Revenue Drive or Market Development - Making Sense of SEC's New Circular to CMOs


Saturday January 22, 2022 / 22:27 PM / by TheAnalyst  / Header Image Credit: SEC 


Proshare Nigeria Pvt. Ltd.


The recent announcement of a hike in the registration fees of capital market operators (CMOs) could be a major test for the Nigerian Capital Market or the start of the redefinition of the relationship between Trade Groups/SROs and their market regulator, the Securities and Exchange Commission (SEC) Nigeria.


This will be a major test for the Nigerian Capital Market or it would signpost the start of the redefinition of the roles and relationship between the regulator and Trade Groups who it is understood, have asked members to hold payments of annual registration fees to allow for follow-on engagement with SEC Nigeria on the controversy the recent hike has generated.


While this is considered a good first move, it precipitates the need for a bigger conversation which must be held - one that properly contextualises the focus, role and engagement ethos within the execution of a growth-focused capital market master plan.


Analysts have concluded that a bigger conversation must be held over the future of market development, one that properly contextualizes the role and adopted engagement principles within a forward-facing capital market master plan (CMMP).


Market watchers have observed that a similar conversation was held in 2009, where it was agreed that a capital market renewal fee and rate rise be jettisoned as a matter of consensus in favour of a market-development led regulatory stance. It was noted that this was the driver for the creation of the Securities and Exchange Commission (SEC)- led quarterly Capital Market Committee (CMC) meeting designed to serve as a bridge builder and consensus enabler on matters/issues of mutual market concern.


The reintroduction of renewal fees in 2021 was therefore stoutly resisted by Trade Groups upon its announcement; further to which the commission's argument for it's desire to use same to help in revalidating its database of active CMOs was reluctantly accepted. If that was the case in 2021, analysts have questioned the basis for the fee increase in 2022.



When Bad Policy Inflicts Burning Pain


The current 2022 fees have attracted such resistance not only on account of the above argument but also the perception that the fees were introduced with utmost arbitrariness and high-handedness, devoid of further consultation or opinion sampling. The steep and even prohibitive increases go further to worsen the trust issues between parties including the questioning of the validity of the current rule-making process which is now seen as draconian and hostile to market progress.


Firstly, the regulator should not be a revenue-generating agency for the government. Its primary responsibility should be to see to the orderly transaction of legitimate capital market business. In addition, it should provide regulatory guidance supporting the growth and development of the market rather than become a tax and spend government agency. A Shylock oversight agency in the long run does nobody any good. Cutting one's nose to spite one's face appears brave but it does very little, if anything, to achieve anything meaningful. Charging CMOs exorbitant renewal fees on the back of a COVID-19-induced downturn in business is bad regulation.


The revised Nigerian Capital Market Master Plan (CMMP) to be relaunched soon, has as part of its growth objectives, the reduction of transaction costs compared to other markets such as Malaysia and Brazil. For inexplicable reasons, SEC Nigeria has chosen to kick a ball between its own posts by contradicting the intentions of the plan and booting CMOs in the gut. 


Funding for the SEC at this fragile stage of market development aside from enforcement revenues should be a top priority of the government.  Unfortunately, it appears that the federal lawmakers have little understanding of the consequence of high-cost capital market transactions and the damage it could do to attracting foreign capital into the market.   Economists recognize this as the classic case of the "Cobra Effect" or the law of unintended consequences.


Second, coming out of a recession (2020-2021), devaluation, declining foreign investment (capital importation has dropped to US$17bn in 2021 from an average of US$21bn over the previous three years) and a COVID-19 pandemic, the policies of the government should be geared towards revenue increases from sectors where growth is evident. The areas the government should turn its sights towards are venture capital and private equity where the new fee hike inadequately reflects.


The rather sensitive buy and supply side of the public market is barely N4trillion by current estimates, a disappointingly small size comparatively; and a relatively small size when compared to other emerging markets, the relatively small total buy-side value reflects comparatively lean trading activities amongst domestic stakeholders/trade groups suggesting no reasonable cause to raise registration fees at this moment. The eventual passing of such costs to investors is bound to drive them further away into the hands of the unscrupulous Ponzi schemes which the market is yet struggling to contain.


Thirdly, to improve SEC revenue; the time-tested practice of focusing on enforcement (sanctions, charges, restitutions etc. based on deterrence and not discretion), guided by a Standard Operating Practice (SoP) would be more appropriate.  A Standard Operating Practice (SoP) on sanctions, charges and restitutions that are not premised on discretion but the principle of deterrence will give the necessary focus that will equally ensure that the regulator, with the support of the legislature, gives teeth to bite in enforcing sanctions on entities involved in the growing Ponzi industry beyond 'caveat emptor' announcements.


Lastly, it is imperative that the current focus on revenue drive by the regulator should have its roots deeply in the objective of market orderliness rather than being unnecessarily punitive, and this should be supported by the lawmaking organs to ensure the ISA 2007 is brought up to date in sync with the evolving world of highly innovative investments obviously currently eluding the market. 

Proshare Nigeria Pvt. Ltd.


Closing Remarks - In Praise of Engagement

The market is better off embracing engagements than pronouncements that exposes the information and coordination gaps within our regulatory system in achieving the capital market masterplan.


Whilst it is understandable that the stalemate originates from inadequate fiscal funding, the SEC could have handled the situation better by engaging market operators in a meaningful discussion while it fights its battle for increased federal funding. The SEC loses its moral and regulatory high ground when it relies on private sector funding of its activities.


