CBN Chairs Nigeria Commodities Exchange Repositioning Committee - A Note


Friday, January 29, 2021 / 11:57AM / By Proshare News / Header Image Credit: Agriculture Nigeria


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The Central Bank of Nigeria yesterday made public the key highlights of the Inaugural Meeting of the Steering Committee on the repositioning of the Nigeria Commodity Exchange (NCX); which results in the Bank taking a lead role in the governance of a SEC regulated entity.


The Key Highlights are listed below:

  1. Presidential approval stops current plan to privatise the Nigeria Commodity Exchange (NCX)
  2. CBN to collaborate with both Nigeria Sovereign Investment Authority (NSIA) and Africa Finance Corporation (AFC) under the Infraco Structure to develop and implement a strategic repositioning plan for the NCX to make it a world class Commodity exchange.
  3. Formation of a Steering Committee chaired by the Central Bank of Nigeria CBN Governor to include representatives from the Nigeria Sovereign Investment Authority (NSIA), Africa Finance Corporation (AFC), Federal Ministries of Finance, Budget & National Planning; Industry, Trade & Investment; and Agriculture & Rural Development   to oversee implementation plan.
  4. Revalidation of CBN's 59.7% majority shareholding stake in NCX giving it the responsibility to reconstitute NCX's Board, Board Committees and appoint Chairman.
  5. At least N50billion to be invested through Infrastructure Company structure.
  6. CBN to engage Nigeria Postal Service (NIPOST) on possible utilization of its assets to develop model warehouses across the federation.
  7. Steering Committee may co-opt any other Ministry, Department and Agency of government to ensure effective implementation of the Strategic Turnaround Plan.


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Existing Commodities Exchanges in Nigeria

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1.         The Nigeria Commodity Exchange (NCX)

The Nigeria Commodity Exchange (NCX) was originally incorporated as a Stock Exchange on June 17, 1998. It commenced electronic trading in securities in May 2001 and was converted to a commodity Exchange on August 8, 2001 and brought under the supervision of the Federal Ministry of Commerce.


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2.        AFEX Commodities Exchange Limited Nigeria (AFEX)

AFEX Commodities Exchange Limited (AFEX)Nigeria was established in Nigeria in 2014 through a Public Private Partnership with the Federal Ministry of Agriculture and Rural Development (FMARD) to establish a Warehouse Receipt System (WRS) and Commodities Exchange for Nigeria.


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3.         Lagos Commodities and Futures Exchange (LCFE)

Lagos Commodities and Futures Exchange (LCFE) was incorporated in May 2015 and was granted full operating License on June 14th, 2019 by the Securities and Exchange Commission (SEC, Nigeria). LCFE was created to provide a transparent and standardised platform for the trading of 4 Asset classes; viz: Agricultural commodities (Grains, Liquids, Tubers, Powders, etc); Solid Mineral Commodities; Oil and Gas Commodities (Including By-products); and Currencies (Local and Foreign).


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4.       Abuja Securities and Commodities Exchange (ASCE)

The Abuja Securities and Commodity Exchange commenced trading on July 25, 2006. The trading was preceded on the previous day by the inauguration of the 21-member Council of the Exchange by the Honourable Minister of Commerce, Dr. Aliyu Moddibo Umar. Last known transaction was in 2007 and the website is no longer functional.



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Statutory Regulations and Functions in Nigeria's Capital Market - The Evolution  


According to O.C. Nwachukwu (2013) in the seminal paper titled The Role of SEC in Public Issue of Securities and The Structure of The Nigerian Capital Market; "To assist investors to invest and sellers to sell profitably, they require information which must be correct, complete, up-to-date and not misleading. It is therefore necessary to regulate the market to ensure that the relevant institutions in the industry are properly established and monitored and that the operators in markets are "fit and proper" persons to operate the market. There is also a need to provide rules and regulations that will help to ensure fairness, efficiency, orderliness, transparency, stability and confidence in the capital market".


