Proshare - Facebook Proshare - Twitter Proshare - Google+ Proshare - Linked In Proshare - RSS Feed

Exposure of Proposed New Rules on Direct Cash Settlement and Sundry Amendments

Proshare

Thursday, January 25, 2018 /11:05AM /SEC  

1
. New Rules
a. Proposed Capital Market Holding Companies Rules (Re- Exposure)

b. Proposed Rules on Direct Cash Settlement 

2.
Sundry Amendments
a. Proposed amendment to Rule 14 and 15- Rules Relating to Sub-brokers

b. Proposed deletion of Rule 19(5)- Need for all Stockbrokers to be Sponsored for Registration

c. Proposed amendment to Rule 19 and 35- Registration Status of Sponsored Individuals

d. Proposed amendment to Rule 51(1)- Reports to be Filed

e. Proposed amendment to Rule 74- Relationship between Sub-Brokers and Broker/Dealers

f. Proposed amendment to Rule 107 (4)- Unclaimed Return Monies

Details of the proposals are as follows:
 

1.
New rules for re-exposure
A. Proposed capital market holding companies (CMHC) Rules

The following CMHC Rules were exposed on January 9, 2017. However, owing to the comments received from stakeholders and further review of the proposal, there is a need to re-expose the Rules to reflect the new amendments for the information of the public.

Legend: Additions are underlined

    Deletions are struck through

    Accepted comments from the initial exposure of the rules are in italics
 

1.
Definition of Terms
Capital Market Group means a corporate structure where a parent-subsidiary relationship exists with the parent and subsidiaries carrying out capital market operations strictly.

A Capital Market Holding Company (CMHC) means a financial group of companies which carry out securities business, asset management, and other capital market businesses within the financial group. means an entity that has investments in a group of companies that carry out securities business, asset management, financial business and other services as may be approved by the Commission from time to time.

Commission means the Securities and Exchange Commission, Nigeria

Control in respect of an entity means
 

(a) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:

(i) cast or control the casting of more than 50% of the maximum number of votes that might be cast at a general meeting of such entity;

(ii) appoint or remove all, or the majority of the directors or other equivalent officers of such entity; or

(iii) give directions with respect to the operating and financial policies of such entity with which the directors or other equivalent officers of such entity are obliged to comply; or 

(b) the holding beneficially of more than 50% of the issued share capital of such entity (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); 

(c) The holding of more than 50 per cent of the voting shares of the subsidiary or in instances where the holding is less than 50 percent, an entity has control of an investee when it has ;

(i) power over the investee, i.e. the investor has existing rights that give it the ability to direct the relevant activities (the activities that significantly affect the investee’s returns);
(ii) exposure, or rights, to variable returns from its involvement with the investee; and
(iii) the ability to use its power over the investee to affect the amount of the investor’s returns.

Financial Holding Company (FHC) means any entity that controls another entity carrying out financial services

Holding Company (HoldCo) means “any entity that owns controlling shares in another company (subsidiary) or group of companies to influence the decision making process in that company or group of companies.

Mono-line Capital Market Operator means an entity that focuses on operating in one function within the market
 

Non-Operating CMHC means a company holding equity investment in capital market operating subsidiaries and other businesses in the financial industry without carrying out a capital market function itself.
 

Non-Operating CMHC means a company holding equity investment in capital market operating subsidiaries and other businesses in the financial industry without carrying out a capital market function itself
 

Related Party a party is related to an entity if:
(a) Directly, or indirectly through one or more intermediaries, the party

(i) controls, is controlled by, or is under common control with such entity which may include its holding company, its subsidiaries and the subsidiaries of its Holding company
(ii) Has an interest in the entity that gives it significant influence over the entity; or
(iii) Has joint control over the entity;

(b) The party is an associate of the entity

(c) The party is a joint venture in which and the entity are members of the same joint venture;

(d) The party is a member of the key management personnel of the entity or its parent Holding Company;

(e) The party is a close member of the family of any individual referred to in (a) or (d);

(f) The party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e) or

(g) The party is a post-employment benefit plan for the benefit of employees of the entity, or any entity that is a related party of the entity.

Related Party Transaction is a transfer of resources, service or obligations between related parties, regardless of whether a price is charged.

SEC means Securities and Exchange Commission, Nigeria
 

2.
Pre –Registration Conditions
A CMHC shall prior to registration with the Commission submit the following documents:

a) The names, number and profiles of proposed directors/promoters of the companies within the group;

b) Proposed group structure with detailed explanatory notes;

c) Proposed Memorandum and Articles of Association of the CMHC;

d) Capital Structure of each company within the group and;

e) Any other document/information that the SEC may require.
 

3.
Registration Conditions
(a) A CMHC shall submit the following documents:

(i) A CTC of the certificate of incorporation issued by the Corporate Affairs Commission (CAC).

(ii) Memorandum and Articles of Association of the CMHC.

