CBN should by now have realised that in a digital age, the CBN Governorsspeech is not an opinionbut a commentary/appraisal from a policy maker. Thus, anycommentary from the CBN Governor would naturally make front cover of the business

and mainstream news platforms making such comments as alluded to in the rebuttal,makes it all the more juicer. CBN however could have helped its course if such a speechwas loaded on its site and sent to all opinion platforms after the speech; thus mitigatingany misrepresentation or out of context quote his explanatory comments such asreported would have therefore been naturally discounted by the investing and generalpublic (and in most cases go unreported given the context it was used).

Second, the CBN Governor has developed a reputation or created a perception as a verypassionate and principled leader who believes very strongly in the country and the visionof a financial market place founded on trust, integrity and an application of bestpractices values which those who have benefited from the system cannot and wouldnot permit to be enthroned and as such; any mis-step or statement open to


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misrepresentation becomes an open game. The examples of such abound andperhaps it is time to reflect on this need to say my own side of the story.

Third, the barrage of messages from the CBN has equally played right into the hands ofthose who seek to use signals, innuendos and mis-steps to defend a viewpoint; or at theother end of a spectrum, validate a CBN action post-script-fed conspiracy theory on the

true motives behind the interventions. Ironically, no one intelligent enough to discernand articulate the dimensions of events leading up to the intervention will invalidate thediagnosis and basis for intervention by the CBN Governor. The problem it seems lies withthe prognosis and execution.

Fourth, the CBN ought to be aware of a phenomenon in the Nigerian media referred toas pack journalism where correspondents on a particular desk/beat work closely witheach other in such a way that if one is unable to attend an event due to commitments,he is able to report the same event as if he were there- no different from how agencyreports or press releases are used. This must have accounted for the syndicated natureof the story. This is all the more serious when one recognises that the nature of financialreporting has over the years taken on a similar outlook as that for political-type news;

driven in the main by the need to catch the attention of the reader who is easilyuninterested in the regular headlines that means less and less to him/her daily.

The position taken by the CBN on the need to always respond has always been thatthe CBN needed to take the fight to those who sought to control public opinionabout the interventions. This is true, at least from a media standpoint as the forcesgathered against such change as proposed by the CBN Governor is truly formidable andwell funded; and as a responsible public officer, all he has is the weight of his office tomake his case to the public using platforms and opportunities to make his case.

Yet, the mixed deployment of cases one which requires the defence of the policy onthe one hand, and on the other hand; requiring a definition or redefinition of the

argument in the public space has often led to unintended consequences spiked by mixedmessages i.e. that of a fighter, a radical as against a reformer measured in approach andcontext but driven by a nationalist zeal to elevate his countrys profile.

Despite this, the opposition remains formidable and continues to grow in strength andrenewed fervour (exemplified by the intensity of activities such as the paid advertorialsand commentaries on the man, his message, ministry and mission), and designed to doone thing highlight his strategy and approach as fraught with pitfalls and un-intendedconsequences a key example of which played out on Saturday, July 10, 2010.

The Real Message Lost (in editorial judgement, perception and motive)

Sadly, lost in all these are the more cogent quotes from the CBN Governor, which ifpeople paid attention to would have revealed the true message he sought tocommunicate. For the avoidance of doubt I would reproduce the quote (with specificemphasis on the highlighted phrases) from the same source that did not impress thenewspaper houses but which spoke directly to intent, message and context of theGovernor:

He said, Although financial crisis is an integral part of every capitalist system, banksshould stop preventing depositors and investors from technical andfundamental analysis and investors sophistication.


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We had a banking system in the past that was exposed to the capital market butwithout guidelines and regulatory system on lending margin. In the stock market,what people think about is how it will go up. But this market, this casino, is whatthose entrusted with depositors money gamble with.

A stock market is a very funny casino. Dont entrust your money with gamblers.

CBN rules and regulations around the banks cannot be compromised. We are not justdoing the sanctioning; we are combing the banks for excellence. The banksmust stop creating the impression that they have values when in the actualsense they are dying.

To salvage the situation, Sanusi advocated for a Bank Use Act, to overcome what hedescribed as Insurance Business and Fixed Income Bubble, adding that the currentand saving accounts of depositors would no longer be allowed for use inexecuting private businesses.

Getting down to brass tacks Gambling and Casino as an Emotion Trigger

What is the difference between gambling and banking therefore? How does one explainthe analogy of a casino with the stock exchange outside John Maynard Keynesinterpretation?

To differentiate between the two, we could therefore start by defining them.Comparisons are often made between the two activities, but not having seen where theterms were explicitly defined, a re-course to the business dictionary would be the onlyoutcome.

I encourage you to try to define in your own words the terms 'gambling' and 'investing'on your own and compare what you get with what we found in the seminal work by Tom

Murcko, CEO, InvestorGuide.com on the distinction between the terminologies wherehe concluded by referring to Benjamin Graham (author of The Intelligent investor: abook of practical counsel) for further emphasis.

In The Intelligent Investor, Benjamin Graham had said: "The distinction betweeninvestment and speculation in common stocks has always been a useful one and itsdisappearance is a cause for concern. We have often said that Wall Street as aninstitution would be well advised to reinstate this distinction and to emphasize it in all

dealings with the public. Otherwise the stock exchanges may some day be blamed forheavy speculative losses, which those who suffered them had not been properly warnedagainst."

He continued: "Outright speculation is neither illegal, immoral, nor (for most people)fattening to the pocketbook . There is intelligent speculation as there is intelligentinvesting. The difference lies in the outcomes and steps taking to mitigate same.

These appear to be the founding basis for the submissions of the CBN Governor on themarket where he made the connection between intelligent investing and wildspeculation done in concert with unsuspecting customers - and I suspect that his use ofthe term 'gambling' had nothing to do with talking down the market but describing aconduct not beneficial to investors.

It is necessary for us all to get over this debate and move on the serious argumentsabout the linkages needed to be established between monetary and fiscal policies; a shift


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from the past using a rear view mirror; and definitely a focus on creating incentives andgenerating enthusiasm for the market reforms needed.

I am looking forward to such a healthy debate in the weeks ahead with SLS playing akey role; as we redefine the engagement rules between the CBN, other regulators,market players, analysts, investors, the general public and the much needed media.

Olufemi AWOYEMI, FCACEO, Proshare Nigeria Limited

REFERENCES:1. Announcement of the event on April 28, 2010

http://www.proshareng.com/news/singleNews.php?id=10375

2. Nigerian Banks were Gambling Centres, hence reforms Sanusihttp://www.proshareng.com/news/11316.

3. Re-Nigerian Banks Are Gambling Houseshttp://www.proshareng.com/news/11318

4. The CBN and Economic Growth - Consistent Inconsistencyhttp://www.proshareng.com/articles/singleNews.php?id=2097

5. The Monthly NCM Report for H1 2010http://www.proshareng.com/articles/singleNews.php?id=2101

6. 100 days after Report - Proshare 251109http://www.proshareng.com/admin/upload/reports/100_days_after_Report_-

_Proshare_251109.pdf

7. 100 Days After: Paying a heavy price for banks to be virtuoushttp://proshareng.com/blog/?p=79

8. The Bull in the China Shopwww.proshareng.com/reports/view.php?id=2016


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Comments on Regulatory Action Impact on the NCM..