He continued:

"The regulatory apparatus consists of both statute and the statutory regulatory body. The first direct formal effort of regulating the capital market in Nigeria was the Capital Issue Committee set up by the Central Bank of Nigeria (CBN) to assist it in the regulation of dealings in company securities. In 1973, statutory support was given to this arrangement through the Capital Issue Commission Act, 1973. This was followed by the Securities and Exchange Commission Act 1979, the Securities and Exchange Commission Act 1988, the Companies and Allied Matters Act (Part VII) the Investment and Securities Act 1999 and now the Investment and Securities Act 2007 (No. 29) which is the current regulating statute in Nigeria.


The Capital Issue Commission Act, 1973 gave statutory regulatory duties to the Capital Issues Commission which was before then an ad hoc committee established by the Central Bank. Under the Act, the Capital Issue Commission was established with the function of determining the price of which shares or debentures of a company were to be sold to the public either through offer for sale or by direct issue; determining the timing and amount of any subsequent public issue of shares or debentures by the company; and undertaking such other incidental or supplementary functions as the Commission may determine.


In 1979, following the report of a government panel, the Securities and Exchange Commission Act 1979 was promulgated to remove some of the defects of the previous Act such as the absence of any power to value securities to be offered to the public or in which aliens had an interest. The Act established the Securities and Exchange Commission (SEC) to replace the Capital Issue Commission (CIC). Under the Act, the SEC was charged with wider function than the CIC. Section 7 of the Act provided that a company or enterprise in which aliens participate shall not issue, transfer or sell its securities unless with the prior approval of the SEC. In interpreting this provision, the Court of Appeal held, inter alia, in the case of Societe Generale Bank Nigeria Ltd v SEC that the provision was not limited to public companies only; but that a transfer of securities in a private company in which aliens participated also required the prior approval of the SEC. This case was also followed in Faloughi v Faloughi.


In 1988, the SEC Act 1979 was amended and enacted as the Securities and Exchange Commission Act, 1988. In particular, the functions of the SEC were extended to cover the regulation of mergers and acquisitions and all forms of business combinations. In 1993, the SEC gave up its function of determining the price at which securities of a company are to be sold to the public. The function was transferred to the issuing houses by administrative arrangement although the function was not deleted from the Act.


Following the report of a government panel which undertook a comprehensive review of the Nigerian capital market and its regulation and supervision, the Investment and Securities Act (ISA) was enacted on 26th May, 1999. It was described as "... a very extensive and comprehensive law on the securities market, covering every conceivable aspect of securities offering and trading." The Act repealed and replaced the Securities and Exchange Commission Act 1988. It also repealed Lagos Stock Act, 1960.


Commenting on the objective and impact of the Investment and Securities Act 1999, the Director General of the SEC, S.A Ndanusa, once said inter alia:

The provisions of the ISA are meant not just to regulate the capital market but to serve as a springboard for its rapid development. It strengthened the path to both domestic and foreign investment through the Nigerian capital market by providing for the establishment of new securities exchange market facilities and instrument. It is also aimed at enhancing the efficiency, competitiveness and transparency of the market in order to improve participation, liquidity and its international standing.


He also further observed:

The enforcement machinery which is usually a major consideration by foreign and indeed, local investors and intermediaries in deciding on an investment or business location has also been strengthened through, inter alia, the creation of an Investment and Securities Tribunal (IST).


It is also noted that the Act sought to bring together under one statute all laws dealing with securities matters. In pursuant of this objective, Part xviii of the Companies and Allied Matters Act which dealt with the subject matter of dealings in securities and was to be administered by the SEC, has been deleted and included in the Investment and Securities Act 1999 as Part VII.


The Investment and Securities Act 2007 (No 29) is a new enactment and was brought about to better regulate investment and securities. It repealed and replaced the Investment and Securities ACT 1999. The ISA 2007 is the current statute dealing with the subject. It includes most of the provisions of the ISA 1999 and some new ones.


The Securities and Exchange Commission was first established as the Capital Issues Commission under the Capital Issues Commission Act, 1973. It was established as the Securities and Exchange Commission in 1979, under the SEC Act 1979 with considerably widened functions. 