(iii) Evidence of a holding of an aggregate of more than 50% interest in shares in a registered entity, or holding of an aggregate of less than 50 percent of shares but has control in a registered entity that the CMHC holds an aggregate of more than 50% of the voting shares of each company within the group or otherwise controls each company within the group.

(iv) Evidence that the primary focus of the entire group is on Capital Market activities.

(v) Evidence of at least two subsidiaries or more

(vi) Evidence of meeting the prescribed minimum capital requirement

(vii) A written and duly executed undertaking by the company CMHC that the group will be and remain adequately capitalized for the volume and nature of its business at all times.

(viii) Copy of corporate governance charter of each company within the group

(ix) Any other document/information that the SEC may require.

(b) Registration Requirements

An application for registration as a CMHC shall be filed on relevant SEC forms as contained in Schedule III to the Rules and Regulations and shall be accompanied by;

(i) a minimum of two sets of completed Form S.E.C. 2 to be filed by the sponsored individuals;

(ii) a copy of Certificate of Incorporation certified by the Corporate Affairs     Commission  (C.A.C.); where a copy not certified is filed, the applicant shall       present the original copy for sighting by an authorized officer of the Commission;

(iii) a copy of Memorandum and Articles of Association certified by the Corporate      Affairs  Commission;

(iv) a copy of CAC Form containing particulars of directors certified by the       Corporate Affairs Commission;

(v) copy of latest audited accounts or audited statement of affairs for companies in operation  for less than one (1) year;

(vi) profile of the company covering among others, a brief history of the company  organizational structure, shareholding structure, principal officers, etc. (see Form S.E.C. 3 for details);

(vii) Fidelity bond representing 20% of paid-up capital;

(viii) sworn undertaking to keep proper records and render returns;

(ix) evidence of minimum paid-up capital.

(x) in the event the proposed CMHC is a foreign entity, a “no objection” letter from the relevant regulatory body in the entity’s home country.
 

4.
Structure of The CMHC
a) A CMHC shall be a non-operating company that holds equity interest in other companies within the Capital Market.

b) Where the CMHC acquires a 100 percent interest in another company, that company, shall be referred to as a wholly owned subsidiary of the holding company.

c) The CMHC may also elect to acquire less than 100 percent ownership, but own at least 51% but has control of the other entity to ensure that it oversees the operations of the company.

d) A CMHC may acquire any permissible financial institution, subject to the prior approval of the SEC.

e) Where the target company is outside the supervisory purview of the SEC, the prior approval of the relevant regulator is required.

f) A CMHC that elects to change to mono-line capital market operator shall seek the prior approval of the SEC. Such CMHC shall submit along with its request for approval the following:

I. Annual audited financial statements for the immediate past three years under the arrangement/structure it seeks to discontinue;

II. Divestment plan from subsidiaries; and

III. Any other requirements as may be determined by the SEC from time to time.

g) The CMHC shall operate under the approved structure for a minimum of 3 years in order to ensure stability before it is can be permitted to apply to the Commission for a change in structure

h) The SEC may direct a CMHC to divest from a financial market subsidiary where in the opinion of the SEC, the subsidiary is being run in a manner detrimental to the interest of investors and/or other stakeholders.

i) The CMHC shall have only one hierarchy (parent and subsidiaries)

j) A Capital market operator with equity interests in at least one (1) non-capital market subsidiary in addition to its capital market function(s) shall be required to adopt the CMHC Structure.

k) A Capital Market Group shall not be required to adopt a CMHC structure but may opt to do so due to business considerations. However, each company within the group shall carry out its registered capital market function(s) as a separate entity.

l) “Funds and assets of clients within the Capital Market Holding Group shall not be co-mingled with the proprietary fu
of all trades shall be made by direct payment into the client’s account within the clearing and settlement entity’s stipulated settlement circle;

4. Sanctions
1) Any Exchange, Clearing House or trading member that violates the provisions of these rules shall be liable to a penalty of not less than One Million Naira (N1,000,000) in addition to any other sanction which the Commission may impose;

2) In addition to the sanction in Rule 4(1) above, any trading member that settles a client’s trade outside the client’s account shall be liable to a fine of not less than three (3) times the value of the amount settled;

3) Where a clearing and settlement entity violates any of the provisions of these rules, the sanctions in Rule 4(1) shall apply
 

2.
Sundry Amendments
A. Proposed amendment to rules 14 and 15- rules relating to sub-brokers
Name/citation of the Rule – Appointment of Compliance Officer Rule 14(1)

Full text of Existing Rule
(1) Every market operator shall appoint a Compliance Officer who shall possess requisite knowledge of relevant capital market regulations and who shall be responsible for monitoring and ensuring compliance with the Act, rules and regulations, notifications, guidelines, instructions etc. issued by the Commission or the Federal Government;

Proposed Amendment
Every market operator except a sub-broker shall appoint a Compliance Officer who shall possess requisite knowledge of relevant capital market regulations and who shall be responsible for monitoring and ensuring compliance with the Act, rules and regulations, notifications, guidelines, instructions etc. issued by the Commission or the Federal Government;

Justification
Sub-brokers do not need to have compliance officers because they act as agents operating under the umbrella of someone (sponsoring stockbroker). They also file their returns through the (sponsoring stockbroker). 

