NSE Transformation on Course, Leverages Technology to Deliver on Set Goals

September 23, 2011

In February 2010 at an interactive session with the media, The Director General of the Securities and Exchange Commission (SEC) Ms Arunma Oteh said her immediate priority in the transformation of the nation's capital market would be to restore investors' confidence as well as implementation of the zero tolerance policy on sharp practices in the market. Since then, a new CEO and executive management team has been put in place and the NSE has since taken a number of steps to restore local as well as foreign investors confidence in the market and is currently working on introducing new products in the market. There is now a growing optimism that when the economic and market environment steadies, companies from sectors such as power, upstream oil and gas, telecom and agriculture would choose the equity route to raising capital, thereby increasing the breadth of the NSE. Proshare NI sought to find out more about these changes and the drivers. In this interview with Boason Omofaye of MBC News and Proshares News Editor, Temple Asaju, Mr. Adeolu Bajomo, Executive Director, Market Operations & Technology, of the Nigerian Stock Exchange discusses issues relating to the transformation programme, market confidence, demutualisation, rules & regulations, the restructuring, the deployment of technology in revamping the processes and trading floor at the bourse.

Mr. Adeolu Bajomo, Executive Director, Market Operations & Technology, of the Nigerian Stock Exchange

Q: The Stock Exchange has stepped up the importance of technology to drive its operations more efficiently, what does your portfolio entail? The Market Operations and Technology function within the stock exchange ensures that the bourse is up and running on a day to day basis. As you know in the Nigerian market we actually open at 9:30am and close at 4:30pm. So our people make sure that the market is up and running on time, at all times; as they manage our technology and interfaces which are made available to all our customers.

Q: How efficient is the trading platform of the bourse in handling not just existing equities but planned innovations announced by the CEO such as options, fixed income securities, treasury bills, etc? Thats quite an exciting subject for us really, and in fact we are embarking on a significant number of initiatives to actually move up our Exchange. If you look at the current trading system we have got, it is been with us for over ten years, but I must say it is still a very capable system in terms of the volumes we are seeing, in terms of peak volumes. When the market picks up, that same system is still capable of handling the trading volumes.

Q&A with the Adeolu Bajomo, Exectutive Director, Market Operations & Technology of the Nigerian Stock Exchange - 230911

But things have moved up and what we have to do in the Nigerian Market is to actually change and enhance the experience of the customers and the stakeholders that are actually operating in that Market. So any Technology change has to look at transforming that experience efficiently - it is has to be within the end-to-end context and the trading engine is only one part of it. So we are embarking on a program which will actually do three things. The first part of that program is - we want to bring a very strong powerful matching engine for quite a number of reasons. We need to introduce new products and we need to have a system and a trading engine which allows us to introduce new products in a very flexible manner and a very responsive manner one that will allow us take those products to the market in a very quick robust process. So that is one part of it. The second part of it is that the interface between the participants of the market has to improve. When the old system was introduced, there was a major transformation from the call-over trading which is paper based (and that was one big job). Now we have moved far beyond that and we are now talking about interfacing pre and post-trading systems into the core-engine and thats the next level of transformation the market has to go to. Clearly, the European Markets, the American Markets and the Asian Markets have actually embarked on this level of transformation and this is probably a new thing in Sub Saharan Africa, perhaps, except for one or two Exchanges, but something we feel is very essential for the Nigerian market is that, not only will it enhance our trading, it will actually ensure that customer experience actually is better. If you are buying shares today you should be able to put your orders in, where it flows in automatically from your broker into our system, you get the confirmation back and the shares are registered in the right places with the custodian as well. That is the level of transformation we are talking about.

