Sundry Amendments to SEC Rules, Regulations On Fidelity Bond and Removal From Listing

Tuesday, November 05, 2019   /11:20 PM / By SEC / Header Image Credit: Dreams Time

Sundry Amendments

1.   Proposed Amendment to Schedule I- Registration Fees, Minimum Capital Requirement, Securities & Others

2.      Proposed Amendment of Rule 27- Fidelity Bond

3.    Proposed Amendment to Rule 199(3) - Removal from Listing

Details of the proposals are as follows:

Legend:

• Additions are underlined

• Justifications are italicised

1.  Proposed amendment to Schedule I (Registration Fees, Minimum Capital Requirements, Securities and others), which seeks to create a new "Part E" to provide for annual regulatory charges to be paid by Securities Exchanges and FMIs.

Part E 

1.       A registered securities exchange shall pay to the Commission, within thirty days of end of each financial year, an amount equal to 2.5% of the aggregate listing fees paid to it by issuers whose securities are listed or admitted on it, during that year;

2.      A depository shall pay to the Commission, within thirty days of end of each year an amount equal to 2.5% of the aggregate annual depository fees paid to it by the issuers whose securities are deposited with it;

3.      A registered clearing house or central counter party clearing house shall pay to the Commission, within thirty days of end of each financial year, an amount equal to 2.5% of the aggregate clearing fees charged by it for clearing functions.

4.      Other FMIs shall be required to pay annual fees to the Commission as may be determined from time to time

Justification

In order for the Commission to continue to effectively carry out its core mandate which is increasingly becoming more expensive due to the expansion of the market in terms of size, complexity and product offerings, it is imperative that the Commission charges annual fees on Exchanges and FMIs. The Commission expends huge resources in the course of regulating these entities, ranging from costs of target and periodic inspections/investigations, review and approval of requests for rules making/amendments, etc. Currently, Exchanges and other FMIs do not pay renewal fees.

2.    Proposed amendment of Rule 27 and creation of new Rule 27A of the Rules and Regulations. Details of the proposals are as follows:

A.     Existing Rule 27: Fidelity Bond 

1.       Every registered corporate body shall provide and maintain a bond which shall be issued by an insurance company acceptable to the Commission against theft/stealing, fraud or dishonesty, covering each officer, employee and sponsored individual of the company;

Proposed amendment to Rule 27(1) 

1.       Every registered corporate body other than a corporate body licensed as a dealing member of a securities exchange and capital market experts/professionals shall provide and maintain a bond which shall be issued by an insurance company acceptable to the Commission against theft/stealing, fraud or dishonesty, covering each officer, employee and sponsored individual of the company;

B.     Proposed creation of new Rule 27A - Insurance Policy for Corporate Bodies Licensed as a Dealing Member of a Securities Exchange

27A Insurance Policy

1.  Every registered corporate body licensed as a dealing member of a securities exchange shall procure and maintain an insurance policy issued by an insurance company acceptable to the Commission. The policy shall cover all aspects of the insured business activities and risks including but not limited to the following:

a. fidelity guarantee against theft/stealing, fraud or dishonesty, covering each officer, employee and sponsored individual of the company;

b.   professional indemnity in respect of loss arising from any claim or claims for any act or omission or breach of duty by officer, employee and sponsored individual of the company;

c.  directors liability in respect of claims against wrongful acts committed in the capacity of a director;

d.     legal liability, or other third-party claim;

e.      other risks associated with its products and services.

Provided however that the insurance policy shall take into consideration the situation whereby the dealing member is a member of multiple securities exchanges

2.      Every corporate body licensed as a dealing member of a securities exchange shall procure and maintain an insurance policy which shall where applicable, as may be determined by a securities exchange, name the securities exchange's investors' protection fund as the co-insured.

3.      Payments from the policy shall be utilized by the securities exchange's investors' protection fund towards compensating investors who have suffered losses on their securities traded on a securities exchange from the occurrence of the risks covered by the insurance policy.

4.      The insurance policy maintained by a dealing member of a securities exchange shall provide that payment under the insurance policy can be made directly to the:

a.      securities exchange's investors' protection fund which shall compensate investors who have suffered losses or;

b.   affected dealing member with the prior written consent of the securities exchange's investors' protection fund.

5.  The insurance policy shall provide that it shall not be cancelled, terminated or modified by the dealing member of a securities exchange without the prior written consent of the securities exchange's investors' protection fund and the Commission. Where the cancellation, termination or modification is at the instance of the insurance company such cancellation, termination or modification shall not be carried out except after written notice shall have been given by the insurance company to the Commission and the securities exchange's investors' protection fund, not less than sixty (60) calendar days prior to the effective date of cancellation, termination or modification.

6.      The insurance policy shall be provided in such reasonable form, terms and under such premium as the fiduciary duties of the officer, employee or sponsored individual require, but with due consideration to all relevant factors, including but not limited to the risks insured, products and services, clientele, the value of the aggregate assets of the dealing member of a securities exchange in relation to all its registered functions, to which any officer, employee or sponsored individual may have access, the type and terms of the arrangements made for the custody and safekeeping of assets and securities in the company's portfolio.

7.      The insurance policy shall cover not less than 20% of the minimum paid up capital of the dealing member of a securities exchange. 

8.     Every dealing member of a securities exchange shall file with the Commission and the securities exchange:

 a.      A statement of the nature and value of a claim within five (5) business days after the making of any claim under the insurance policy; and 

b.    A copy of the terms of the settlement of any claim made under the insurance policy within five (5) business days of the receipt thereof.

9.      Every securities exchange on the advice of the securities exchange's Investor Protection Fund (IPF) shall provide quarterly reports to the Commission on all claims settled under the insurance policy, and the report shall include the name of the investor and the sum received under the insurance policy. 

Justification

The proposed amendment to Rule 27 and creation of new Rule 27A is to exempt capital market experts/professionals from maintaining fidelity bonds and enable the establishment of an insurance product for Dealing Members of securities exchanges to cover the risks associated with stockbroking operations and protect investors in the event of the occurrence of the risk or loss insured.

3. Proposed amendment to Rule 199(3) - Removal from Listing

Existing Rule: 

The issuer of a security listed on an exchange may file an application to withdraw the security from listing on any exchange in accordance with the rules of that exchange and notify the Commission accordingly. The exchange shall within ten (10) days consider and dispose of the application and notify the Commission when such application is approved.

Proposed Amendment:

The issuer of a security listed on an exchange may file an application to withdraw the security from listing on any exchange in accordance with the rules of that exchange. The Issuer shall give prior notice of such an application to the Commission and notify the Commission accordingly. The exchange shall within ten (10) days consider and dispose of the application and notify the Commission when such application is approved.

Justification:

Rule 199 (1) requests an exchange to notify the Commission seven (7) days prior to delisting an issuer when the initiative to delist is from the exchange itself. Thus similarly when such initiative is from the issuer, it is proposed for the concerned Exchange to similarly notify the Commission before delisting the issuer.

All comments and input should be forwarded by e-mail to the Secretariat, Rules Committee of the Commission, at rulescommittee@sec.gov.ng or by letter addressed to the Director-General, SEC, not later than two (2) weeks from date of publication. 

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