Your publication on Friday on the impact of regulatory action on the Nigerian CapitalMarket makes an interesting reading. My immediate observation is that there had been arash of regulatory pronouncements over the period under review. Given the impact ofthese on the NCM, as measured by the performance of ASI over the period, thequestions are:

1. What was the purpose of the pronouncements and policy actions?2. Was the intention reflected in the outcome?3. Do we take it that the pronouncements and most of the policy actions were wrong-

headed?4. Are the authorities aware of the damage the pronouncements and policy changes

have done to the market?5. Is anybody doing something about this?Evidently, most of the pronouncements were uncalled for, because there was nosubstance to them. Take the matter of SEC's reported suspension of 34 brokerage

firms. How many of those firms were active at the time of the announcement? Virtuallyall the firms were dead and buried at the time of the announcement of their suspension.If SEC was aware of this, why was the pronouncement made at all? Is this a case ofplaying to the gallery? If so, that is not a responsible way to regulate the capital market.Capital market regulation is not show-business; and it ought to be approached as such.

If SEC was not aware that virtually all of those firms were dead and buried, then it musthave been less than diligent in its inspection/investigation. For instance, did thecommission visit the offices of those companies? What did they see? Also, I would haveexpected the media to seek out some of these companies for comments by theirmanagers/directors/promoters, instead of merely relying on the SEC release. Balancedreporting becomes especially important in order to moderate the impact of some of

these unnecessary regulatory pronouncements on our market.

At the height of the market decline in 2008 and early part of 2009, one is aware that amajor appeal The Exchange made to the government regulators was the need for themto communicate hope. SEC was told this, like CBN and the Federal Ministry of Finance.But what have we seen? Inflammatory statements that can only be expected from rabblerousers that should not be any where near the regulation of a business that impacts onthe wealth creation process. It becomes the more saddening when most ofthese pronouncements and policy twists are not informed by facts or public interestconsiderations. How do we begin to talk about restoring investor confidence when thereis this unending stream of communication/actions that can only make a rational investorto remain on the sidelines? My take is that we have a narrow and subjective definition

of "investor confidence".

We have read countless times about the moves by SEC to prosecute over 200market operators for various alleged infractions. Has there been any concretedevelopment beyond the announcement of this impending action? Have there been anyfilings at IST? Why is SEC avoiding its own APC this time around? This later question isimportant: why are some matters OK for APC and others are not? What is the basis forthis segregation? Why is SEC purportedly prosecuting the executives of the failed banksand their associates at IST instead of the APC?

In any case, the reference to the above case was to illustrate the flood of unnecessarycommunication that undermines confidence in the market. Why was the announcementmade if the Commission was not ready to prosecute?


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Have you observed that AMCON has been in constant mutation? It has movedfrom being a resolution vehicle to also become a recapitalisation vehicle. This week itwas reported that AMCON representatives will seat on the boards of the banksin which the corporation would invest. Given the ownership of AMCON, is thissomething we should have? Is it possible that this would contradict the policy on

privatization? Is it good for corporate governance if you have AMCON represented in theboards of two or more competitions banks? Such changes also impact on investorconfidence.

You see, part of the challenge faced by the NCM, especially in recent times, is the factthat we have played down on the developmental needs of the market andplayed up the regulatory side.

For one, the original conceptualisation of SEC was one that charged it with the dualresponsibility of regulating and developing the NCP. Whether we like it or not, the NCMcannot be managed like any of the developed markets; there has to be some originalitythat takes due consideration of the place of our market on the evolutionary ladder. Now,

this should not be misconstrued as an apology for any regulatory failings in the recentpast; rather it should be seen a call for a balanced approach to the management of ourmarket by public officers charged with this responsibility.

Well, well, well...

Article was submitted by a stockbroker to Proshare. All opinions on this page constitute the authors best estimate judgement

as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors toconsider in making their investment decision. Proshare Limited, its employees and analysts accept no liability for any loss

arising from the use of this information. All enquiries should be directed to [email protected]


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Investor Protection: Strengthening the Trade Alert Service

Mr. Emmanuel Ikhazoboh, the Interim Administrator of the Nigerian Stock Exchange(NSE) scored a major point towards the restoration of investors confidence in the bourselast week when he informed a group of shareholders that paid him a courtesy visit that

the operations of Trade Alert is being reviewed to make it more effective andefficient as a monitoring device.

In the press released issued on Friday by the exchange, Ikhazoboh had assured theshareholders that all forms of breach of market rules and regulations shallcontinue to attract stiff sanctions.

This is a step in the right direction taken by the Ikhazoboh-led Stock Exchange followingthe action taken on non-compliance with reporting requirements, since he assumedoffice a little over a month ago, especially in the strengthening of the self-regulatorystatus of the NSE.

We recall that the transactions security monitoring devise - known as the Trade Alert,

was launched in 2005 by the Central Securities Clearing System (CSCS), and poweredby Adonai Net Nigeria Limited to act as an investor protection service that compelsthe CSCS to alert investors on any and all transactions related to his stake in the market serving as a security firewall of investor protection.

The Trade Alert has been a major initiative of the capital market supervision practicewhose success has been cloned by banks in Nigeria, providing transactions alert fordepositors through their mobile phone numbers.

Through the operations of the CSCS Trade Alert, the Securities & Exchange Commission(SEC), the financial services apex regulator has been able to enforce its core mandate ofinvestor protection.

The monitoring device has empowered both the market regulator, the SEC and the SRO,the Nigerian Stock Exchange to solve many cases of unauthorized transactions on theaccounts of unsuspecting investors by some market operators.

There have however been some unsavoury incidents that occurred in the broker-investorrelationship that has connived to create practice challenges in the discharge of thisobligation. One major issue, not directly attributable to the platform but remainsfundamental is that ofthe use of brokers mobile phone numbers instead of thatof customers.

Unlike the banks who allow customers to fill account mandates themselves, stock

brokers have been known to complete the trade alert documents themselves and somehave been reported to having done this using their own mobile numbers on thepretext of working on discretionary mandate. This subverts the true purpose of thefirewall initiative, and cannot be allowed to continue.

The Ikhazobohs administration will therefore be right in taking steps to isolate thisaspect of the project objective; and can do this by focussing solely on the brokers thekey link in the value chain.

In furtherance of this change imperative, a few suggestions are hereby highlighted -

The NSE/SEC should introduce a Data Protection and Customer Privacy rule that

would compel all brokers to ensure that they educate their customers on the need to


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fill this information. This can be achieved by allowing for a mobile phone confirmationof the account done by asking the customer to confirm information that could onlybe known to him via a mobile phone reply application. If this is provided by thebroker and an infraction is reported later, the broker will be liable to a loss of licencefor identity theft.As practiced in the banking sector, investors should fill-out the Trade Alert forms with

their own personal details that include names, addresses, emails, telephonenumbers, etc. These details are personal security information or PSI of eachinvestor and should be lodged directly with the CSCS for trade alert purposes. Thisalso serves as an additional layer of evidence to indict any erring broker who falselyrepresents himself as the client/investor.The CSCS in conjunction with the trade alert platform operator, Adonai Net shouldperiodically but regularly request investors to update their personal details in thetrade alert database;A half yearly technology compliance and performance assessment of the operationaleffectiveness and efficiency of the trade alert system should be conducted by theCSCS and the NSE and necessary upgrades, overhaul or changes, as may benecessary, should be formally documents to ensure that the firewall purpose stays

ahead of changes and possible efforts to circumvent the service.For the SEC, it is suggested that the database platform of the Trade Alert bedeployed in the allotment of primary share offerings as well as in the payment ofcash and bonus dividends by quoted companies. It is suggested that once the SECapproves the allotment register of any public offer or Rights Issue, the issuinghouse should immediately use the trade alert system to alert successfulapplicants in the offer.The same system could also be deployed by registrars to alert shareholders of theamount credited to them as cash or bonus dividends. This arrangement could beworked out with the commercial banks to ease the current hardships some retailinvestors face in sorting out their dividend payments.