Q: (moves on) Lately, the media has been abuzz with news about an impending restructuring of the market. Specifically, it has been said that the exchange wishes to streamline the number of sectors from 33 to 12 along industry segmentation lines. Who would this flow into the new trading technology that is being put together? Yes! The new industry sectors that we have actually enabled, and the sub-sector as well is quite important because if you look at where we are today we have got thirty-three (33) sectors in the market with about over 200 shares listed and that is a lot of sector for anybody or any analyst to follow. So by actually simplifying this I think we actually offer a better focus for the companies which actually operate in the Exchange and we give people who want to restructure their portfolio a very tangible method of restructuring their portfolios as well. If you look at part of what is happening today in terms of Investor Education, many people buy one share or two shares and if these shares go down thats where they stop and most investors just freeze and hold on to it hoping and thinking it will go back and in some cases it does. But by actually going on to sector analysis and actually advising Investors, which we hope the Analyst and Broker Community will do; it actually offers them the means of spreading their risk across a number of sectors but also looking at both liquid, illiquid, shares that pay high dividends and shares that are growth-shares... So we want to introduce that level of Investor Education, which will allow people to build more robust portfolio and these are some of the many steps, which we want to put together.

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Q&A with the Adeolu Bajomo, Exectutive Director, Market Operations & Technology of the Nigerian Stock Exchange - 230911

Q: Is there a correlation between this new market segmentation and the economic agenda of government, nay the nations economic outlook and structure? The way we have structured the sectors would hopefully enhance whatever initiative the governments are doing. So there are probably four sectors that we have grossly underrepresented which I believe there are lot of initiatives in the market, government and otherwise around us. Agriculture is 40% of our GDP yet there are only a couple of Agro companies listed in the Nigerian Stock Market. So that is the sector that we really want to drive and grow. The Oil and Gas; again is with very little activity in terms of the Offshore Oil and Gas companies listed, there are a couple of marketing operations in Oil and Gas, which are on the Exchange and there are a couple more which we really want to work on, drive and grow.

Q: There is evidence of a major transformation plan going on at the exchange, especially in the area of human capital. Will this be extended beyond the internal staff of the exchange to broker-dealers, market participants community, analysts and other key stakeholders? You are absolutely right, let me take the staff within the Exchange, first and then I will look at the wider stakeholder community. Within the Exchange, we always say the most important assets (and I mean these even coming from a strong technology and products background) are the people we have got. People make things happen and motivated people are far better asset to have, than quite frankly just smart people. Smart people are not motivated and we recognize that very much in what we are doing. If you look at the target that we have set, we have got pretty ambitious targets which we believe are realistic but we all have to roll up our sleeves to achieve this. To achieve those targets mean we cant carry on business as usual. We have to first augment the team with additional skill set as we try to regroup and raise up the game across the board for those inside the Exchange because that is what really is going to drive the Exchange and by driving the Exchange, we can drive our National Capital and our Economy as well into the level of productivity we want. And still on the Internal staffing beat, we have a clearer organization - we are very clear as to what roles people should be in and we have given the staff about two months to step back, think through their roles and their job description and we are running through a set of Change-Management-Meeting with staff. In terms of recruitment, we are trying to find the best people we can find, and those best people we can find will be within the Exchange where those opportunities exist for those people but they will be within Nigeria or outside Nigeria, that is the beauty of Nigeria as a country we have people across a wide range of skills across the world and in our country as well and I think we are making good gradual process and success rather in achieving this.

Q: (moves on) Lets talk about access to market information and retail trading. There are investors who would want to trade on their own without going through brokers. Will the new system changes in the works cater for this group of investors? Secondly, how soon would we be able to see pre-market and market end data/statistics distributed to those who require them? In terms of Investors Trading; the kind of system we are going to implement and automation that drives it can be looked at in terms of pre-trading and post trading; so the trading engine is just only one part of it. The trading engine is the core of it. Once we get the trading engine in, then we will be working with the broker-dealer-community to actually transform that customer experience from pre-trading to post-trading and what that means is that the man on the street should be able to sit in front of the

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Q&A with the Adeolu Bajomo, Exectutive Director, Market Operations & Technology of the Nigerian Stock Exchange - 230911

terminal they have, put in the trade and they have the assurance that that the flow and rubber stamp, wherever that trade comes from, from a broker or from whoever is near real time into the Exchange system will be cleared and settled and you get the confirmation back in near real time as well so thats the level of automation that we are driving at for the market.

