High transaction costs at NSE pull liquidity to OTC markets

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2014

By DAN BATURE

ARRAYS of transaction fees gazing at prospective issuers and dealing members at the Nigerian Stock Exchange (NSE) constitute a major clog to the market’s growth while it fuels liquidity at two fast growing Over-The-Counter (OTC) markets, National Daily checks showed.

Dealing members see the relatively high cost of transactions on the Nigerian Stock Exchange as discouraging companies from listing or even remaining listed, thereby forcing the Exchange into catch-up to attract the needed liquidity that impacts securities pricing.

“The Stock Exchange is a place that automatically many issuers will want to come because they want to list so as to mobilise funds for business growth, but if you are putting the horse before the cart like the NSE does, it will not work,” said an executive of a company that had proposed NSE listing.

National Daily findings on the NSE fee structure in its“green book” shows an array of fees like NSE fees, CSCS fees, SEC fees, Value Added Tax, Stamp Duty, and Brokerage Commission all these exclude securities-tied fees also payable by the listing or delisting corporates.

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“Today, if you want to increase your capital or want to be a publicly quoted company, you deposit more money. What is the reason for that? Why squeeze a company that shows readiness to share its profit with the general public?”, our source further asked.

Currently, Nigeria’s capital market boasts of two fast growing Over-the-Counter markets the NASD OTC Securities Exchange for unlisted securities and the FMDQ OTC Securities Exchange for Fixed Income and Currency.

These two markets since their take-off have succeeded in breaking the supposed ‘monopoly’ which the NSE had hitherto enjoyed, which also boosted its revenue.

For instance, issuers of government/ corporate bonds at the NSE are faced with application fee of 0.15percent of the value of the bond, listing fee, and CSCS eligibility fee of 0.0125percent.

Meanwhile, the FMDQ latest fees and dues framework shows bond application fee of 0.075percent of Face Value (FV). In this same market, companies who issue Commercial Papers (CPs) pay only registration fee of 0.0750percent of face value per annum for new listing and 0.0375percent per annum of face value as registration fee for CPs roll-over.

Further check at the NSE shows the application fee for funds (memorandum listings/ unit trust) at the NSE is 0.3 percent, though listing fee is not required as well as the CSCS eligibility fee.

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For companies (those that did Private Placement) that are intending to list by way of introduction at the NSE, they are faced with application fee of 0.3percent of share capital Pre-Private Placements at Par (50k). This is in addition to 0.3percent of Private Placement share cap at Private Placement Price.

For companies who did not do private placement, their Application Fee is 0.3percent of Share Capital at Par of 0.50kobo. This is in addition to listing fee as accruable to all parties in the market and CSCS eligibility fee of 0.0125percent at listing (based on listing price).

The NASD OTC Securities Exchange for unlisted securities has become a growing platform for investors in some of the companies that did private placement that should have resulted to listing on the NSE.

National Daily check on schedule of transaction fees at the NASD OTC Securities shows that Brokerage fee is capped at 1.35percent of consideration subject to a minimum charge of N500.

The total fees accruing to either selling or purchasing unlisted securities are: 0.50 percent of the consideration for NASD; 0.20 percent for SEC; 0.20 percent for CSCS; and 2.70 percent for brokerage.

At the NSE, companies considering IPOs, Rights, Placing, ETFs, M&As are faced with application fee of 0.3 percent of market cap / scheme shares, as well as listing fee as tabulated by the NSE. This is also in addition to the CSCS Eligibility Fee of 0.0125percent.

“The NSE would benefit from some sizeable new listings, and in sectors barely represented on the exchange. In time there should be some good news from the restructuring of the NNPC,” the Gregory Kronsten-led team of market analysts at FBNQuest said recently.

The analysts said the Nairobi Stock Exchange has benefited from the disillusionment of the foreign player with Lagos, particularly the dedicated Africa funds which have limited investment destinations.

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“Lagos is the worst performing of the three African indices we intermittently track. Its all-share index recovered from a low of -21.6percent year-to-date (ytd) on January 19 to close the month at -16.5percent, and further to -9.3percent as of Friday.“The pick-up in the NSEASI since the beginning of March tracks that in the crude oil price.

Trading values have been pitiful this year on the NSE and averaged $11.6m ytd, compared with $26.6m in the same period of 2015. This can be explained in good measure by the dramatic loss of buying interest from the offshore portfolio community in response to the slowdown in growth, the CBN’s exchange-rate policy and acute fx shortages,” FBNQuest analysts noted.

At the NSE, companies issuing bonus are faced with CSCS eligibility fee of 0.0125percent calculated based on closing price as at date of Annual General Meeting (AGM).

For companies targeting listing on the NSE Alternative Securities Market (ASeM) which is designed to attract growth companies, they are confronted with application fee of N100, 000 flat or equivalent; listing fee of N200, 000 flat or equivalent and CSCS eligibility fee 0.0125percent.

Companies who intend to delist from the NSE are also faced with delisting fee of 0.3percent of Market Cap of minority shareholding only, which is calculated based on the highest market price within the last six months.

The NSE “green book” shows that its annual listing fees for equities are graduated based on market capitalisation to a maximum of N4.2million or its equivalent for the main board only; and other securities in respect of which listing is maintained inclusive of nominal transfers maximum of 2.75percent of consideration or its market capitalisation whichever is higher.

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