Indeed we are of the opinion that this would flush out any broker manipulating thesystem.

As the Stock Exchange moves toward a crucial milestone in its 50-year history demutualization, it is commendable that both the SEC and the NSE are on the samepage in ensuring investors protection and market integrity.

The NSE has received commendations since last weeks announcement of varioussanctions on all quoted companies that have failed to discharge their post-listingreporting requirements. It is believed that the latest move to strengthen, not discard theoperations of the Trade Alert system; will boost investors confidence in the abilities ofthe market regulator at this critical time in the Nigerian capital market history.


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Protecting Nigerian Investors Case Review

Case: AJAYI V. SECURITIES AND EXCHANGE COMMISSION (2009) 13 NWLR (Pt. 1157) 1Reviewer: Olumide K. Obayemi

This paper critiques the slow pace and use of legal rigmaroles in frustrating enforcement

investors protection laws in Nigeria, compared with the American legal system, usingAjayi v SEC as reference. It concludes that (a) Nigerian courts should employ theirpower to sanction lawyers and litigants more proactively; (b) specialized courts powers,such as the Investment and Securities Tribunal (IST) must be enhanced to handlespecific subject-matters in Nigeria; and (c) the rights of appeal to appellate courts maybe curtailed/ restricted to matters involving meritorious issues. This will facilitate quickand expeditious resolution of disputes between litigants.

It is disheartening that, after eleven years, issues raised in Ajayi v SEC are nowherenear resolution while the impugned corporate officers and auditors (Osindero, Oni &Lasebikan) parade the Nigerian Capital Market, whereas the 2001 Enron Scandal, in theUnited States, had been put to rest with Enrons executives and Arthur Andersen

becoming historical relics.

THE ENRON SCANDAL

The October 2001 Enron Scandal, led to the bankruptcy of Enron, and dissolution ofArthur Andersen, the worlds largest audit and accountancy partnership. Enrons JeffreySkilling and other executives used accounting loopholes, special purpose entities, andpoor financial reporting, to hide billions in debts from failed deals and projects. ChiefFinancial Officer Andrew Fastow and others misled Enrons board of directors and auditcommittee of high-risk accounting issues and pressured Andersen to ignore the issues.Enrons stock price hit US$90 per share in mid-2000, later caused shareholders to lose$11 billion by plummeting to less than $1 by December 2001. U.S. SECs investigations

indicated Enron executives. On May 25, 2006, Lay and Skilling were convicted amongstothers, of securities and were fired. Earlier, on May 6, 2002, a charge of obstructing anofficial proceeding of the SEC was filed against Enrons auditor, Arthur Andersen LLP. The

jury found Andersen guilty on June 15, 2002, of obstructing of justice. Since federalregulations do not allow convicted felons to audit public companies, Andersensurrendered his CPA license on august 31-effectively putting the firm out of business,losing majority of its customers and shutting down.

The question is what makes the American system work quickly towards restoringinvestors confidence while the Nigerian investor is caught in endless delay?

The question is what makes the American system work quickly towardsrestoring investors confidence while the Nigerian investor is caught in endless

delay?

SECURITIES REGULATION IN NIGERIA

The Nigerian Securities and Exchange Commission (SEC) is charged with restoringinvestor confidence, enhancing market integrity and protecting the everyday investorunder the Investment and Securities Act (ISA), 2007. prohibits the employment of anydevice, scheme or artifice operating as a manipulation, fraud or deceit on any person inconnection with the purchase or sale of securities; prohibits false trading, i.e., where anindividual or entity engages in activities creating a false or misleading appearance ofactivity in any securities; prohibits purchase or sale of securities not involving a change


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in the beneficial ownership of the securities and transactions conducted to maintain,inflate, depress or fluctuate the price of the security; and prohibits engagement ininsider trading by using unpublished price sensitive information in relation to purchase orsale of securities.

Penalties for above violations are injunctions, monetary penalties and the disgorgement

of profits gained in violation of ISA. Under ISA, allegations of fraud and violationsprovoke a SEC investigation. The matter is then referred to the AdministrativeProceedings Committee (APC). Later, a suit is instituted before the Investments andSecurities Tribunal (IST), charged with the resolution of all disputes arising out of theapplication and enforcement of ISA.

An award of judgment of the IST, upon registration, with the Federal High Court ()sChief Registrar shall be enforced as a decision of FHC. Appeals from IST lie directly tothe Court of Appeal, and, thence to the Supreme Court.

THE NIGERIAN ENRON SAGA:AJAYI VSEC

Mufutau Ajayi, former finance and accounts manager of African Petroleum Plc (APPLC)prepared fraudulent prospectus dated march 30, 2000, in conjunction with AP PLCsauditors, Osindero Oni and Lasebikan (OOL). This followed the National Council onprivatizations offer for sale of Federal Governments 86,400,000 ordinary shares of APPlc.

In April 2001, Sadiq Petroleum, having subscribed to 30% of the shares, proved that APPLCs past management had failed to disclose debts of N22.5billion owed to variouscreditors and OOL were negligent in auditing AP PLC. SECs preliminary investigationsshowed concealed debt comprising of commercial papers and bankers acceptances, andthe matter was referred to SECs APC. Before the APC, Ajayi, being an officer of APPLC,was charged with authorizing the 03/30/2000 prospectus containing an untrue

statement, i.e., that APs total indebtedness as of June 30th

, 1999 was N22.5billion,instead of N10.2billion, contravening Sections 62(1), (2)(d) and 63,.

Despite voluminous publicity surrounding SECs investigations and hearings, Ajayi didnot attend the hearings. The APCs found that Ajayi was a principal officer who played amajor role in concealing AP PLCs debt, and disqualified Ajayi from being employed orparticipating in any capacity in the securities industry.

Ajayi approached FHC for an order of certiorari removing the case to FHC and quashingAPCs decision, determinations and directives, alleging that he did not receive justiceafter failing to attend hearings. SEC challenged FHCs jurisdiction, since under section236 of ISA, only the IST has exclusive jurisdiction to hear disputes arising under ISA. On

July 31, 2006, Hon. Binta Nyako ordered a transfer to the IST.

Ajayi approached the Court of Appeal which overruled both of his arguments on May 8,2007. First, Hon. Peter-Odili, JCA held that sections 224(1), 234(1) & 236(1) of ISAmust be read together within their joint context, and that exclusive jurisdiction to heardisputes arising under ISA is conferred on IST. Relying on OHANAKA v ACHUGWO andBAKARE v AG, Odili held that, section 236(1), ISA mandates Ajayi to go to IST forrelief. On the natural justice issue, Odili held that since Ajayi had a statutory right toseek review of APCs findings before the IST, his non-appearance before APC was not adenial of fair hearing. Ajayi has filed an appeal with the Supreme Court thus prolongingthe case from 1999 longer perhaps to 2014.


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Whereas, the Enron case took about 3 years to resolve, Ajayi and Osindero, Oni &Lasebikan continue to parade Nigerian stock market.

