MR. Oscar Onyema assumedoffice as theChief Executive Officer of the Nigerian Stock Exchange (NSE) in April, 2011. He holds an MBA in Finance and Investments from Baruch College, New York City. He bagged his first degree in Computer Engineering from Obafemi Awolowo University, Ile-Ife, Nigeria. He had served for about 15 years in United States financial markets and was a Senior Vice-President and Chief Administrative Officer of American Stock Exchange (Amex), which he joined in 2001. Onyema in this interview with MOSES EBOSELE, bares his mind on the state of the Nigerian capital market and moves being made to sustain investors' confidence. Excerpts.What is the present state of the Nigerian Stock Exchange (NSE) from the period you assumed office'When we came in, the Exchange was in some turmoil. It was just recovering from the financial meltdown. We still had issues because it was an interim administration. If you compare that with the current situation, we have a calmer market place that has transitioned away from an interim administration to a permanent one, with investors beginning to trickle back into the market and also the market participants have a lot more certainty as to the future of the market place.You said investors are returning to the market. What are the factors driving this process'There are a number of factors. Some are within our control. Some are not. Those within our control include setting a clear agenda and a clear vision as to where we want to take the market to in the next five years. It also includes us (NSE) beginning to execute on that plan. Some of the things that are outside our control were the legal issues regarding the presidency of the council. It has been resolved and we have a new President, Alhaji Aliko Dangote.A number of the issues that we were dealing with that are outside our control include things like monetary and fiscal policies; and government activities in various areas like privatisation.What do you have to say to investors who are not convinced by the efforts the present management of NSE is making to boost transactions'The message I have for investors that are not convinced is that the regulatory environment today is a much more stringentone. Stringent regulations are now in place to make sure that we provide a level playing field that is fair and adheres to just and equitable principles of trading.The investors also need to be educated about the risk associated with the market before coming in. I will not tell anybody to jump into the market if he or she has not done enough homework. Such prospective investors need to do some analysis. They need to do proper portfolio construction and diversification across assets classes and within an asset class so that they can build what we call 'bullet proof' portfolio.We also believe very strongly that for those investors that do not have enough fund to construct that type of portfolio should access either mutual funds or unit investment trusts that are managed by professionals and that can give a similar type of diversification with smaller investment fund.That would be my message to investors. We have greatly improved regulations. They need to do their homework before coming into the market.On your part, what are you doing to educate the investors'The NSE is doing a number of things. We have an investor clinic programme. We had one earlier in the year and we are planning to have another one before the end of the year. That programme is directed at high networth individuals that have enough funds to actually do proper portfolio construction. We are embarking on a number of programmes through our branch network. We have 13 branches. We are collaborating with different agencies of government to use our branch network to reach retail investors. We have also engaged on individual discussions with institutional investors to educate them on the things we are doing as an Exchange and the direction that we see the market going and to take their questions or address any concern that they might have about coming back into the market. This includes both local and foreign investors.The first investors' clinic was held in Lagos. Where are you going to hold the second edition'I believe the second one would probably be in Abuja.Why Abuja'We want to spread the clinic to reach as many investors as possible. We are also looking at the activities being generated in the market place. After Lagos, Abuja is the next most active branch. We will take it like that.What is the update on the appointment of market makers'You will recall that on April 4, this year, we announced 10 market makers. Since then, we have been working with them collaboratively to fine-tune the programme and to launch it. We are very close to its launching. We have addressed a number of issues identified, including coming up with an appropriate fee structure, addressing the question of securities lending.The Securities and Exchange Commission (SEC) has appointed a number of securities lending agents. The operational issues around using the system for clearing and settlement have been addressed. What we are now planning to do is to have one workshop for all participants and all stakeholders to bring them up to speed up on how it's actually going to work. This is market making, securities lending and short selling. Once we have done that, we can start rolling out the programme.Some shareholders' groups recently accused you of concentrating more of your time on foreign investors. What is your reaction to this'What we (NSE) are trying to do is use the meager resources that we have to effectivelyattract as many investments as possible into the market place. About 70 per cent of market activities are driven by foreign investors. Can you imagine what the market will be like if we did not have the activities coming from the foreign investors'When we talk to investors, we are talking to portfolio managers that manage millions and billions of dollars and have exposure to African or emerging or global emerging markets. We have engaged locally with Pencom, PFAs (Pension Fund Administrators) who are institutional investors. We've had breakfast sessions with the private equity firms. We are now doing an outreach to retail investors through our branch network. We understand that there arequite a number of shareholders associations. We have actually gone and spoken at some of their conferences.However, we cannot cover all of them. We are also very mindful that we interact with those that are registered by SEC and have good reputation. We cannot speak with everybody especially if we are not convinced that it would materialise into significant inflows into the market right away. We are certainly talking to as many people as we can and we will continue to do that.What is the update on the reported plans to demutualise the NSE'Demutualisation is a process by which you convert from being a company that is limited by guarantee to a company that is limited by shares. When a company is limited by shares and is run as a profitable company, it must, as a matter of necessity, improve its efficiency. It has to improve its governance processes and get the flexibility to do certain things like raise funds outside of the banking system. So, there are many advantages for the Exchange to be demutualised and there is no time that is perfect for demutualising. A lot of people confuse demutualisation with doing an IPO (initial public offering).You can be a demutualised Exchange without being listed or doing at IPO. At the appropriate time, after the Exchange has been demutualised, it would consider the best route to maximising its value.So, you can demutualise, do an IPO immediately, you can demutualise and do a strategic investment, you can demutualise and do a private equity investment, you can demutualise and do nothing and just be demutualised. There are many models out there, but at the end of the day, what we want to do is create value for the owners of the Exchange. We will be looking for the options that help us to maximise the value of the Exchange in the long run.When