The Nigerian stock market is more treacherous than you may know. It  has a long history of sharp practices known only to those who understand its dynamics.

In mid 80s to the 90s there was a set of young men in the stock market, called jobbers. They went into the nooks and crannies of the big cities and beyond to market the services of stockbrokers. The practice of most investors then was to buy stocks and keep them for years. All they looked forward to was their annual dividend warrants.

 Because verification at the registrars was painfully slow, sometimes running into months, the jobbers saw a window to sell other people's stocks and keep the proceeds for themselves. They could always tell the stock owners that their certificates were yet to be verified.

By the time a worried stock owner finds out what is going on, the jobber has disappeared without a trace. An investigation by the Exchange could take forever. In most cases, the stock owner gives up, especially if he lives outside Lagos, or his death puts an end to the process. 

Further down the road, a new pattern emerged. Some dubious stockbrokers formed an iniquitous partnership with sleazy jobbers who had graduated from legally obtaining certificates from their owners to stealing them with the connivance of wayward sons.

Bad eggs at the registrars also became part of the deal. Their job was to pull out the original transfer forms signed by the owners of the stocks and make copies of them. The jobbers then head to “Oluwole” (the forgers haven in Central Lagos) to get the signatures replicated on the sellers’ column on new transfer forms.

The dubious broker takes the baton from there. He prepares the certificate for verification and gets it done quickly by his allies at the registrars. Meanwhile, the stockbroker begins to market the stock to some of his clients as it is usually safer to do such deals in house. Once the deal goes through, all parties get their share of the loot and everyone goes home happy except the unsuspecting owner who thinks that his cherished certificate is still in his custody. The alarm goes off when the stock owner stops receiving his annual dividend warrant.

Shifty brokers also did another kind of deal with stocks legitimately given to them for sale. If the stock is in high demand they could sell at a premium (above market price) without the consent or knowledge of the owner and pay the owner at market price. Alternatively, they could sell at market price and pay the owner below market price. In the past, stock prices were not generally available to the public as they are today. Again some brokerage firms could sell client’s shares and keep the money for themselves until the owner calls down fire and hail stones at the Nigerian Stock Exchange dispute resolution office.

These practices were usually carried out by a few persons within a firm or by small brokerage firms where the Managing Directors were also the dealers or traders.

As time went by, a new game came into play. The delay in certificate verification and transfer provided reprehensible brokers a wide window to short sell shares. That is, selling shares they did not have as at the time of the sale. It is a common practice in advanced markets. But then, if you sell short you must deliver on the due date. Short selling has never been an instrument in the Nigerian stock market. It was only used by shady stockbrokers to defraud their fellow brokers.

The mother of all rackets landed in the stock market after the bank consolidation exercise. The banks awash with funds swooped on the market like vultures. They advanced money to all manners of people to buy shares, sometimes their own shares and then worked with brokers to manipulate prices. They made billions. Some of their clients made millions. But then, every monkey business crashes at some point. It is called the theory of the last fool in the stock market.

An investor buys a stock at a manipulated price and discovers that it is a peak price at which there is no other fool up the ladder who is willing to buy. He watches in horror as the prices of his newly acquired shares crash to the bottom of the hill.

The Nigerian Stock Exchange and the Securities and Exchange Commission have tried over the years to rid the market of these sharp practices. But the criminals have remained one step ahead.

Therefore, next time you engage a broker to do a deal for you, keep your eyes open. In all markets, there are good people and there are bad people. If you think you can dump your shares or money with your broker and simply wait for their monthly or quarterly report , good luck to you.

Robot  # 1 | 22.10.2009 06:17

...Read the full article.

igodanvictor  # 2 | 22.10.2009 15:50

nice article.............niaja is aterrible place