CONCLUSION

Investors confidence in Nigerian Capital Market has not been helped with the 15 year

prolonged legal gymnastics. First, they refused to attend the hearings before APC andare now using technicalities as a means of stalling APCs findings. Under California Codeof Civil Procedure, 128, 177, courts have the power to compel obedience to theirorders and amend them as necessary to make them conform to law and justice. Allcourts have inherent supervisory or administrative powers enabling them to carryouttheir duties and oversee and enforce execution of their decrees. ASBESTOS CLAIMSFACILITY v BERRY (1990) 219 Cal.App.3d 19.

Nigerian courts must use their sanction powers against frivolous parties and counselexploiting technicalities and unduly prolonging unmeritorious claims.

Second, Nigerian market regulators must make the specialized IST much stronger,

covering all stock market disputes. America has witnessed a nationwide growth inspecialized problem-solving courts, based on the states role promoting social change.States social control theories, especially theories of technocratic or rationalized justice,show that law is increasingly about efficiency, speed, and effectiveness. Former AttorneyGeneral Janet Reno and New York Chief Judge Judith Kaye support problem-solvingcourts, called them by far the most exciting, most promising recent development in thelaw.

Finally, not all appeals from FHC should lie as of right to the Court of Appeal. Clear-cutcases involving no real controversy should be weeded out through Pre-DocketQuestionnaire serving as a way of summarily dismissing unmeritorious frivolous suits.

About the Author:Obayemi, Principal; LL.M (Alberta, Canada); LL.M -Taxation Law; S.J.D -International Legal Studies; PhD;Attorney At Law; Admitted in Nigeria and California bars and writes from San Leandro, California.


17/49


The State of the Nation A Picture of Chaos!

"Everyone understands the need for change in the abstract, but on the day-to-day level people arecreatures of habit. Too much innovation is traumatic, and will lead to revolt. If you are new to aposition of power, or an outsider trying to build a power base, make a show of respecting the oldway of doing things. If change is necessary, make it feel like a gentle improvement on the past. -

Robert Green, 48 Laws of Power, Law 45 - Preach the need for change, but never reform too much at Once,Penguin, September 5, 2000

Chaos typically means a state lacking order or predictability - the word is formally usedto refer to a very specific kind of unpredictability; and informally to mean a state ofconfusion.

Nigeria today exhibits the characteristics precedent for a picture of chaos to fill the mind.This state is inspired by the consistent inconsistency in mission and roles, discordantvisions of the future, disconnect between fiscal and monetary policies and broken downlinkages between key components of the economy all indicating a leadership that ishaving issues dealing with governance during economic uncertainties.

There is no need for a long treatise on the linkages between politics, economy and socialdevelopment, neither is there any need for an evaluation of the individually competentcast he has assembled. We have gone beyond that. This is a dialogue with theleadership.

In order to avoid what could turn out to be a conversation with the deaf however the

approach will be to provide the leadership with a snapshot of key commentaries fromwithin his team, share a common sense understanding on the recent NNPC/MoF sagaand provide examples of the possibilities obtainable when the team is well guided towork together.

The current situation is such that not calling it as it is; would be akin to providingsupport for the taking down of the economy by default; not just the on-going

talking down of the economy the government and its key officials havedemonstrated enough competence and willingness to do that all by themselves.

What immediately became obvious to me early on was that the dialogue started a longwhile back but we all turned a deaf ear to whatever was said, choosing occasions to

react to sensationalism and going back to the same soul destroying attitudes, processesand strategy that has brought us to this state of chaos.

The Indicators of Chaos

Those in charge of the affairs of the state (economy and social order) have, for monthsand years, been actually crying out for help and we have failed to pay attention. Forexample, did we fully understand what was being said when the1. Minister of Information, Dora Akinyuli decided to share a Federal Executive Council

(FEC) memo with the public because we have been running the country for over100days without a central government/leadership and had relied on he said-shesaid comments from a cabal - after almost 3 years of a health-held-backPresidency.


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2. CBN Governor, Sanusi Lamido told us in July 2009 and later took action on August14, 2009 that we were existing in an economic mirage and that the capital marketbubble had collided with the banking bubble to make a big hole in our economicassumptions which has forced his hand to take drastic actions that includesengaging the EFCC, Police, State Security, Judiciary and the Media in a show of

seriousness akin to a raid on the fabled Cosa Nostra or a scene from an epic movie

depicting the force of the state fighting for a semblance of virtue in its social order,the unintended consequences notwithstanding.

3. Banks in Nigeria at least six of them went to their shareholders for approval toraise bonds to fund opportunistic acquisitions and yet over seven months after, noone is asking questions. Recall our article on the bond craze. These banks know thatinvestors will not buy their bonds, because their past financial history has shownthat they cannot service interest on the bond.

4. Minister of State for Finance, Remi Babalola drew attention to the absence of acodified plan of action by the Central Bank of Nigeria (CBN), noting that it appearsthe CBN Governor was operating public policy on the basis of an "as the spirit leadsme'' impetus. The Minister confessed publicly that the Government had in the recentpast abdicated to the CBN some crucial responsibilities in its desire to achieve a

sure-footed autonomy of the CBN.5. EFCC Chairman, Mrs Farida Waziri told the whole country that My initial reaction

when I heard of Iboris arrest was that of excitement, and surprise too. Surprisebecause somebody said he had gone to Ghana. Some people also said he is stillsomewhere in Delta, some say in his Village in Warri. My mind never went to Dubai.But the Met police have a relationship with Dubai police. They told me that if he is inDubai they will get him that it will be easier to track him down. If he had gone toplaces like China or Japan, and then it would have been difficult. I was veryexcited. We were all too carried away with the Ibori soap-opera and did not hearher cry for help from a dependence on hearsays, petitions and third parties todischarge her responsibilities.

6. Minister of Sport, Ibrahim Biu, said a day after the President took the decision toban participation in all FIFA graded competitions that Nigeria will do everythingpossible to take the interest and sovereignty of Nigeria first and foremost and if thatis in conformity with FIFA rules, so be it, but if it is not in conformity with FIFA rulesI think the sovereignty of Nigeria and interest of the people are most paramountMy friend, you cannot have cancer and continue to live with it because you dontwant to spill blood, we are ready to spill blood to remove the cancer so be it. Hestill held the job after the volte-face because we seem resolved that our sovereigntywas not at stake, the cancer was a diagnosis that turned out wrong on a secondscan or the Minister got his cues wrong from the President!

7. CBN Governor, Lamido Sanusi some weeks back disclosed that some foreign bankswere already queuing up to buy the five rescued banks being currentlysuperintended by CBN appointees since August 14, 2009 and days later a CBN

Deputy Governor and the Minister of Finance at two separate events said there aremany local interests seeking to take over the banks, so even if foreign investorsback out, it wouldnt matter. They went on - It is about the quality of technicalcompetence, capital and credibility. If foreign investors back out, the CBN DeputyGovernor argued, it wont be because the banks are unhealthy but due to othercriteria. Yesterday night, the CBN issued a press release that communicated theoutcome of a stakeholders meeting on the five banks where it reassured them thathaving secured the depositors fund with the reform programme, the focus of theCBN now is to salvage some value for the shareholders. He made it clear that theCBN would not sell the banks, as it is not the business of the banking watchdog todo that. The CBN, according to Sanusi, only recommended some reputable financialadvisers who are working with the board and management of the banks to sourceand negotiate with any of such investors.


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8. Don Etiebet, former minister of petroleum under the late General Sani Abacha,confessed late last year that in his position as supervising authority of the NNPC, hefound it impossible to reconcile the corporations accounts.

