Requirements of the Digital Sub-broker Regulations Introduced by Nigeria's SEC

Regulators
2124 VIEWS
Proshare - Facebook Proshare - Twitter Proshare - Linked In Proshare - WhatsApp
Proshare

Monday, May 03, 2021 / 10:30AM / By Oluwapelumi C. Omoniyi (AELEX) / Header Image Credit: AELEX

 

On 19 December 2020, the Securities Exchange Commission, Nigeria ("SEC") published a statement, informing the public that the Investments and Securities Tribunal, ("IST") had made interim Orders restraining a Fintech company, Chaka Technologies Limited, and its promoters from advertising or offering for sale shares, stock or other securities of companies or other entities1. SEC's position was that companies that offer a platform for the purchase of shares in foreign companies ("investment tech" or "wealth tech") acted outside its regulatory purview and in breach of extant laws and regulations particularly the Investments and Securities Act and the Rules and Regulations of the SEC.

 

Investment tech companies were faced with another dilemma again when on 8 April 2021, SEC stated that by the provisions of Sections 67-70 of the Investments and Securities Act (ISA), 2007 and Rules 414 & 415 of the SEC Rules and Regulations, only foreign securities listed on any Exchange registered in Nigeria may be issued, sold, or offered for sale or subscription to the Nigerian public2. Therefore, their activities were contrary to the laws and regulations governing securities in Nigeria. The SEC noted that it is aware the must investment tech companies like Chaka have partnerships with registered Capital Market Operators in Nigeria to offer foreign shares to Nigerians. However, according to SEC, such arrangement is illegal.

 

Nigerians who used such platforms and saw the innovation they offered as the democratisation of the purchase of shares were frustrated by the actions of the regulator, especially those who had purchased many shares. However, stakeholders in the ecosystem informed Nigerians to stay calm as a way forward was being discussed with the SEC.

 

Now, it seems that way forward has come to the fore. On 22 April 2021, SEC released amendments to their Consolidated Rules and Regulations (the "Amendments"). The Amendments provide a new definition of who a Sub-Broker is by defining such person (s) as any person or entity not being a dealing member of an Exchange who acts on behalf of a sponsoring Broker/Dealer as an agent or otherwise for assisting the investors in buying, selling, or dealing in securities through such sponsoring Broker/Dealer3.

 

It also states that a Sub-broker who is serving multiple brokers through a Digital Platform is a sub-broker who utilizes a digital platform to serve clients and interact with the sponsoring broker or brokers4.

 

The definitions encapsulate the activities of most investment tech companies as they leverage on their digital platforms and partner with registered brokers to offer shares on their platforms. Consequently, according to the amendments, an application for registration as a Sub-Broker/Sub-Broker Serving Multiple Brokers through a Digital Platform must be made to SEC alongside the requirements listed in the Amendment such as:

1.      Payment of Filing Fees and ensuring the application is accompanied by the required duly executed SEC Form.

2.     Sub-Brokers/Sub-Brokers Serving Multiple Brokers through a Digital Platform are required to have a minimum paid up capital of N10,000,000 (Ten Million Naira) and

3.     a Current Fidelity Insurance Bond covering at least 20% of the minimum paid-up capital as stipulated by the Commission's Rules and Regulations5. Applicants must also submit the necessary information on their Sponsored Individuals6,

4.     the Company Profile and other required business organisation documents, and the Company's corporate documents like a copy of their Certificate of Incorporation.

5.     Sub-Brokers Serving Multiple Brokers through a Digital Platforms must submit a copy of their Principal Agreement with Brokers, a description of the technology on which its infrastructure is built (Structure, Capability/limitation, Security back-up, and recovery process).

6.     They must also submit a Certification showing that their Infrastructure is sufficient to perform the required function by an IT Service Provider registered by the National Information Technology Development Agency (NITDA) or other recognized Agency and endorsed by a representative of the Association of Securities Exchanges,

7.     Evidence of the companies documented policies and procedures for managing technology risks, and the company's Know-Your-Customer process amongst other things.


Download Here - Major Amendments to the SEC Nigeria Rules


Innovators and existing companies who leverage on digital platforms to offer shares to Nigerians, should examine the amendments to see whether their business structure requires them to register as a Sub-Brokers Serving Multiple Brokers through a Digital Platform.