is the effective date for demutualisation'Demutualisation is an ongoing effort. Right now, there is a process for the SEC to give us a framework under which we can demutualise. You can't demutualise if there are no rules about how you would demutualise. That effort is ongoing. We are aware that there was a technical committee that SEC appointed. It actually submitted its report to the SEC. We are waiting for the outcome of that activity so that we can then have a framework within which to demutualise.Is NSE making effort to join the World Federation of Exchanges (WFE)'The World Federation of Exchanges is the gathering of a number of Exchanges around the world that meets certain criteria. Nigeria has not formerly applied to become a full member because you have to actually have a good chance of being accepted. We are an affiliate member of the WFE. We are now trying to transit to become a full member of the WFE.I was at their meeting last year (2011). We met with the head of the association and he gave us a number of things that we have to do in order to be able to apply. We are working towards those things in order to apply. When you apply it's not a process that end in months. Its going to be a two or three year process, after you formerly apply.Being a member of the WFE puts you within your peers, it gives you the kind of credibility that large Exchanges around the world have. There are some funds that would only invest in Exchanges that are members of the WFE.There are also certain other benefits like mutual recognition in terms of regulation across different jurisdictions that also come into play.How far have you gone on thenew trading platform scheme'You will recall that earlier this year, we signed a contract with NASDAQ OMX to supply us with X-stream platform which is a next generation platform that has an open architecture and that would allow us to connect seamlessly with the broker dealer community and with other market participants. It also brings with it a more modern workflow and would support a number of the products that we are planning to roll out into the market.We are now ready to test. We are moving towards the right direction. We are looking to roll out the system next year.The Christian Association of Nigeria (CAN) recently criticised the introduction of the Islamic Index. What is the present situation with the initiative'The index is really tracking a number of companies that are already listed on the Exchange, that are Sharia compliant, that don't manufacture alcohol, tobacco and things like that. What that index is meant for is to attract a new type of investors. Investors that do not participate in the market because they don't know if they would be able to invest in compliant companies.It's a lot of efforts to actually determine what is a compliant company. We are anticipating that people that want to make that type of investmentare allowed to participate. It's not limited on religious ground. We have a lot of Christians that participate in companies that are on that index.The other thing I want to say is that the Islamic index is available in all developed markets. The New York Stock Exchange has it. London Stock Exchange has it too. These are Exchanges in countries that cannot be said to be Islamic countries. We are moving with the times. We will support any product that gives investors the opportunityto invest in the market and give our market operators another tool to do their trade.How would you describe the creation of the Assets Management Company of Nigeria (AMCON)'I think the creation of AMCON is a very good thing for Nigeria. They have been able to come in and clean the banking industry by buying the non-performing loans of a lot of the banks and have been able to restructure some of these loans and even recover some money.They also issued bonds, which have been listed on the Stock Exchange and we will continue to work with them to see how we can move this market forward. By and large, it'sa good thing for the Nigerian economy.You can see a number of other countries like Spain and members of the EU (European Union) beginning to look at this model as a way to get them out of their problems.There is an ongoing discussion between NSE and telecommunication firms on the possibility of them listing their shares. Are they responding'We have not made significant progress in that area. We will continue to engage the companies and the policy makers. We believe that there needs to have a package of fiscal incentives to make it compelling for not only the telecommunications companies but all big companies that have economic impact to list.Also, there should be a level of fiscal incentive foregone if you do not come to the market. It's a balancing act. There are many countries that have addressed the issue in different ways.Kenya, for example, gives lower tax rate if you are listed on the Exchange. That would be an example of a way to address the issue. We haven't had one yet that is prepared to list.Some critics are of the opinion that firms which did not meet post-listing requirements should be engaged instead of outright delisting.The delisting process is a very long process. We started by engaging the companies. We exhausted the avenue of engaging the companies. We got our council involved and once the decision is made to delist, SEC was informed.If you look at the list, most of them are moribund companies. They haven't reported their financials for years. Some of them have not been in operations for years. We have been very careful to make sure that we are not delisting just for the sake of delisting. We do have rules that they have to comply with. We have a responsibility to make sure that we are enforcing our rules.So, if the shareholders are really interested in these companies, they should engage the companies and make them comply with our rules.The Exchange supports retail shareholders. We want them to do well. We noticed something last year when we started analysing what went wrong during the market meltdown. A lot of retail investors did not take into consideration the risk of the market. A lot of people invested in the stock market as if they were putting deposit that will never go down in banks.A lot of people bought shares of companies that they have no clue what these companies were into and they did not understand whether they were viable companies or not. A lot of people got their fingers burnt. A lot of people that we have gone to have vowed never to return to the market. Why' Because they got their fingers burnt. We cannot stand aside and allow them to get their fingers burnt again.If you really want to participate in the market, you must take into consideration risk. You must factor in risk and in order to reduce your risk, you must invest in securities and in asset classes that do not have full correlation. The level of exposure to each asset class will depend on your risk tolerance and how old you are. Lifecycle investing is very important. If you are younger, you have the capacity to be more aggressive in taking risks. If you are older, you don't have the capacity because the time that it will take you to recover may be so long that you will be in your retirement years.That determines the assets that you would have exposure to. If you have not been educated on asset management, you would not know what to do, how to structure your portfolio and that is why we are doing investor clinics for individuals who have enough money to actually create a balanced portfolio.For retail investors that do not have enough money, what we suggest is for them to take advantage of mutual funds or Exchange Traded Funds. You can use small money to have exposure to a number of companies that help to reduce your risk.I'm talking of mutual funds managed by professional money managers. They are paying attention to the market on a daily basis and are able to make adjustments as needed. They should consult professional managers. In most developed markets, they use experts. Every job has specialisation.
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