The Federal Government today revealed plans to resuscitate the Nigerian capital markets. The Coordinating Minister for the economy and the Finance Minister Dr. Ngozi Okonjo-Iweala, on her Facebook page, announced two measures aimed at giving impetus to the nation’s bourse.
The first measure is a forbearance of about N22.6 billion on the margin loans of 84 stockbrokers, in accordance with Section 6(5) of the AMCON Act. In effect, AMCON is set to absorb the margin losses of stockbrokers. The minister however, stated that forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future.
These sanctions include:
•Prohibition from services to AMCON: Brokers benefiting from forbearance will not be allowed to provide any professional services to AMCON for a period not less than 3 years;
•Greater Disclosure: Firms will be required to reveal to the Securities Exchange Commission (SEC), any dealings in any security valued at a minimum of N25 million executed in a single deal or multiple deals on the same day on behalf of their clients;
•Limit on Debt Financing: As part of their net capital requirement, no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 percent of his net capital;
•Report to Credit Bureaus: details of the firms will be forwarded to the Credit Bureau Agency;
•Use of Custodians: A strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians; and finally,
•Trading Restrictions: The brokers will be prohibited from taking proprietary positions or trade on their own account for one year.
The minister further noted that the good standing of other stockbrokers who did not partake in any market infractions, including over-exposure to margin loans, and who managed their stockbroking businesses well will be celebrated.
The second measure is the elimination of stamp duties and VAT on stock market transaction fees. The minister noted that Taxes on stock exchange transactions fees are as high as 12% (5% in VAT and up to 7% in stamp duties) –much higher than in other jurisdictions, and these constitute a major disincentive to invest in the Nigerian capital market. According to the minister, the Federal Government has consented to:
•Waive the 0.075 percent stamp duties payable on stock exchange transaction fees; and,
•Exempt from VAT, commissions: (a) earned on traded values of shares, (b) payable to the Securities and Exchange Commission (SEC), and (c) payable to the Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS); by including these commissions in the list of VAT-exempt goods and services.
In her closing remark, the Minister thanked the Moghalu committee for their work, and also re-emphasize the government’s renewed commitment to making Nigeria’s capital market one of the most vibrant markets in the World.