Govt Raises Minimum Fund Portfolios For Capital Market

Govt raises minimum fund portfolios for capital market
By Gbenga Agbana

The Minister of Finance, Mrs. Esther Nenadi Usman who announced the new minimum capital requirements, also approved a reduction in transaction costs in the capital market by about 40 per cent.

Under the new capital base regime, which takes immediate effect, the minimum paid up capital for issuing houses has been increased from N150 million to N2 billion, while broker-dealers' capital base has been increased from N70 million to N1 billion.
Clearing and settlement agencies are now to have a capital base of N1 billion up from N500 million while registrars are now to have N500 million, up from N50 million.

Underwriters, who before now had a minimum capital requirement of N100 million are now to have N2 billion, while that of fund/portfolio managers has been increased from N20 million to N500 million. That of corporate sub-brokers with a current capital base of N5 million was increased to N50 million.

The Finance Minister also announced a new minimum capital base of N2 billion for market makers.
However, some operators are not affected under the new regime. They include stock/commodities exchanges, capital trade points, commodities brokers, venture capital managers and individual investment advisers.

Others are consultants (individuals and corporate), rating agencies, corporate investment advisers and trustees. The decision, according to the minister, is to encourage a smooth take-off of these relatively new areas of capital market operations in the country.

Following the approvals, the Securities and Exchange Commission (SEC), has given existing operators up to December 31, 2008 to comply with the new capital requirements either through capital increase or mergers/acquisitions adding that no extension of date will be granted.

Usman also approved an 80 per cent mandatory underwriting for Public Offers and a code of conduct for shareholders' associations in the country.

By the approvals, average equities transaction cost in the primary market, which currently stands at 6.92 per cent, has been reduced to 4.32 per cent, while transaction cost on bonds has been reduced from 7.03 per cent to 4.79 per cent.
In the secondary market, total transaction costs on equities have also been slashed.

For instance, equities transaction cost on the buy side has been reduced from 4.07 per cent to 2.36 per cent, while the commission on the sales is now 2.65 per cent from the earlier cost of 4.12 per cent. This took effect from yesterday.
Besides, underwriting of all offers has now been made mandatory and all Public Offers and Right Issues will henceforth be 80 per cent underwritten.

This, according to SEC, is to reduce the incidence of under-subscription and ensure that the issuing houses and stockbrokers have higher stakes in the issues they bring to the market.

I don't think this is a good idea, all they are doing is making competition harder for small beginners, and as result encouraging monopoly, or putting the market in the hands of selected rich few.

Why not get the govt to encourage some kind of insurance backing such like F.D.I.C here in the States. Also to regionalize the program for companies that do not have a lot of assets or that are just starting up until they can raise enough capitals, that way it would be regulated and the small companies too would have a piece of the pie. There would be more competition, better services and more employment.

That's not a problem this is information era, any company that does such thing would be researched caught and fined/sanctioned big time. The companies that don't have large capital can be regionalized, so that they can be able to practice their business. Once they raise enough capital to meet the government minimum equity requirement to expand nationwide, then let them be. that way there will be fair opportunity for competition and everybody would be able to work. Then let the best company win.