9. Minister of Finance, Olusegun Aganga said What you saw yesterday was justbalances arising from two types of transactions that we have made, and that wasthe point they were trying to make yesterday. So it is incomplete, and it doesnt

give you the complete picture. Once reconciliation is done, payment goes back andforth, between the two entities. Payment to NNPC is done regularly he said. He,however, added that the imbalances will be sorted out when the forensic audit,which is ongoing, is completed. Aganga concluded: If you are worried about NNPC,which is a different matter. You are aware that there is a forensic audit that thepresident asked us to undertake, and that is happening now. If you ask when it willbe out, I will say that it is roughly going to be about eight weeks.

10. Saudaatu Sani, Chairman, House of Representatives Committee on MillenniumDevelopment Goals (MDGS) on July 14, 2010 blamed the finance ministry and thebanks for contractors inability to access funds for MDGs projects and the delay inthe execution of Quick Wins projects.

11. CBN Governor, Sanusi Lamido announces on June 29, 2010 an extension for Wemaand Unity Banks a day to the expiration of the June 30, 2010 deadline it hadimposed for their recapitalisation on October 03, 2009; thus effectively telling us allthat the timelines were no longer realistic. This was on the same day the CBN alsoannounced that the AMCON bills execution timelines had been extended by anotherthree months. These changing timelines are a loud commentary on decision makingthat goes way beyond the control of the CBN with consequences on planning andinvestment decisions.

12. CBN Governor releases the prudential guidelines on June 30 with effect from July 1,2010 which replaced the one issued in May, 2010. However, on July 15, 2010 itback-pedalled on its directive that banks should disclose executive compensationand bonuses in their annual accounts along with changes that saw an outrightdeletion of38 subsections which were strongly opposed by the banks. In fact, the

apex bank deleted all the sections on Regulations for Auto Financing, Regulationsfor Credit Cards and Regulations for Housing Finance. Also deleted from the newprudential guidelines is the limit on credit to directors and significant shareholdersand the general provisioning of one per cent for all loans. Just what was this

tsunami reform about then?13. Minister of Finance, Olusegun Aganga (honorary Chairman of the Board of the World

Bank and IMF) commenting on the N16.4bn earmarked for the Golden Jubilee saidthat We just tied them to the anniversary budget to make things faster. He wenton to say that we are renovating Lagos and Abuja airports, for example. Butairports should measure up to international standards normally. We are doing thatand putting in place standard security systems so that the airports will be up tostandard. These are places people will visit first. There are many other beneficial

projects tied to this budget. Rather than fault the budget, people should ask, whatis the money being spent on. Yet no one took him to task and asked what wasthe revenue of Nigeria being spent on yearly, where is it getting new earnings from,what constitutes excess when it still has to borrow regularly?

You see, communication is being used as a political expedient, allowing policymakers toavoid painful but more effective solutions rooted in sound governance principles andfinancial management traditions expected of a sovereign enterprise.

These key actors have passed out sounds of despair yet we choose to be interested inthe noise dominated by the screaming headlines and not the substance of the issues atstake.


20/49


When Bismark Rewane, CEO Financial Derivatives Company, an economic researchcompany commented on the nations fiscal slide, he concluded that it would come thistime, from inefficiency and fiscal recklessness!

There must have been a compelling reason for him to leave his comfort zone to speakup; just as Frank Aigbogun, CEO of BusinessDay newspapers did on Channels TV

(http://www.proshareng.com/video.php), Dr. Chukwumah Biosah and this commentatorhas done through the proshare platform all drawing attention to the disconnectbetween reality on ground and government actions and policies; with Bismark raising thealarm that wide budget deficit and bailouts could slide Nigeria into fiscal danger again,years after the country exited its debt overhang in 2005. Bismark particularly warns thatthe country is fast sliding into debt again, as domestic borrowing alone is expected toincrease by 31% to N1.14 trillion. Though some fund managers appear unperturbed bythis, they equally caution on the need to streamline government expenditure focussedless on capital expenditure.

Bismark added concerns associated with the evident fiscal danger include huge risk ofleakages and public scandals, bailouts causing more economic challenges as easy money

could make organisations less efficient, and the destabilising effect it would have on thecurrency.

The NNPC is Broke and not Insolvent

Linking this with the disclosures and rebuttals relating to a genuinely embarrassing spotthe government finds itself over the statements credited to his Minister of State forFinance, Remi Babalola - the responsible official on Domestic Operations (contradictedthe next day by the senior Minister in the finance ministry and the Minister ofInformation); a common sense appraisal reveals that the furore that has eruptedappears ill-informed and a deaf response to the issues affecting the nation.

Here, as with other instances of official communication shown above; I believe the rightquestions have not been asked. The Minister of State for Finance, Mr. Remi Babalola,made the statement to the effect that the Nigerian National Petroleum Corporation(NNPC) was broke due to inability to pay N450 Billion owed the Federation Account.NNPC is unable to make the payment because the Federal Government has notreimbursed the N1.156 trillion naira (in subsidies) it has requested from the FederalMinistry of Finance.

According to Dr. Chukwumah Biosah, CEO CEBAL USA, let us look at the scenario froma simple perspective - if you owe me N10 billion and I am unable to pay you N5 billionbecause you failed to pay the money (N10bn) you owe me? Who has the financialproblem me or you?

He goes on to say that Most journalists and financial analysts have failed to identify andseparate the forest from the trees with this issue.

The problem, I believe is that the Federal Government is the one that has thefinancial problem. It does not matter whether they blame the problem on accountreconciliation or anything else. If the Federal Government settles their obligationto NNPC, this issue of insolvency will not arise let us call it like it is. Nigeria asa sovereign state is facing some financial problems like most countries worldwide. Themoney that the NNPC is claiming that it is owed by the Federal Government is less thanthe amount that the country recently raised from the Sovereign Bond.


21/49


Recall that on May 20, 2010, the Federal Government of Nigeria raised N80 billion(US$537 million) from the sale of 20-year, 5-year and 3-year sovereign bonds at its fifthdebt auction of the year, according to a statement by Nigeria's Debt Management Office(DMO). Successful bids were allotted at the marginal rates of 10 percent, 9 percent and8.25 percent respectively. The 20-year note raised a total of N30 billion, while the five-year and three-year denominations raised 25 billion Naira each. For 2010, Nigeria plans

to sell N867.5 billion worth of bonds, just under a fifth of the 4.6 trillion planned forbudget-deficit financing according to Abraham Nwankwo, Director General of the DebtManagement Office.

So what does this tell you? The fish rots from the head. If NNPC has a problem becauseof the inability of the Federal Government of Nigeria to pay its bills in a timely manner,then it follows that the country has financial problems too Dr. Biosah concludes and weaffirm. The real c-r-i-s-e-s is not about the Remi Babalola statement, and is not so muchabout the NNPC; but much more about the countrys finances itself.

We owe corporations, agencies, states and our contractors on the one hand, andcontinue to spend to maintain a big government pretending that it will sort itself out

somehow. This is a big problem, not unlike what many developed nations are equallyfacing, but because we are in denial, thus refusing to take remedial actions.

A country that should be declaring austere measures is steeped in political decisions andall the talk in the country is about whether the incumbent should contest or not, the roleof zoning in stabilising the polity, and the grab for deserved and underserved increasesin salary and benefits by workers and the legislature at a time when the choice of paycuts, pay freezes and reduction in the size of government are legitimate debates tohave.

