Business in Ghana

We Understand the issues that make the News

A Regulator’s Dilemma: Market Dynamics v 3rd Parties

Posted by Business in Ghana on October 17, 2010

By Sydney Casely-Hayford.  Sydney@bizghana.com

At a recent SME conference hosted by the accounting body, ACCA and the Enterprise Development Service (EDS) of the University of Ghana Business School (UGBS), Retired Captain Budu Koomson from UT Financial Services and UT Bank, explained his version of SME recalcitrance, which makes access to finance and support to the sector problematic at the best, but certainly not impossible.

Some important bottlenecks identified by a thirteen-year practitioner, grouped into 3 pillars.  Government, SME’s and Banks.  Poaching from the Retired Captain’s notes, out of the 6 anchors under Government, we can blame our leaders, who have not put together a regulatory framework with strong institutions to support SME’s.  The Banking environment anchors around 5 points including a chaotic environment and latent mistrust of the SME sector.  But SME’s themselves are faulted for various cultural practices and social (extended family and friends) pressures.

And this is where our problems emanate.

We have created a culture of pleading for wrongdoers.  If you have a conflict with anyone, say an accident, and you happen to demand very strongly to apply the rule of law, official bystanders are quick to intervene and ask for mercy for the offender, asking for restraint and leniency, because maybe it was the “devil’s” work or “look at him and show mercy, how will he support his family if you do this?”  In the end you become the evil one, whose time will come one day.

This societal norm is translated to our Regulatory Institutions whose job it is to provide an efficient playing field for market forces to apply.

In an attempt to “help out”, our Institutional directors will hold off making a decision or even deliberately rule against the correct decision, distorting the market to protect a family member or friend.  This happens nearly every day, which is why we all strive to know some big man someplace.  It is why we will go and talk to a cousin or uncle or school friend even when we are in the wrong.  We believe and expect that family will transcend everything we do.  We know it is wrong, but we do not expect a relative to go against a request.  If we do not know anyone directly then we will look for an “influence broker” who is known to be close to the power base.

Recently, CAL Bank has been without a registrar for its shareholders.  Previous registrars NTHC, was terminated effective September 1, 2010 and a new registrar was contracted.  Under the rules, the previous registrar hands over all client records in an agreed format to the new registrar and makes available all documents in a timely manner to ensure that shareholders do not suffer a lapse in services.  This process can extend over a period of 90 days depending on the termination notice clause in the incumbent registrar’s contract with the issuer.

Securities regulator, the SEC intervened on request from both parties but a contractual issue cropped up necessitating a ruling by the SEC.  After several meetings and nearly 3 months to resolve some impasse, the SEC is yet to clarify its stand to all parties.

CAL Bank shares continue to trade on the Ghana Stock Exchange (GSE) with close to 80% of its issued share capital immobilised.

Through the GSE’s Securities Depository (GSD), certificates are de-materialised in an effort to make settlement more efficient and help improve liquidity.  It is a process to convert paper certificates to electronic format on the GSE Securities Depository (GSD).

But dithering by the SEC has left approximately 20% of the issued share capital out in the cold with no opportunity to deposit their shares in the GSD which is the prerequisite to be able to trade their assets and has left CAL Bank unable to satisfy shareholders access to their assets.

There is no obvious rationale for this lapse in response by the Regulator to issue a directive for process compliance, neither is there a reason why the SEC will not impose sanctions where necessary.

By the close of business on 8th October, parties to the transactions had not complied with other instructions and contractual obligations to CAL Bank, the issuer of the stocks to the public.  The Registrar’s role is a manager of the registry for which they get a fee from the issuer.  The Regulator is to ensure that in the event of any conflict under ACT 333, as amended by ACT590 and guided by LI 1728 and other legislation, shareholders are protected. This is in line with the principles of the International Organisation of Securities Commissions of which the SEC is an Ordinary Member along with several other countries.

The SEC has clarified its role on this issue by stating that it will not interfere in contractual arrangements between parties and will also err on the side of protecting the market in the event that instability should threaten the integrity of the capital markets.

But this is what Retired Captain Budu Koomsom refers to under Government regulators and institutions and cultural practices.  To delay the need for speedy intervention on behalf of the market by the regulator is one of the banes of our society and in the end creates outright hostility toward Government and its institutions.

There is a reason why our international ratings are problematic and down sliding.  International investors are involved in trading on our capital markets under the Foreign Exchange ACT 723 and need no invitation to conclude unfavourably where the logic and the law fall astride consumer protection.

The Ministry of Finance has oversight responsibility for the Securities Exchange Commission.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: