points out, with the Lagos All-Share

A Post-Mortem of the Meltdown of the Nigerian Stock Exchange: Are Weak Regulatory Frameworks and Corrupt Officials to Blame? May 2009 Vol. 22: Issue #5
Barely four years after garnering global acclaim as a top performer, the Nigerian Stock Exchange (NSE) has declined in dramatic fashion as to raise legitimate questions why things went horribly wrong. Of course, much may be said about the global financial crisis and its impact on emerging markets such as Nigeria. However, there are serious reasons to believe that beyond the effects of global fiscal crisis, structural defects in Nigerian regulatory institutions and perhaps, corruption of institutions and officials charged with overseeing the capital markets may have contributed significantly to the

Index down 27.5 per cent since January 1, (the worst performing equity index in the world so far this year) and in addition to the 9.2 per cent drop in the value of the local currency, investors lost at least a third of their investment in one month. In fact, in March 2009, the All Share Index suffered 37% depreciation. Standard & Poors, an international rating agency, had in its report rated Nigeria’s economy as having slipped from “stable” to “negative” condition.
Investors could not have done worse by investing in the Nigerian stock market.

Analysts are agreed that the stock market meltdown is fast exerting a systemic risk to the financial sector thereby squeezing liquidity beyond expectation. Clearly, the problems at the Nigerian Stock Exchange cannot be attributed solely to the global financial crisis. The more likely scenario is that systemic incompetence and perhaps, corruption gave rise to a temporary facade of success which gave way to harsh realities as the liquidity crunch hit the markets.

implosion of the Nigerian stock market. The statistics are indeed sobering: in five
years, for example, market capitalisation rose from N1.96 trillion to N13.3 trillion and collapsed to about N4.8 trillion by April 2009. In the same vein, the NSE All Share Index dropped from a high of 65,000 points to 21,451.00. As the latest


©Blackfriars LLP 2009. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.

WWW.BLACKFRIARS-LAW.COM Taken a step further, analysts IPOs conducted by many


SEC, Mr. Musa Al-Faki. In a culture where public officials hang on to their powerful offices, Mr. Al-Faki’s hurried departure and immediate replacement speaks volumes. Indeed, one prominent that the and newspaper “reported Exchange

increasingly suggesting that the various quoted companies, especially, banks in the last five years may have been rigged. For example, it was not unusual for banks to organize 2 or 3 IPOs within 24 months with each IPO generally declared to be “successful”. If an IPO was as successful as members of the public were made to believe, why would the same quoted company head back to the public to raise funds within so short a time?

editorialized of the

disengagement of the Director General Securities Commission (SEC) Mr. Musa Al-Faki is a welcome development in the process of a sober re-evaluation and of of the procedures persons

Banks constitute 65 percent of market capitalisation in Nigeria. Allegations of
rigged accounting records for IPOs may perhaps have elements of truth to them. On price manipulation, investors are said to have lost about USD900 million amidst allegations of price manipulation in two quoted companies.

superintending the Nigerian Capital market.” Considering that the departure of the SEC helmsman is with immediate effect and the Minister of Finance promptly accepted his resignation, it is fair to surmise that the SEC helmsman was pushed out of office in the wake of the calamitous decline of the Nigerian capital markets. In this regard, the Securities and Exchange Commission and NSE ought to be scrutinized. As a recent newspaper editorial argued, “the principal object of the SEC Director General duty is daily supervision and development of the Nigerian capital market and that is the yardstick to measure his performance over time. The Act Investments empowers and the Securities

In the wake of recent disclosures of unwholesome dealings, insider dealings, and price manipulations by some quoted companies on the Nigerian Stock Exchange, the time has probably come for a rigorous post-mortem of what went wrong in the Nigerian capital markets. Serious concerns about the perceived weakness of regulatory institutions concerned with Nigerian capital markets boiled to the surface recently in the barely concealed relief expressed by the media and stakeholders in the capital markets at the departure of the Director-General of

©Blackfriars LLP 2009. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.


Commission, so formidably, in the regulation and enforcement of the Securities business, oversight of venture capital, commodities and futures

the operator (NSE) to the regulator of the market (SEC). A key step in this regard is that the clubby attitude at both SEC and NSE should be dismantled without further delay. Similarly, the recruitment process at both SEC and NSE needs to be revisited. A cursory survey of the SEC board of directors and management shows a deficit in modern professional capabilities. For further inquiries, please contact: Dr. Virtus Igbokwe Tel: Email: +234 802 220 4755 Virtus@blackfriars-law.com

exchanges that its helmsman will be very hard put in search of excuses for under performance. When it mattered most, it was apparent that both the Commission and its officials were inadequate in capacity and gravitas.” The current meltdown strongly suggests that share prices could not have been manipulated without the connivance of perhaps some officials at the regulatory institutions. Now that we know that the fundamentals of a prosperous stock exchange were simply not in place to justify the to phenomenal investments “profits” in the attributed

Fax: +1 646 536 8978

Nigerian Stock Exchange, more needs to be undone to unravel some of the murky transactions at the NSE and SEC in the past seven years. The sanctimonious Stock posture Exchange of the
This newsletter has been sent to you by BLACKFRIARS LLP, a full-service law firm, in the genuine belief that its contents would be of interest to you. If you have received this newsletter incorrectly, or if you do not want to receive further information about legal developments in Nigeria and West Africa, please accept our apologies. To unsubscribe from future newsletters from BLACKFRIARS LLP please send an email to info@blackfriarslaw.com with "unsubscribe" in the subject line.



shielding itself with the toga of a private company operating as a self-regulatory organisation has worn thin. When a duly convened post-mortem takes place on the capital market crisis, be an an important subhead would

examination of the utter disrespect of

©Blackfriars LLP 2009. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.

Sign up to vote on this title
UsefulNot useful