Q: This transformation plan would obviously include a demutualisation of the exchange, how are you seeking to achieve this? In terms of one of the key things we did with the council of the exchange (the council is the board of directors) is that we formed a number of our focus groups in terms of the committees of the council. There is a Committee that is very well focused on Demutualization. And that team is staffed by capable people within the overall council and we also now have for the first time in the Exchange, a Technology Committee because the Exchange is now run in part on the capabilities of the technology platform(s). I really do believe that there is a lot of work on the table for us but we have the managerial and the peoples mindset to be able to resource and staff these initiatives effectively and simultaneously.

Q: The end-game must obviously be to improve the market capitalization. What is your market outlook? That is basically the aim. If you look at it, its a very straight target to deliver on if you look at the potential of our economy/country and you look at the representation (like I was mentioning earlier on) on the Exchange, of the Oil and Gas companies; how many of them are enlisted today? The Agric companies - how many are enlisted? What about Telecommunications? We have a lot of work to do. One of the new initiative i.e. one of the new department we brought into the Exchange is the Business Development Division within the Exchange. The Exchange has never had to go out and if you like prospect and find companies that have the prospect to list here and actually work with them, nurture them and bring them to the market successfully. So we have a whole team that has already been built and is actually well mobilized now under the Business Development function. So that agenda is actually now being translated into real practicalities; into what we do on a day to day basis.

Q: Lets talk about Rules & Regulations which is a part of your portfolio under the new plan. How do you hope to deliver a better adherence and enforcement process at the exchange? I think weve got to say, you know, we are self-regulating organization. And as a selfregulating organization, we are expected to actually enforce our rules - that is one of the rules of a good Exchange. Strong Exchanges are very good on corporate governance and actually adhering to their rules by operators is actually positive for the market, as opposed to the other way round where people think non adherence or lack of rules are norms; and I think on quite a number of areas, people have already seen our resolve in keeping and adhering to rules. But keeping and adhering to the rules is one part of it, we will enforce our rules, lets be very clear about that - we need to enhance our rules and make them richer, and we will make it richer in consultation as required but we also need to assist those companies who generally want to meet the rules but have some challenges in meeting the rules to actually meet these rules as it serves us no purpose or joy to say youve not been delivering your results on time so back So its not a policemans job, its to actually try and understand the underlying reasons why these group of people are not doing it, if they still not do it and we actually help them to do it and give them the support, that is job well done. Again our Business Development Unit,

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Q&A with the Adeolu Bajomo, Exectutive Director, Market Operations & Technology of the Nigerian Stock Exchange - 230911

which is one of the new departments we have set up, is geared towards just providing that level of support and not just about enforcing the rules, so its a balanced and fair approach to the issue of rules and regulations.

Q: Finally, at the very core of the transformation plan must be the need to restore market confidence. How do you see this shaping out? The issue of Market Confidence we believe is one that cannot be solved by a magic bullet. There are several initiatives that have to be implemented at the same time to actually address the market confidence issue and from the exchange management perspective; we have identified short-term initiatives, medium term initiatives and longterm initiatives. We also recognize that the game is not that we fix the short-terms and we start the medium term, we have to actually start these simultaneously and many of these initiatives have already started. We are consulting with quite a wide number of groups and taking advice as input from all our stakeholders as well in terms of initiatives and how we translate them. It is clear to everybody we are in a bear market at this time, it is not just the Nigerian market as most stock markets are back to the levels they were, say twenty four months ago. But we have a unique situation here in the sense that we are still a developing market so to speak and I am sure for those analysts and investors concerned about the market, there still exists opportunities in our market if decisions were based on fundamentals within the market today. Thank you.

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