This NNPC saga is however a side show, as all strategist and analyst at proshare wouldknow. This is misdirection one with a positive consequence for the Federal

Government. How? The case has now been made for the removal of subsidies throughthe inverse communication that is fuelling the current debate and I suspect thearguments for retaining subsidies will be effectively thrown out to allow for either apartial or full removal of subsidies.

What is Further Possible

Does the leadership understand the problem we have and what it takes to tackle it? Ibelieve they do ironically. What is going on is a huge shame for most of these people ingovernment who know the game, but are too timid to expose it because theircampaign funds or appointments come from those who benefit from the chaos.

A country that has changed its GMD of the NNPC thrice in two years, unable to process(refine) a product it produces, has not raised funds for further work on alternativerevenue such as Gas and wind turbines for its energy needs cannot be taken seriously onthe issue of its restricted source of revenue.

This is coming at a time when Petrobras, Brazils national oil company and theequivalent to Nigerias NNPC, is preparing a share issue to raise an estimated $25bn asearly as next month in a crucial step for developing its pre-salt oil fields so calledbecause they are trapped under several kilometres of sea water, rock and a hard-to-penetrate layer of salt that promises to make the country one of the worlds biggest oilexporting nations. Details of Petrobras capital plans are still sketchy, but an offering ofthat size would be the worlds biggest so far this year, trumping Agricultural Bank ofChinas planned initial public offering next month, which looks set to raise about $20bn.


22/49


Brazils Senate gave the plan the go ahead last week when it approved a package oflegislation governing the pre-salt fields, which were discovered in 2007. International oilcompany executives have likened them to the North Sea discoveries of the 1970s in theirpotential to transform the industry. Parts of the fields were put out to concessions underexisting rules before their potential was understood. The government wants the rest to

be subject to production sharing agreements that it says are needed to maximisegovernment income and increase its control over production. Under the proposals,Petrobras would be the sole operating company in the pre-salt area. A successful shareissue of this size would also be another sign of the ebullience of Brazils capital markets.Last year the So Paulo stock exchange hosted two of the biggest initial public offeringsworldwide, from credit card company VisaNet ($4.3bn) and the local unit of Spanishbank Santander ($7bn).

On Monday, Brazil's renewable energy company Renova Energia SA said that it raised150m Brazilian reals ($85m) through its initial public offering of shares on the BrazilianStock Exchange in an offering coordinated by Banco Santander and Bank of AmericaMerrill Lynch. Renova is based in Bahia state and generates 41.8 megawatts of power at

its three hydroelectric plants.

At the other end of the world and from a country set to dominate our oil refinery,agricultural, roads and trading sectors; the Agricultural Bank of China Ltd is raising atleast $20 billion in what may become the worlds biggest initial public offering. Set up in1951 by Mao Zedong to finance rural cooperatives, Agricultural Bank was the firstChinese commercial lender established during Communist rule. It was the last majorstate bank to go through restructuring, receiving a bailout valued at about $139 billion in2008. Agricultural Bank, with 320 million customers and 23,624 outlets in China, made arecord 1 trillion yuan of new loans last year, more than the gross domestic product ofNew Zealand. The companys overall non-performing loan ratio stood at 2.91 percent asof Dec. 31, the highest among Chinas largest lenders. Of loans to property developers,

3.47 percent were listed as delinquent at the end of last year.

So what plans do Aganga, Sanusi, Babalola and the economic advisers to the Presidenthave for specific areas of the economy apart from football which witnessed the mostresponsive reaction to a national malaise ever?

While we ponder on this, can the President humbly address the picture of chaosemerging by considering excusing himself from the dual role of minister of power? Thisshould allow him concentrate on the key task of his office as president with less than ayear to go that of holding people accountable to goals he set based on the mandate hegot from the electorate (and on this point we are reminded that our president was notelected but appointed by default).

The presidency we can glean is inundated with unbelievable pressures from bridgingthe years of our absence from the international scene due to a situation under theformer president; to dealing with routine courtesies and administrative responsibilities.He has added a few of his own deployed through a smoke and mirrors approach suchas the increasing travels with an entourage that ridicules our financial reality and needfor financial restraint and the clogging up of his diary with appointments considered aspriority because of a distracting subject of an unconfirmed presidential ambition in2011.

If the President can extricate himself from the self-imposed chains around thepresidency distracting his attention, he can re-connect with the well meaning publicswho now have their deaf ears opened and eager to learn about the key performance


23/49


indicators (KPIs) he had set for his team of ministers. And while at it, he can publish amanifesto or measurable plan for his administration (a recent example was provided byhis contemporary, David Cameron of the United Kingdom) on his fast growing facebookpage for all to glean and use as a rallying cry for all to key into.

That would be a fair template to energise Nigerians and set the bar for future presidents

who would now need to be well prepared with solutions, ideas and plans on every aspectof our national life (not just the problems) should they desire to seek office.

Those in charge of the economy need to work off a common and interlinked plan onethat provides the linkage between monetary and fiscal policies; open to the rigour ofdebate and consensus. Nigeria does not need a business as usual team of strange bedfellows with differing ideological positions on where the economy is headed this shouldnot be difficult to do!

Olufemi AWOYEMI, FCACEO Proshare Limited

ADDITIONAL REFERENCES:

1. Nigerian Banks Still High Risk - S&P - 290610http://www.proshareng.com/news/singleNews.php?id=11152

2. Nigeria rescued bank profits mask underlying weakness - 300610http://www.proshareng.com/news/singleNews.php?id=11208

3. The CBN and Economic Growth - Consistent Inconsistency 300610http://www.proshareng.com/articles/singleNews.php?id=2097

4. The Central Bank and an inadequate blueprint 100310http://www.proshareng.com/articles/singleNews.php?id=2046

5. The Monthly NCM Report for H1 2010 020710http://www.proshareng.com/articles/singleNews.php?id=2101

6. Nigerian Banks were Gambling Centres, hence reforms Sanusi 100710http://www.proshareng.com/news/11316.

7. Re-Nigerian Banks Are Gambling Houses - 100710http://www.proshareng.com/news/11318

8. NNPC is broke - Minister Proshare 130710http://www.proshareng.com/news/singleNews.php?id=11365

9. Why Investors Shun Equities Mkt - 140710http://www.proshareng.com/news/singleNews.php?id=11368

10. Fiscal danger is real, say economists - 140710http://www.proshareng.com/news/11379

11. UK Treasury alerts institutions on weak AML controls in Nigeria and other countries - 140710http://www.proshareng.com/news/11380

12. CBN makes U-turn on new guidelines - 150710http://www.proshareng.com/news/singlenews.php?id=11390

13. 100 days after Report - Proshare 251109http://www.proshareng.com/admin/upload/reports/100_days_after_Report_-_Proshare_251109.pdf

14. The Bull in the China Shopwww.proshareng.com/reports/view.php?id=2016


24/49


Investors and Suspended Stockbroking Firms Advisory

The Share Support Service wishes to issue an advisory on the challenges investors havehad with engagements with stockbroking firms that have been suspended by theNSE/SEC.

It would appear that this issue requires further clarification by the NSE/SEC but suffice tosay, the following represents a guide on what is known at this point in time.

Suspended stock brooking firms by law are not allowed to trade or transact in any formon the floor of exchange.

Interpreted clearly, firms so affected would be temporarily inactive in terms of buy andsell on behalf of their respective clients.

The investors/clients of the affected firms would have no option to transfer their

accounts to other houses perceived to be safe.

The concern therefore remains as to what the law intended for investors/clients of suchfirms to do in the intervening period should a need for a buy or sell arise.