The reliance on the private sector to keep its operations working would mean that the SEC would be mindful in taking fair and firm market decisions where it affects actors that contribute significantly to its operational sustainability. Exposing the SEC to such demeaning position weakens its market authority and defeats its purpose of existence. Market regulatory institutions such as the SEC are too important to mobilizing domestic capital formation to be left to the whims of self-promoting and self-absorbed capital market operators.  


The signals this issue is sending to the world is not the best especially if the Trade Groups come to a position that it is indeed in the best interest of the market to legally challenge SEC's stonewalling and this would be most unfortunate in the scheme of things to genuinely lift the market as everyone expects.



We welcome comments and encourage such to be sent to


Proshare Nigeria Pvt. Ltd.


Related Links

1.      SEC to Launch Revised 10-Year Master Plan

2.     Part A: The Nigerian Capital Market Master Plan 

3.     Part B: Non-Interest Capital Market Products Master Plan

4.     Part C: Capital Market Literacy Master Plan

Proshare Nigeria Pvt. Ltd.


Related News - SEC, CMOs and Enforcements

1.      SEC Notifies CMOs of No Extension on 2022 Registration Renewal; Ends January 31st, 2022

2.     SEC to Commence 2022 Renewal of Registration for CMOs by January 1, 2022

3.     SEC Re-opens Its Renewal Portal for CMOs

4.     SEC to Entertain Late Filing on Renewal of Registration for CMOs from May 1 to May 31st, 2021

5.     SEC Nigeria Re-introduces Periodic Renewal of Registration by CMOs, Set April 30th Deadline for 2021

6.     SEC Proposes Amendment to Its Rule on Renewal of Registration by CMOs

7.     SEC Issues Exposure Draft of Its Proposed New Rule on Special Purpose Acquisition Companies

8.     SEC Extends Compliance Date on the Implementation of Sections 60 - 63 of the ISA, 2007

9.     US SEC Issues Awards Totaling More Than $40 Million to Four Whistleblowers

10.  Access Bank Plc Issues Disclaimer in Respect of Access Capital Investment Platform

11.   SEC Notifies on the Illegal Activities of FinAfrica Investment Limited (Chinmark Group)

12.  SEC Notifies on the Activities of Poyoyo Investment (Pilvest) Nigeria Limited

13.  FMAN Supported by EFCC and SEC Nigeria to host the "War Against Ponzi Schemes"

14.  Nigerians Have Lost Over N300bn to Ponzi Schemes - CIIA

15.  Ponzi Schemes: Plugging the Ills of Unregistered Fund Managers in Nigeria

16.  US SEC Issues Investor Alert on Digital Asset and "Crypto" Investment

17.  SEC Gives Options on Filing of 4th Quarter Unaudited and Annual Audited Financial Statements

18.  SEC Notifies on FG's Official Gazette on Proscription of Banditry and Screening of Clients

19.  Portfolio Managers Shall Pay Annual Regulatory and Supervision Fees to SEC

20. SEC to Commence 2022 Renewal of Registration for CMOs by January 1, 2022

21.  SEC Issues Circular on the Commencement of Regulatory Fee on Fixed Income Transactions

22. US SEC Money Fund Proposals Credit Positive but May Result in Outflows

23. SEC Issues Exposure Draft of Its Proposed New Rule on Special Purpose Acquisition Companies

24. Court Faults CBN, Unfreezes Rise Vest's Accounts

25. SEC Extends Compliance Date on the Implementation of Sections 60 - 63 of the ISA, 2007

26. Court Unfreezes Accounts Blocked by CBN for Cryptocurrency Trading

27. Nigeria's SEC and the Burden of Regulation

28. Capital Market Can Help Bridge Infrastructure Gap - SEC

29. The Requirements for Dealing in Foreign Securities in Nigeria and the Role of the Regulators

30. Senate Raises Alarm as SEC Declares N9bn Deficit in Three Years


Proshare Nigeria Pvt. Ltd.



Related News - Capital Market

1.      VIDEO: Market Review: The FG Should Provide More Incentives for Capital Market Development

2.     Driving Capital Market Recovery Through Policy Advocacy

3.     For the Nigerian Capital Market, Shall We Tell the President?

4.     Market Review and Round-Up of Corporate News Announced During the Week Ending - 210122

5.     NGX, SEC Strengthen Alliance to Further Market Development

6.     Why SEC Nigeria Needs to Rethink Its Strategy on Investor Education

7.     The Nigerian Government and Prioritization of the Capital Market - Yemi Osinbajo

8.     Crystal-Gazing the Nigerian Stock Market in 2022

9.     OANDO, UBA Are Incoming as NGX Reveals 2021 Review Results of Market Indices

10.  FG to Partner NGX on Climate Disclosure, Data

11.   Reduced Domestic Investor Participation Drags Total Activity Level in November 2021

12.  Domestic and Foreign Portfolio Participation in Equity Trading - November 2021

13.  9% of Quoted Firms Are Early Filers of Financial Statements in 2021

14.  NGX RegCo Restates Commitment to Promoting Fair, Transparent Market

15.  The Nigerian Capital Market Comes of Age with the Emergence of Its First Central Counterparty

16.  NGX: Capital Market Set for Launch of Derivatives

17.  NGX Regulation to Host Issuers Engagement Forum

18.  NG Clearing Set to Launch as West Africa's First Central Counterparty

19.  Rising Unclaimed Dividends; A Tale of Idle Investors' Funds

20. Ten (10) Takeaways from the First NGX Capital Market Conference





Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.



Related News