Private Placements As ScapegoatPrivate Placements As ScapegoatObviously, the threat of a market crash should worry all those interested in the capital market. A market crash is an ill-wind that does not blow any one any good. From the economy to individual investors, a negative development in the market usually portends dire consequences.
So, it is expected that everybody should be worried by such threats and developments. And such has been the case with the Nigeria Stock Exchange (NSE) since February when the market began to give red signals. But it is regrettable that those, who run the market seem not to understand its nature and dynamics, simply because of ego and self aggradisement.
It is very interesting to note that the NSE has been overly concerned about the present trend in the market. This is to be expected. It has done every inconceivable thing to stem the adverse tide in the market, including arbitrarily prescribing ways of price mark down, as well as gagging operators from educating the public by speaking to the media.
Above all, it has mounted a spirited campaign against the use of private placements by companies to raise funds instead of coming to the NSE. In all this, one is tempted to believe that the NSE is pursuing an agenda that is not only difficult to fathom, but best known to itself. No doubt, there is more to its actions than readily meets the eyes. Its actions have gone from anxiety to panic and desperation, and it is worrisome.
Apart from individual commitments and interests in the market, the NSE as an institution is the least in peril or affected in the event of market correction or price reversal. As a self regulatory market, the NSE does not, or is not expected to, trade in the market. But anything is possible in this clime. As such, a price slump does not affect it financially beyond the statistical valuation of the market, which essentially is only of paper value.
The Stock Exchange is like a gambling house: win or lose, up or down, the Stock Exchange smiles to the bank. So it does not matter whatever direction of the market, its income is fairly guaranteed, which comes from commission on transactions. During both boom and doom, investors buy and sell stocks, and the Exchange makes its income. That is why Karl Marx described the Stock Exchange as the greatest embodiment of capitalism.
In view of this, why then the desperation to stop what looked like a natural phenomenon and logical application of the scientific principle of action and reaction being equal and opposite. The only explanation other than an empathetic association with investors' woes, is pride and delusion. The NSE does not want to admit that it has lived a lie for too long; that it has sown the wind and should be ready to reap the whirlwind. In simple terms, it wants to eat its cake and still have it. The question that emerges is why the panic over such a natural trend; the NSE should do well to provide an answer.
Since that major crash that sparked off the Great Depression in world economy in 1929, countless studies and research have been done to establish and predict market trends. All that has come out of it have been informed guesses and mathematical jargons. As recession is inherent in capitalism so also is price reversal or slump in Stock Market. In sum, nobody can beat the market on a long term basis, because it is predicated on the natural law of gravity and ethical correction of greed. What goes up in the end must come down.
Therefore, it is astonishing that the NSE is rolling up sleeves over a natural trend, moreso when the market has been so abused and manipulated as in recent time. It would have been fine if the NSE had limited its desperation to fixing prices and bullying brokers. But to intervene directly in an area quite unrelated and unconnected to it is the clearest indication that the NSE leadership has lost focus and creative imagination.
However, like a drowning man who would cling to any straw, the NSE is frantically reaching for solutions where none exists. For the NSE to start a Caveat Emptor campaign against private placements is an act of malice and bad faith. Private placement as the name suggests is a private arrangement between the companies placing or selling their shares and the investors subscribing to them. It is a private risk those parting with their money should bear and does not in any way concern the NSE. True, most investors are ignorant and could be taken advantage of unscrupulous companies; yet it is not the responsibility of NSE to assume the role of investment adviser to them.
Although the name of NSE may have been invoked by the companies seeking investors, it would have sufficed for it (NSE) to enlighten the investing public on the process of private placements and the fact that it may never lead to a public quotation on the NSE.
But the tone of the NSE campaign against private placement smacks of calumny and giving a dog a bad name.
Simply put, the NSE has suddenly woken up to the dangers of private placements, forgetting the fact that most of the companies quoted on the Exchange in the past three years went through the process without a whimper from the NSE. It was all well and good when the going was good, but not now. The stark reality of the disclaimer against private placements is the threat to the secondary market and in a bid to stem the price slide.
Most investors are moving from the secondary to the primary market because of its greater returns, which is aggravating the turmoil in the market and private placements give the highest rate of returns in the primary market, even though it also has greater risk. So it is not the business of NSE to dictate to investors where to put in their money. It cannot appropriate and reprobate at the same time.
It is not new to NSE that markets rise and fall; therefore, it should not bother anybody. Why the frenzy over the current market correction beats imagination. The NSE should limit itself to its statutory function of providing a floor for the business of stock transactions and stop behaving as if it owns the world. The problem is that NSE wants the frolick to continue, when the cheer-leaders have finished their act. That is against the law of nature and it is bound to fail.
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