Unofficially, some firms have had to approach other friendly stockbrokers to help seethe deal through; as a survival tactic to prevent active investors/ traders who buy andsell on daily basis from leaving such firms.

Indeed, such firms have been known to make special arrangements for their bigclients and active investors in getting their transactions done as mandated.

Under this scenario however, it is unlikely that such clients are likely to receive theirtrade alert(s).

On the other hand, and with their smaller clients or inactive investors, they often facechallenges in getting their transaction(s) executed on time, as the affected firms oftenhave to collate their respective requests before such mandates could be executedthrough other means.

Investors who are having challenges with their transactions are advised to approachtheir firms to find out:

If there is any special arrangement for their transactions without extra cost;The time frame for their transactions;

The status of their resolution efforts with respect to the suspension; andAny other information/modalities they need to know about the service contracted.

If the client is not comfortable with the arrangements, he/she can transfer his/heraccount to any other house of his/her choice.

If in doubt, send a request to the NSE/SEC for further guidance.


25/49


PENCOM Moves to Expand Investment Options for PFAs

The Nigeria's Pension Commission (PENCOM) recently released the exposure draft onnew guidelines for investment of pension funds.

The draft guideline provides more investment options that Pension Fund Administrators(PFAs) can choose from, and set new eligibility criteria for appointments of heads ofinvestment of PFAs.

Potential Implications of Expanded Investment Options for PFAs

PFAs were not previously allowed to invest directly in Commercial Papers withoutdeposit money bank guarantees. This guideline now allows PFA's to invest directly to amaximum of 10% in Commercial Papers of corporate entities. We expect that this willincrease the depth and number of instruments available. PFA's investment in bonds/debts of state that has fully implemented the ContributoryPension Scheme would not only increase pension coverage but put pleasure on states

that are yet to adopt the Contributory Pension Scheme. PFA's investing directly in commercial papers of corporate entities without a financialintermediary or the underlying guarantee will potentially boost the money market.

Highlight of the New Investment Options

Investment Options Restrictions Qualifying Clauses

States and Local Government Bond/debt

instruments

30% of pension assets under

management.

Bonds/debts of over seven years tenor

shall be inflation indexed

Supranational bonds issued by

multilateral development finance

organisations,


management

Nigeria must be a member

multilateral development finance

organisation

Shares of Public Limited Companies


management

The company must have made

taxable profits and paid

dividends/issued bonus shares within

the preceding five years.

Specialist Investment Funds such as

infrastructure funds and private equity

funds


management.

Infrastructure project situated within

Nigeria

20% of funds under

management

Money market instruments of a Bank

35% of funds under

management

The bank must have a minimum

credit rating of BBB by at least 2

recognised rating agencies

Federal Government Bonds 100% of pension assets


26/49


Understanding what is going on in our Markets

Comments have been varied about our data analysis on the trends following regulatoryinterventions and the impact on the Nigerian Capital Market published on Friday

http://www.proshareng.com/reports/2905 necessitating a clarification.

In todays new globalised reality, the level of changes that occur and will occur isunprecedented.

It's a fact that is yet to catch on. In the main, viewpoints on what is happening remainsa perception game, one driven by the understanding ascribed to motives, impact,realities and market ideology.

Well the truth is that, it is a learning curve that only a few have been able to get on topof.

The market downturn in the NCM was less about the intervention by the SEC or theactions of the interim administrator, but much more about the collective inertia of themarket to forward warnings on intended action by the apex regulator.

Whichever way you look at it, the market will continue to be volatile and chaotic.

Why?

1. Volatile because it is tied to the economy's rate of change: extremely fast, withexplosive upsurges and sudden downturns.

2. Chaotic because it mimics the direction of the economy's changes: we're not sureexactly where we're headed, but we are swinging between the various alternatives at a

very high speed.

What can be done in such a situation?

To cope with an unpredictable and increasingly regulatory relevant economy, investorsand organisations must build an enormous amount of flexibility into their operations andoutlook and rebuild their approach to the market to one that is premised on theirability/capability to predict the future; track trends and policy thinking as well as buildcapacity internally for growth and changes to take advantage of change and convertrisks into opportunities.

Welcome to a new market!

It is those that understand this new way of thinking and are able to deploy resources inthat direction that will be able to win in the new marketplace that is now upon us inNigeria.

Traditional thinking has simply been altered and the rules of the game redefined; albeit,in spite of an economic order/agenda to guide one through the maze now concretised.

The impact report therefore simply sought to show how these developments haveexposed the capital markets own slow rate of response to changes, long signposted.

Raising the issue of ethical or ideological disagreements simply has lost traction, though

not abated.


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Some of the actions taken by the regulators its timing, purpose and linkage to theeconomy remain exposed to reasoned and valid objections. Yet, it is in the nature ofelection year economics in these climes to expect that a reversal will not be on thecards.

The new market is shaping up and though questions ranging from whether newregional banks should retain their settlement bank status or not, whether the NSE willregain its illustrious heights again or not, whether it is appropriate to release the forensicaudit or not, whether corporate governance grafts by council members and managementas regards productivity bonuses and executive pay-outs should be refunded or not,whether the monetary policies are the right ones to pass at this time, whether AMCONwill take off this October or not, and whether the CBN actions undermined theintervention by SEC; will continue in private debates the key focus for investors andoperators must be on how fast they get to grips with the changes occurring.

If the rate of external change continues to exceed the rate of internal change/growth, aswe have seen; the market recovery will take longer in happening.

The data roundly confirms that change is here with us; and it has strengthened its holdon the market for tomorrow good or bad.

The action left for debate must now be on the change its frequency and impact on thecorporate rate of internal response.

If this is ignored, the change itself can yield unintended consequences.

For investors, the risk appetite has remained low and it is wise for all to start re-appraising this position.

A good place to start is the interpretation of the tea leaves as this economy remainsprimed for growth and new opportunities.

This however will not happen this year; and the prospects for next year will depend on anumber of factors for which the indices may be better gleaned in the Q4 2010 decisions.

Prepared byProshare Research. All opinions on this page/site constitute our best estimate judgement as of thisdate and are subject to change without notice. Investors should see the content of this page as one of thefactors to consider in making their investment decision. Proshare Limited, its employees and analysts accept noliability for any loss arising from the use of this information. All enquiries should be directed [email protected]


28/49


The NCM The Week After!

"Make us to choose the harder right instead of the easier wrong, and never to be contentwith a half truth when the whole truth can be won. Endow us with the courage that isborn of loyalty to all that is noble and worthy, that scorns to compromise with vice andinjustice and knows no fear when truth and right are in jeopardy." - The "Cadet Prayer"that is repeated during chapel services at the U.S. Military Academy.

PreludeDoing what we know is right - regardless of the risks and potential consequences, iswhat we do best. Yet, last week, we found ourselves in an unusual situation thatchallenged our core values and helped us reaffirm the reason for our being.

The actions taken by SEC last week was a bitter sweet climax to many months (andyears) of expectation that the capital market reforms worked for would take place along

with the anticipated retirement of the DG/CEO of the Nigerian Stock Exchange. We allseem to know about the change, expected it and yet when it came, its interpretationdivided us in ways than we were prepared for.

This was no tsunami yet it had more attributes of a potential trouble, the type thatcomes with lightning during thunder storms. As SEC announced the changes, the fear ofa new order, an order unknown an order that might have shadowy figures yet lurkingin the background as we all so often do in Nigeria helped raised the ante.