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Under the SEC Act 1988 which replaced the SEC Act 1979, the Commission's functions were further widened. This Act was repealed by the Investment and Securities Act, 1999, which in turn, was repealed and is now replaced by the Investment and Securities Act 2007, which has further widened the scope of the function of the Commission. Section 13 of the Investment and Securities Act provides for the function and powers of the Commission as follows:


The Commission shall be the apex regulatory organization for the Nigerian capital market and shall carry out the function and exercise all the powers prescribed in this Act and in particular shall

a.      Regulate investment and securities business in Nigeria as defined in this Act;

b.  Register and regulate securities exchange, capital trade points, futures, options and derivatives exchanges, commodity exchange and any other recognized investment exchange;

c.     Regulate all offers of securities by public companies and entities.

d.    Register securities of public companies;

e.   Render assistance as may be deemed necessary to promoters and investors wishing to establish securities exchanges and capital trade points.

f.  Prepare adequate guidelines and organize training programmes and disseminate information necessary for the establishment of securities exchange and capital trade point.

g.    Register and regulate corporate and individual capital market operator as defined in this Act:

h.   Register and regulate the workings of venture capital funds and collective investment scheme, in whatever form.

i.    Facilitate the establishment of a nationwide system for securities trading in the Nigerian capital market in order to protect investors and maintain fair and orderly market;

j.    Facilitate the linking of all markets in securities with information and communication technology.

k.  Act in the public interest having regard to the protection of investors and the maintenance of fair and orderly markets and to this end establish a nationwide trust scheme to compensate investors whose losses are not covered under the investor's protection funds administered by securities exchange and capital trade point.

l.     Keep and maintain a register of foreign portfolio investment;

m. Register and regulate securities depository companies, clearing and settlement companies, custodian of assets and securities, credit rating agencies and such other agencies and intermediaries.

n.   Protect the integrity of the securities market against all forms of abuses including insider trading;

o. Promote and register self-regulatory organizations including securities exchange capital trade point and capital market trade association to which it may delegate its powers.

p. Review, approve and regulate mergers, acquisitions, takeovers and all forms of business combination and affected transactions of all companies as defined in this Act.

q.    Authorize and regulate cross border securities transaction.

r.  Call for information from and inspect, conduct inquiries and audits securities exchanges, capital market operators, collective investment schemes and all other regulated entities.

s.  promote investors' education and the training of all categories of intermediaries in the securities industry;

t.   call for, or furnish to, any person such information as may be considered necessary by it for the efficient discharge of its functions;

u.  levy fees, penalties and administrative costs of proceedings or other charges on any person in relation to investments and securities business in Nigeria in accordance with the provisions of the Act;

v.  intervene in the management and control of capital market operators which it considers has failed, is failing, or in crisis, including entering into the premises and doing whatever the commission deems necessary for the protection of investors;

w.  Enter and seal up the premises of persons illegally carrying on capital market operations;

x.  In furtherance of its role of protecting the integrity of the securities market, seek judicial order to freeze the assets (including bank account) of any person whose assets were derived from the violation of this Act, or any securities law or regulation in Nigeria or other jurisdictions;

y. relate effectively with domestic and foreign regulators and supervisors of other financial institutions including entering into-co-operative agreements on matters of common interest;

z.    conduct research into all or any aspect of the securities industry;

aa.  prevent fraudulent and unfair trade practices relating to the securities industry;

bb. disqualify person considered unfit from being employed in any area of the securities industry;

cc.   advise the minister on all matters relating to the securities industry; and

dd. perform such other functions and exercise such other powers, not inconsistent with this Act, as are necessary or expedient to give full effect to the provisions of the Act.


From the above functions, it will be noted that there is a deliberate effort to ensure that the capital market in this country is looking forward as the Act provides for the regulation of not only the existing institutions and facilities but also those that are not yet in place but which it is hoped will be in place in the future with the growth of the economy and the capital markets. Such facilities include the capital trade point, option, futures and commodities exchanges.


Indeed, the Commission is mandated by its functions to act as a regulatory apex organization for the Nigerian capital market. Finally, the Securities and Exchange Commission has made rules pursuant to the Investment and Securities Act, 1999 and these continue in operation by virtue of Sections 313 and 314 of the current Act. These Rules and Regulations cover various aspects of the market and its operation."


