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

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Friday, April 30, 2021, 03:30 PM / by Proshare Research / Header Image Credit: SEC

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The Securities and Exchange Commission (SEC) has made major amendments to its Rule 67 on Sub-broker, Rule 70 which is on Records of Transactions With Clients and the creation of New Rule 76.


Rule 67 - Sub-broker

Under the corporate sub-broker section, the SEC listed the requirement for registration among others. An application for registration as sub-broker shall be filed on Form SEC 2C as contained in schedule III to these rules and regulations and accompanied by other documents listed in the PDF attached below.


The amendment also stated that an individual can apply as a Sub-Broker and such individual sub-broker registration shall be filed on Form SEC 2 as provided in Schedule III of these rules and regulations and shall be accompanied by the documents listed in the amended rule. The amendment also recognized the creation of a new sub-section called "Sub-broker Serving Multiple Brokers Through a Digital Platform". Details of the registration of this new sub-section with the SEC is available in the attached PDF below.


Rule 70 - Records of Transactions With Clients

A sub-broker shall maintain proper and adequate records of transactions for and on behalf of each client. The amendments to Rule 70 focuses on additional sub-clauses as follows:

  1. Proof of execution of trade on behalf of a client;
  2. Money Transfer receipt confirmation;
  3. All communications with the client through the dedicated communication channel;
  4. All transactions carried out on its platform;
  5. All parties related to every transaction carried out on its platform


Rule 76 - Risk Management

The creation of Rule 76 which bothers on risk management specifies on policies and adequate mechanisms all sub-brokers using digital platforms must have in place. It states that all sub-brokers using digital platforms shall:

a) have policies, procedures and controls in place to monitor and test their algorithms on a regular basis to ensure that they are performing as intended

b) put in place and implement internal policies and procedures to address technology risks, which may arise as they interact with their clients, transmit, store and process information electronically

c) have adequate cyber-security mechanisms against cyber-attacks.

d) comply with the SEC's Technology Risk Guidelines as may be determined from time to time

e) establish an Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) mechanism in enable compliance with the AML/CFT regulation for Capital Market Operators provided in these Rules.

f) put in place adequate operational and technical control systems to manage appropriate risks

g) periodically conduct capacity stress tests to determine the performance of its systems under a variety of simulated conditions;

h) seek on aperiodic basis the assessment of independent reviewer with regard to the adequacy of its infrastructure and security;

i) ensure that all Electronic Communication (ECN) are digitally signed, encrypted, and secured.

J) be responsible fer keeping a backup of all the ECN in a soft and secured form

k) develop and implement a complaint management poiicy in compliance with the SEC Rules on Complaints Management, for ensuring that grievances/complaints raised by investors are addressed in an appropriate and timely manner.'


The New rule and amendments are an update to the SEC Nigeria's Consolidated Rules and Regulations as at 2013.


Download Here - Major Amendments to the SEC Nigeria Rules

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