On NSE’s Action to Delist Non- Compliant Firms
On Monday June 2014, the Nigerian Stock Exchange (NSE) served a notice to 21 companies planning to de-list them from the stock exchange. The reason given for de-listing is because they contravened the listing requirements of the NSE by failing to file quarterly and annual financial statements for up to two years in some cases. Despite shareholders lament over this course of action, I believe NSE did the right thing.
To be sure, although the shareholders still own a stake the companies, the value of these shares will most likely fall even when they are still traded in over the counter (OTC). This is a regrettable consequence. However, the benefit of NSE’s action is that it enables the shareholders to cut their losses early. Failure to comply with listing requirements is a sign that something is fundamentally wrong with the company and that it could fail eventually. It also protects new investors who could have unwittingly invested in these companies on an unsound basis.
The most important benefit is that it sends a strong message of effective regulation- a factor that is direly needed in Nigeria today. The corruption free society that we clamour for begins when we follow prescribed rules and accept consequences when we deviate. A common reaction to the news of the de-listing has been to ask that NSE give the companies more time to put their house in order, a plea for clemency that is echoed at every strata of society when a person is caught in wrongdoing. “But shall we continue to sin, so that grace can abound? God Forbid”
There will always be winners and losers when regulatory interventions like this occur, but in this case, we are all winners in the long term. An effective regulator will instil true and well-founded confidence in the markets, which will provide an opportunity for genuine investors and companies to thrive.
In conclusion, “Some argue that de-listing is too harsh because it punishes stocks that could still recover. However, allowing such companies to stay listed would result in the major exchanges simply diluting the calibre of the companies that trade on them and degrading the respectability of the companies that maintain the listing requirements. Therefore, if a company that you own is de-listed, it may not spell inevitable doom, but it is certainly a black mark on that company’s reputation and, if the company can’t recover, a sign of diminishing returns down the road” – Cory Janssen, founder of Investopedia.