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Closing Thoughts - Quis custodiet ipsos custodes?


Who Regulates the Board of an entity with a major regulator as the majority owner? 


The assertion comes from two millennia ago from Satires of Juvenal, where the satirist posed the question who watches the watchmen?, based on a belief that 'the effectiveness of watchers is based on both power and independence; and the need to ensure watchers are properly trained and are wise.


Others in the last decade, such as Baetjer (2015), Cato Journal 35:3 pg 634; have expanded on the practical execution of this and posit that:

"From a systematic standpoint, regulators being government-granted monopolies with a captive 'client' base, are unregulated. There is no robust regulation of their performance.  There is no quality-assurance regulation of the job these regulators do. They are not accountable to the public in a meaningful way. In theory, agencies are regulated by the political process, but the political process is so ineffective at regulating regulators that the regulators are de facto unregulated."


Corporate Governance - NCX

The ownership and management of the Exchange are completely separated from the right of a trading member to trade on the Exchange. The Exchange has a Board of Directors, which determines policy matters of the Exchange as a company. Market decisions relating to operations are delegated by the Board to the Council, which includes representatives of the promoting institutions, members of the Exchange, commodity associations warehouse operators/collateral managers, clearing banks and other financial institutions. The Council of the Exchange shall operate through four standing Committees; Membership and Finance Committee, Trading Committee, Clearing House Committee and Arbitration and Vigilance Committee.All the committees shall have established rules and regulations governing their operations and shall meet from time to time on cases relating to each of them and make recommendations to Council for consideration and approval. The membership of the Exchange is comprised of ordinary trading members, intuitional trading members, and ordinary members. The day-to-day management of the Exchange is delegated to the Managing Director/CEO.


How perspectives on what 'acting in the public interest' has changed

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Source: Benton et al (In Press) / David C Benton PhD RN FRCN FAAN /


Why Regulate the Regulators

  • To prevent abuses of monopoly power
  • To prevent anti-competitive actions;
  • To protect public interest;
  • To ensure the regulator operates within the bounds of their scope;
  • To bring about improvements to efficiency, effectiveness and quality; and
  • To ensure discretionary powers are exercised in the interest of the public


Thus, in this case of a regulator equally functioning as an investor in a SEC regulated entity, it must be made clear how SEC will regulate the NCX Board as described in highlight (note) 4 above.



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Image: @cenbank and Businessday and Afex (L-R)



Related Links - Nigeria Commodities Exchange

5.     About the Nigeria Commodity Exchange (NCX)

6.     About AFEX Commodities Exchange Limited Nigeria

7.      The Investments and Securities Act (ISA) 2007

8.    The Role of SEC in Public Issue of Securities and The Structure of The Nigerian Capital Market - by OC Nwachukwu, 2013

9.     A Report on Commodities Trading Ecosystem - Sec 2018

10.  Important Developments on NCX With Implications on Capital Market Activities

11. Exposure of the Report of the Technical Committee on Enhancing the Commodities Trading Ecosystem  - SEC, Apr 26, 2018

12.     Report of the Technical Committee on Commodity Ecosystem - SEC, Apr 26, 2018

13.     Requirement for Registration as a Commodities Exchange - SEC, Feb 13, 2018

14.  The Privatisation of the Commodities Exchange and Prospects for the Diversification of the Nigerian Economy  - Detail Solicitors

15. Nigeria's commodity exchange system stunted over limited private sector participation  - BusinessDay, Dec 17, 2019

16.     Unlocking Commodities Exchange Potential in Nigeria  The Guardian, Helen Oji, Oct 07, 2019

17.      Nigerian Commodities Trading System – What You Need to Know - Jul 19, 2019

18.     SEC Publishes Registered Commodities Exchanges Warehouse Map - Jul 18, 2019

19.     The Role of Commodities Exchanges in Economic Development - Jul 05, 2019

20.    Building a Fair Commodities Exchange in Nigeria - Apr 01, 2019

21.     A Definitional Guide to Understanding Commodities Exchanges - Jan 30, 2019


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