By Chinwendu Obienyi
The impact of transaction cost in stock markets all over the world cannot be over emphasized as it could restrict growth of the financial sector when it is on the increase and curb excessive short term trading when it is decreased.
The Nigerian Stock market has been struggling with exorbitant costs and penalties, which constitute impediment for operators as well as companies wishing to list their shares.
With 90 companies delisting in 15 years, the situation has become so devastating that already listed firms are looking for excuses to delist from the exchange.
With the sell-offs that have characterized the Nigerian equities market in recent times, except for the recent rally where the Nigerian Stock Exchange(NSE) index rose by 0.54 per cent and market capitalization hitting N12.69 trillion last week Tuesday, there are concerns among market watchers that transactions in equities might return to what was witnessed during the bleak periods.
The question operators and other stakeholders have continued to ask has been on the possibility of turning around the market as this is important in order to encourage new listings, raise capital and woo new investors.
Speaking to Daily Sun, President, PEARL Awards, Taiwo Orekoya, explained that the reason behind poor competition between Nigerian and Foreign Companies was down to huge transaction cost.
“Nigerian companies cannot compete favourably with their peers on the global stage because cost is huge and this has to be addressed by the regulators so as to pave way for investors to come in because they can predict the direction in which the market will be going”
Chief Executive Officer, National Competitiveness Council of Nigeria (NCCN), Chika Mordi, stressed on the need to lower transaction cost in order for the economy to sustain its recovery.
“One of the cause of business mortality in Nigeria is high transaction cost, if you take a peek in other countries, they have reduced transaction cost, so if we can lower transaction cost, production will increase and the market will continue growing”, he said.
However, Chief Executive Officer (CEO) Highcap securities, David Adonri, called for caution in reducing the cost as it could affect the functionality of market operators.
“Cost is important, so if cost is reduced it will be a source to attract investors but there is a limit to what we reduce in transaction cost otherwise it may drive operators away from the market. If cost is reduced it will be to the advantage of investors but the cost of doing business in Nigeria is high, so if cost is seriously reduced, then it may affect the capacity of the market operators to function so it is an area that has to be taken with caution”, he explained.
Before now, the Director General, Securities and Exchange Commission, Mounir Gwarzo, while addressing the media during the commission first’s quarterly Capital Market Committee (CMC) meeting, said that transaction cost in Nigeria is higher than in other countries, adding that measures had been put in place to ensure a reduction in both the explicit and implicit cost of transactions in Nigerian capital market.
His words: “We looked at the issue of transaction costs in which some issuers have been complaining about in which the cost have been discouraging them from accessing the capital market and we looked at the big cost areas, the issuing house, the NSE, SEC, receiving agents, advertisements and publicity and we agreed that based on the formula developed by the market, there must be a cut”
“Even though SEC has limited resources, because of our commitment for the development of this market, we have agreed to also shed weight. NSE has also agreed to shed weight and issuing houses also have to shed weight as well. So we agreed collectively on the formula and it will be implemented very soon”, he said.
Corroborating, Former President, Chartered Institute of Stockbrokers (CIS), Ariyo Olushekun, said there is effort from SEC, NSE to look into the issue.
“Already the authorities are in the process of reducing the cost. There is a market wise initiative or effort to reduce it. A committee involving SEC, NSE and market operators have been set up to look into it and in the meeting they have submitted proposals and reports on what should be reduced from everybody, so I think it is something that will come up soon”