The investment community went along various paths - some cross carpeting took placeto align themselves to the new order, some took a stance to defend the old order withsuch words as injustice, usurping of roles, change of cabal etc. to some, they remained

detached and uninterested in the game of musical chairs taking place while a distinctgroup of people took a more principled position that compelled them to speak toconstituencies they hitherto held allegiance to, taking a stance that sacrificed personalgains for the benefit of others.

It is to this latter group that we salute today, one week after. It is our hope that theirefforts in helping the market understand why challenging status quo was and is stillnecessary. They showed that this lies at the very heart of the change we all seek. Thesegroups include professionals in private and public sectors, administrators, editors,financial journalists, analysts and discerning investors.

For if we are to have a market where people seek to do what they know is right,

reasonable and responsible - regardless of the risks and potential consequences; wewould not have been in the situation we were faced with on August 5, 2010.

What happened?The biggest story this year, in the financial market, must be the fundamental corporategovernance challenges that confronted the Nigerian Stock Exchange (NSE).

Rather than deploying capacity to rapidly build-up on the expected recovery from alandmark market downturn, the NSE was beset with a number of personality inducedsquabbles which was, over time, elevated to a corporate integrity crisis in words anddeed gaining daily the appearance of a political-arena type chaos. It had as its leadcharacters - principal players from the ranks of operators, regulators, investors,


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shareholder associations, governing council members, listed companies and theirdirectors.

It was a nightmare scenario played out through litigations, squabbles within thegoverning council and management, the growing influence of conflicted interest groupsand professionals, publication of allegations and petitions with material ramifications for

the integrity of the financial reports of the organisations involved, real and imaginedconspiracy and corruption theories all sustained by a cycle of negative expose and selfinterest commentaries.

Enter the SEC with changes that challenged tradition, but which had at the heart of it,the soul of the market.

The morning AfterThe verdict was clear the entire Nigerian capital market community is culpable!

We recall that this market once ranked the best, delivered the worst YoY return postthe market downturn and such reflective behaviours created tensions requiring an un-

conflicted governance framework and strong leadership to resolve. This was evidentlynot the case and a cul-de-sac scenario emerged.

For long periods during the NSE crisis and somewhere along the way, we simply forgotabout the investor, about the market and about why the consequences that thecommunications that emerged will have on the psyche of the market long after theknives have retreated.

This fight was never about the soul of the market, its growth and future development it was a case of over-massaged egos gone awry?

As we entered the silly season, it appears that some elements angling for relevance and

a share of the post-clash spoils by ensuring that victory is achieved at all cost,whatever that means. Screaming headlines continue to churn the stomach during earlymorning meals with such a sustained cycle of negativity. It is no wonder that the markethas gone on a southward journey again. Yet, hope remains that this will be a blip as are-ordering of priorities and values sets in.

To whose benefit is the continued cycle of negativityThere are more issues-led arguments to be made and should be made to explain theintervention by SEC. We have had access to the leadership of SEC and the NSE on thedevelopments and identified more areas of agreement than differences on thedevelopments so far that encourages us to believe that contrary to the reports in themedia, this sad episode will cease to define us as a people and our market.

Recent news indicate that Ndi Okereke has gone to the law courts to enforce her rightsand she is entitled to do that; just as the SEC is entitled to invoke the public interestrule to justify its actions. Yet, beneath it all and away from the glare of the public everyone involved in the decision process for the market remain convinced that what isbest for the nation, the market and most importantly for investors will emerge.

Not too much meaning should therefore be read to disclosures that only seek to inflamerather than douse the situation. We have entered a new day and we must now turn ourattention to looking at the legacy we seek to establish, not our troubled and challengingpast.


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We have lost a whole lot more than money, we have lost our values along the way and itwill take more than exposes in the press to get it back. It will take a focus on the reformand a shift in the debate towards issues relating to the future we seek being placed onthe front burner.

We cannot afford to embark on this journey by driving with our eyes permanently fixed

on the rear view mirror.

We must never confuse the need for action with the means with which it was achievedand sustained. Most importantly, we must stay focussed on steps to be taken to addressthe gaps that allowed it to happen in the first place, and less on the destruction of theold order an unproductive and self-serving activity that only distracts and alienatesrather than focus and involve.

One thing we must all bear in mind as stakeholders; is the need to avoid emotionaltrips in providing the justification and need for action. For the intelligent, discerning andresponsible, this should not be a difficult task.

Heard on the Streets What is being saidThe following represent a typical morning after review of the developments so far.

1. it was very appropriate for the SEC to intervene and initiate an independent inquiryinto allegations

2. against the NSE and its management;3. against Alh Aliko Dangote/Nova for the price manipulation allegations made by the

shareholders of AP Plc;4. against Femi Otedola and the Board of AP Plc made by AP Plcs Finance Director.5. the SEC, for the sake of precedence setting implication must review its application of

the ISA to effect a removal, not suspension before a fair hearing ; a trap situationthat challenges the principle of natural justice and fairness;

6. a review of the SRO status of the NSE along with the gaps identified in its Memartvis--vis the ISA Act to address the situation the council of the stock exchange founditself.

7. for SEC to allow the owners of the NSE put in place a transition council to work withits interim administrator to quickly deliver the succession desired; and

8. to comment on the plans for change at both the SEC and NSE.Closing thoughtsMake no mistake about it, we believe and support the need for action and a far reachingone beyond cosmetic platitudes at that. A complete clearout is within our minimumexpectations. The NSE, it appears will benefit from a new direction and a change inleadership. Proshares NCM 2009 issued in February 2009 calling for changes at the CBN,

SEC and NSE was very clear on this point.

We however demand from regulators and stakeholders to raise the level of engagementand discourse away from the crab paradigm to one that understands the place of thelaw, its deficiencies and the precedent-setting nature of the action taken. We have aneed to help the process by looking at our laws - identifying the gaps that allowed forsuch hostage situations we found ourselves after the court judgement that fore-shadowed a sole administrator-type situation.

In this process, we would expect that members of the capital market reform committeethat delivered the template for change will and should step forward to share with us theirvision of tomorrow.


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Such conversations and debate will be more productive and enlightening than thebarrage of negativity and headlines, which is best left for the evening soaps on cable TV.

The unanticipated corporate leadership and integrity failure of the council/board for theNSE as we witnessed must never happen again. Though this development appears tohave been exacerbated by the court decision, buried at its very root, is a series of

personal failings which conflicted and compromised corporate responsibilities and publicinterest. Though a private sector establishment, unlike others the NSE has a huge publicinterest responsibility that should never be treated with levity.

We are better than this as a people, even better as men and women of pedigree. Has itgotten so bad that we choose to dance naked in the streets, yet tell our kids not towatch or repeat same? We can deal with this matter decisively in less than a week if weare truly change-led.

The market is out of this crisis if we all allow it. The lessons and imperatives from theevents over the past week are as follows:

1. That change will never be easy and that benefit of hindsight also brings about arevisionist approach to history from even the most value driven professionals:

2. That when we choose to act as a people we are capable of achieving impossible andhave demonstrated that we have the intellectual capacity to identify issues in ourcapital market and the courage to take far reaching actions that are usually heldback due to political meddling;

3. That the NSE, now willing to take complete responsibility for their actions...andmistakes; should be encouraged to see themselves as part of the new phase , if onlyfrom a shared learning perspective;

4. That the SEC under Arumah Oteh now deserves our support without the abdication o

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Q3 2010 commentaries on the Market from Proshare

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