B.
Proposed Deletion Of Rule 19(5) – Need For All Stockbrokers To Be Sponsored For Registration

Full Text of Existing Rule 19(5)

Every stockbroker employed in an institution involved in capital market activities shall be sponsored for registration by that institution.

Proposed Amendment (Deletion of Rule 19(5)

Every stockbroker employed in an institution involved in capital market activities shall be sponsored for registration by that institution.

Justification
For standardization, the general rule of application for Sponsored Individuals should apply across all registered functions. 

C.
Proposed Amendment To Rules 19 And 35- Registration Status Of Sponsored Individuals

1. Full Text of existing Rule 19 (4) (ii)
The registration of a registered sponsored individual who resigns or whose appointment is terminated and has not transferred his registration to another registered Capital Market Operator within a period of twelve (12) months, cease to exist.

Proposed Amendment (Deletion of Rule 19 (4) (ii)

The registration of a registered sponsored individual who resigns or whose appointment is terminated and has not transferred his registration to another registered Capital Market Operator within a period of twelve (12) months, cease to exist.

2. Full Text of Existing Rule 35 (4) (b) (iii)
Where a sponsored individual resigns his employment in the sponsoring company, he may transfer his registration to another registered corporate body by complying with the following:

(iii) file completed Form SEC 2 as a sponsored individual with the present employer:

Provided that where the individual has been out of capital market operations for three (3) years or more, he shall file a fresh application for registration with the Commission.

Proposed Amendment to the proviso in Rule 35 (4) (b) (iii):

Provided that where the individual has been out of capital market operations for three (3) two (2) years or more, he shall file a fresh application for registration with the Commission.

3. Proposed Amendment (Creation of sub-rule iv):
(iv) The registration of a sponsored individual who has changed employment to another capital market operator, but whose sponsorship has not been transferred to the current capital market employer within a period of three (3) years shall cease to exist.

General Justification
In recent times, CMOs have encountered difficulty in transferring the registered function of sponsored individuals within the prescribed (twelve) 12 months period.

The basis for the amendment is to provide consistency in the transfer process of sponsored individuals to give them sufficient time to transfer their registration from one CMO to another through administrative procedures.
 

D.
Proposed Amendment To Rule 51(1)- On Reports Be Filed

Full text of Existing Rule
Every market operator whether active or not shall file with the Commission reports listed in schedule IV of these rules and regulations:-

Proposed Amendment
Every market operator whether active or not shall file with the Commission reports      listed in schedule IV of these rules and regulations except a sub-broker who shall file all its returns through its sponsoring broker:-

Justification
Sub-brokers do not directly file returns with the Commission but rather file through their sponsoring broker in line with rule 71(3) of the rules and regulations of the Commission. 

E. Proposed amendment to rule 74- relationship between sub-brokers and broker/dealers

Full text of Existing Rule

Relationship between Sub-Brokers and Broker/Dealers

Proposed Amendment

Obligations of a Sub-Broker

Justification

The proposed heading for Rule 74, more appropriately captures the content of the said Rule.
 

F.
Proposed Amendment To Rules 107(4)- Unclaimed Return Monies

Full text of existing Rule 107(4)

All unclaimed return monies shall after six (6) months be transferred by the registrar into an investors’ protection fund established pursuant to the Act.

Proposed amendment
All unclaimed return monies with accrued interest shall after six (6) months be transferred by the registrar into the National Investors’ Protection Fund established pursuant to the Act.

Justification
 
Naturally, interest follows the principal except where there is an express stipulation to the contrary. In view of the above, while Rule 107(4) is clear on where unclaimed return monies (principal) should be transferred to, it is silent on whether accrued interest on such monies should equally be transferred along with the principal. This has led to some registrars claiming that the interest on the monies should be retained by them rather than be paid into the NIPF** as provided by the Rules. 

This amendment is therefore aimed at eliminating this erroneous impression and making it clear that such interests are to be paid along with the principals into the NIPF.
 

**An amendment making the NIPF the recipient of such unclaimed return monies was recently approved and executed by Management on November 22, 2017.

Proshare Nigeria Pvt. Ltd.

Related News

  1. SEC Extends Free E-Dividend Registration Till February 28, 2018
  2. SEC, IST partner to curb market Infractions
  3. SEC Announces December 31, 2017 as Termination of Dividend Warrant Issuance
  4. SEC Nigeria says it has robust rules, to attract key listings in the Nigerian capital market
  5. SEC Proposes New Rule on Green Bonds and Sundry Amendments to Its Rules
  6. SEC Approves New NSE Rules and Amendments to Rules on Block Divestment and Large Volume Trades
  7. SEC Nigeria joins IOSCO, to Celebrate World Investor Week 2017
  8. SEC: Commission Statement On T+2 Implementation
READ MORE:
Related News