 

 

Footnotes

1.      "The Investments and Securities Tribunal (IST) Restrains Unregistered Fintech Company from Stock Trading" by the Securities and Exchange Commission, Nigeria, accessed 30 April 2021. https://sec.gov.ng/the-investments-and-securities-tribunal-ist-restrains-unregistered-fintech-company-from-stock-trading/ 

2.     "Proliferation of Unregistered Online Investment and Trading Platforms Facilitating Access to Trading in Securities Listed in Foreign Markets" by the Securities and Exchange Commission, Nigeria, accessed 30 April 2021. https://sec.gov.ng/proliferation-of-unregistered-online-investment-and-trading-platforms-facilitating-access-to-trading-in-securities-listed-in-foreign-markets/

3.     The amendment can be accessed here.

4.     The amendment can be accessed here

5.     The amendment can be accessed here

6.     According to Paragraph 19 of the Consolidated Rules and Regulations of SEC, Sponsored Individuals are the principal officers and/or professionals held out by the applicant (company) as experts and on whose advice or actions investors are expected to rely.

 

Credit: This post first appeared on Aelex here

 

 Proshare Nigeria Pvt. Ltd.

Previous Posts by Aelex

1.                Examining the legality of Non-Fungible Tokens (NFTs)

2.               Protection of Intellectual Property Rights in Nigeria by Franchisors

3.      Understanding the Employer's Entitlement to Liquidated Damages When there is Sectional Completion

4.               Exploring Initial Public Offers (IPO) and the Regulatory Framework in Nigeria

5.               Exploring Initial Public Offers (IPO) and the Regulatory Framework in Nigeria

6.               Introduction to Stablecoin - The Stable Cryptoasset

7.               Law Firms as Targets For Hackers - Risks and the Way Forward

8.               Open Banking in Nigeria and Emerging Opportunities for Fintechs and Financial Institutions

9.               The Right to be Left Alone - Examining the Impact of the NDPR on Cold Marketing

10.            An Appraisal of The CBN's Frameworks for Sandbox Operations and Quick Response Code Payments

11.             Diaspora Remittances in Nigeria: Examining the New CBN Policy (2)

12.            Sharing Of Content Through Online Platforms - Considering Digital Piracy In Nigeria

13.            Diaspora Remittances in Nigeria: Examining The New CBN Policy (1) 

 

 Proshare Nigeria Pvt. Ltd.

 

Related News

1.     SEC Amends Rules on Sub-broker, Records of Transactions With Clients, Creates Rule on Risk Mgmt

2.     SEC Amends Rules on Sub-broker, Records of Transactions With Clients, Creates Rule on Risk Mgmt

3.     SEC Nigeria to Develop an ICT Transformation Strategy With the Support of FSD Africa

4.     SEC Reminds CMOs on KYC Update, 4.01m Accounts Are With Incomplete Information

5.     SEC to Engage Fintech Players

6.     NGX Regulation Publishes 2021 Supervision Priorities for Trading License Holders

7.     SEC's Directive to Online Investment and Trading Platforms in Nigeria - The Way Forward

8.     NIBSSS Issues Approved Standard Operating Guidelines for BVN Matching System

9.     SEC and the Proliferation of Unregistered Investment Platforms

10.  SEC Cautions on the Proliferation of Unregistered Online Trading Platforms Facilitating Trading

11.  SEC Proposes a New Rule, Public Companies to Report Income Earned From Unclaimed Dividends

12.  NSE Receives SEC's Approval on Trading Licence Holders' Rules Amendment, Takes Effect May 3rd

13.  Non-Interest Capital Market, Full of Potentials - DG SEC

14.  Warehousing and Collateral Management: SEC Nigeria Releases Rule

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

16.  IOSCO Statement on Going Concern Assessments and Disclosures During the COVID-19 Pandemic

17.  NSE Notifies of Effective Date of Rules on Net Liquid Capital Requirements, Others

18.  SEC Issues Guidance on the Implementation of Sections 60 - 63 of the ISA 2007

19.  NCM 2020: Regulatory Governance in 2020

20.  NSE Proposes Amendments to Rules Governing Transaction with Related Parties

21.  SEC Releases New Rules and Amendments on Collective Investment Schemes

READ MORE:
Related News
SCROLL TO TOP