• Tue. Mar 21st, 2023

    Transparency: SEC to register, monitor foreign stock brokers  

    ByBassey Udo

    May 9, 2021 ,

    Brokers dealing in the stocks of foreign companies are to be registered and actively monitored, the Securities and Exchange Commission has said.
    The capital market regulator said this was in furtherance of its mandate to protect investors and ensure market transparency, especially for retail investors.
    The Executive Commissioner Operations of the SEC, Dayo Obisan, told Bloomberg the Commission intends to license firms offering foreign stocks under a “digital sub-broker” regulation.
    Obisan said the regulation should provide some level of clarity on the activities of the brokers, with the requirement that it would ensure regulatory responsibilities in on-boarding clients, custody of assets, and compliance with meeting reporting requirements.
    SEC, he said, was considering the registration of these platforms under the Digital Sub-Broker regulations to provide some form of legitimacy for their activities.
    Mindful that investors are exposed to both local and foreign stocks on these platforms, Obisan said the decision to register the broker was to ensure that regulatory responsibilities in on-boarding clients, custody of assets, and compliance with reporting requirements were met. 
    “Ultimately, we expect that registration will ensure that only genuine platforms target retail investors. We already have one of the platforms at a very advanced stage in the registration process.
    “The SEC has rules on foreign investments and cross-border transactions which specify the requirements for foreign investors seeking to invest in Nigeria as well as issuers of securities. 
    “Broadly speaking, all capital market instruments are registrable – equities, bonds, units of investment funds, derivatives, etc.
    “The Nigerian Capital Market has always been opened to listing of securities by foreign issuers without restrictions,” he said.
    He said Part H of the SEC rules deals with the regulation of foreign investments and cross-border securities transactions. 
    Most foreign issuers, he said, take advantage of the reciprocal agreements between Nigeria and the issuer country, especially where the cluntry’s securities regulator is a member of the International Organisation of Securities Commissions (IOSCO). 
    “This is quite distinct from the activities of the online platforms, which are brokering secondary deals in securities issued in another country and essentially performing a function for which they have not been registered or licensed, which is what necessitated the circular by the Commission”.
    Obisan said although N igerians, like other citizens across the world, have the liberty to trade across borders, he said what has become a growing trend however was the participation by retail investors in cross-border transactions previously undertaken by institutional and high net worth investors.
    He said the institutional investors have the resources and skillset to undertake independent evaluations of potential cross-border investments beyond disclosures made to them.
    Based on interactions with some of the online platform operators facilitating these trades, Obisan said the Commission has been able to confirm a sharp increase in the number of users of these platforms over the last 18 months.
    “About 400,000 Nigerians have invested in foreign stock through online brokers in the last 18 months. 
    “There also appears to be an increasing interest among the younger population, which is of interest to the Commission, primarily because it creates an avenue for exploitation if it is not properly monitored and regulated, especially as this interest is not mirrored on the traditional and core asset class.
    “The Commission is aware that there is a growing number of people utilising these platforms for investing in foreign stocks.
    “The platform operators indicate that there is a mix, which is not static, because different factors may affect the final execution of transactions, which in itself may not be a true reflection of the interest of the investor,” he said.
    On the way forward, the SEC Commissioner said the Commission was, discussing CMOs to continue engaging the platform owners  trying to deploy tech solutions for capital market activities. 
    Obisan said, the CMOs have partnered or are looking to partner with platform owners in performing their registered functions.
    These partnerships, he said, are being forged to enhance the performance of functions they are already registered for.
    However, the Commission said it would need to be clear on the roles and responsibilities of each party as well as obtain clarity on how they choose to support these investments in foreign stocks bearing in mind the currency exposure, ownership and direct custody of assets, adequacy of information provided to enable the investor make an informed decision and ability to take benefit of corporate actions such as dividends. 
    “It would aid our understanding of dispute resolution mechanisms, existence of insurance and backup facilities, trade settlement and other measures which are in place or which should be in place for the protection of investors on-boarded through these platforms bearing in mind the exposure and potential effect on the local market and the economy in general.
    “In terms of resolutions, direct investments in foreign stocks is something to be considered carefully. The IOSCO report on cross-border trading recommends that emerging markets such as ours should consider the peculiarities of our corporate environment, extent of investor education, and protection measures which are available to investors.
    On why the Commission took the decision to issue a preliminary order halting the operations of the brokers, Obisan said there was a high risk of fraud observed which must be minimised by whatever approach that would be adopted.

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