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SEC Publishes Rules for Exposure

Proshare

Friday, September 09, 2016 2.49pm/ SEC

1. New Rule

Asset Manager Code of Professional Conduct

1.1 General Principles of Conduct

Managers have the following responsibilities to their clients.

Managers must:
1. Act in a professional and ethical manner at all times.
2. Act for the benefit of clients.
3. Act with independence and objectivity.
4. Act with skill, competence, and diligence.
5. Communicate with clients in a timely and accurate manner.
6. Uphold the applicable rules governing capital markets.


1.2 Code of Professional Conduct

1.2.1 Obligation to clients

Managers must:
1. Place client interests before their own.
2. Preserve the confidentiality of information communicated by clients within the scope of the Manager–client relationship.
3. Refuse to participate in any business relationship or accept any gift that could reasonably be expected to affect their independence, objectivity, or loyalty to clients.


1.2.2 Investment Process and Actions

Managers must:
1. Use reasonable care and prudent judgment when managing client assets.
2. Not engage in practices designed to distort prices or artificially inflate trading volume with the intent to mislead market participants.
3. Deal fairly and objectively with all clients when providing investment information, making investment recommendations, or taking investment action.
4. Have a reasonable and adequate basis for investment decisions.
5. When managing a portfolio or pooled fund according to a specific mandate, strategy, or style:
a. Take only investment actions that are consistent with the stated objectives and constraints of that portfolio or fund.
b. Provide adequate disclosures and information so investors can consider whether any proposed changes in the investment style or strategy meet their investment needs.
6. When managing separate accounts and before providing investment advice or taking investment action on behalf of the client:
a. Evaluate and understand the client’s investment objectives, tolerance for risk, time horizon, liquidity needs, financial constraints, any unique circumstances (including tax considerations, legal or regulatory constraints, etc.) and any other relevant information that would affect investment policy.
b. Determine that an investment is suitable to a client’s financial situation.


1.2.3 Trading

Managers must:
1. Not act or cause others to act on material non-public information that could affect the value of a publicly traded investment.
2. Give priority to investments made on behalf of the client over those that benefit the Managers’ own interests.
3. Use commissions generated from client trades to pay for only investment-related products or services that directly assist the Manager in its investment decision making process, and not in the management of the firm.
4. Maximize client portfolio value by seeking best execution for all client transactions.
5. Establish policies to ensure fair and equitable trade allocation among client accounts.


1.2.4 Risk Management, Compliance and Support

Managers must:
1. Develop and maintain policies and procedures to ensure that their activities comply with the provisions of this Code and all applicable legal and regulatory requirements.
2. Appoint a compliance officer responsible for administering the policies and procedures and for investigating complaints regarding the conduct of the Manager or its personnel.
3. Ensure that portfolio information provided to clients by the Manager is accurate and complete and arrange for independent third-party confirmation or review of such information.
4. Maintain records for an appropriate period of time in an easily accessible format.
5. Employ qualified staff and sufficient human and technological resources to thoroughly investigate, analyze, implement, and monitor investment decisions and actions.
6. Establish a business-continuity plan to address disaster recovery or periodic disruptions of the financial markets.
7. Establish a firm-wide risk management process that identifies, measures, and manages the risk position of the Manager and its investments, including the sources, nature, and degree of risk exposure.


1.2.5 Performance and Valuation

Managers must:
1. Present performance information that is fair, accurate, relevant, timely, and complete. Managers must not misrepresent the performance of individual portfolios or of their firm.
2. Use fair-market prices to value client holdings and apply, in good faith, methods to determine the fair value of any securities for which no independent, third-party market quotation is readily available.


1.2.6 Disclosures

Managers must:
1. Communicate with clients on an ongoing and timely basis.
2. Ensure that disclosures are truthful, accurate, complete, and understandable and are presented in a format that communicates the information effectively.
3. Include any material facts when making disclosures or providing information to clients regarding themselves, their personnel, investments, or the investment process.
4. Disclose the following:
a. Conflicts of interests generated by any relationships with brokers or other entities, other client accounts, fee structures, or other matters.
b. Regulatory or disciplinary action taken against the Manager or its personnel related to professional conduct.
c. The investment process, including information regarding lock-up periods, strategies, risk factors, and use of derivatives and leverage.
d. Management fees and other investment costs charged to investors, including what costs are included in the fees and the methodologies for determining fees and costs.
e. The amount of any soft or bundled commissions, the goods and/or services received in return, and how those goods and/or services benefit the client.
f. The performance of clients’ investments on a regular and timely basis.
g. Valuation methods used to make investment decisions and value client holdings.
h. Shareholder/unit holder voting policies.
i. Trade allocation policies.
j. Results of the review or audit of the fund or account.
k. Significant personnel or organizational changes that have occurred at the Manager.
l. Risk management processes.


2.0 Sundry Amendments

2.1 Amendment to Rule on Trading In Unlisted Securities – Inclusion of Debt Securities

1. Existing Rule (a)

All Securities of unlisted public companies shall be bought, sold or transferred only by means of a system approved by the Commission and under such terms and conditions as the Commission may prescribe from time to time.

A slight amendment replacing the words “unlisted public” with “public unlisted” is being proposed. The new Rule will read as follows:

(a) All securities of public unlisted companies shall be bought, sold or transferred only by means of a system approved by the Commission and under such terms as the Commission may prescribe from time to time.

2. New Rule (b) to provide as follows:
(b) All debt securities issued in Nigeria, i.e. issued by the Federal Government of Nigeria (“FGN”), Subnationals (State and Local Government), Supranational and Corporate entities, shall be bought, sold or transferred in the secondary market only through a SEC registered trading facility or Securities Exchange.

3. A new Rule (c) to include regulation of trading in foreign currency securities of Nigerian entities listed in other jurisdictions is proposed as follows:

(c) All exchange of debt securities traded (including foreign currency securities of Nigerian entities listed in other jurisdictions e.g. Eurodollar bonds) in the Nigerian capital market shall be executed on or reported to a SEC-registered Securities Exchange or trading facility.

4. Existing Rule (b) which provides that:

No person shall buy, sell or otherwise transfer securities of an unlisted public company except through the platform of a registered securities exchange established for the purpose of facilitating over-the-counter trading of securities.

To be slightly amended and renumbered as Rule (d) to compel trading of securities of public companies on SEC-registered platforms only, is proposed as follows:

(d) No person shall buy, sell or otherwise transfer securities of a public unlisted company or government agency except through the platform of a SEC-registered securities exchange or trading facility established for the purpose of facilitating over-the-counter trading of securities.

5. Existing Rule (c) which provides that:
Any unlisted public company, director, company secretary, registrar, broker/dealer or such other persons who facilitates the buying, selling or transfers of the securities of an unlisted public company otherwise than through the platform of a registered securities exchange, shall be liable to a penalty of not less than N100, 000 in the first instance and not more than N5, 000 for every day the infraction continues.

The existing Rule (c) as outlined above to be slightly amended and renumbered as Rule (e) to read as follows:

6. Any public unlisted company, director, company secretary, registrar, broker/dealer or such other persons who facilitate the buying, selling or transfer of the securities of a public unlisted company or government agency otherwise than through the platform of a SEC-registered securities exchange or trading facility shall be liable to a penalty of not less than N100,000 in the first instance and not more than N5,000 for every day of default.

2.2 Review of Capital Requirement for Sub-Brokers
1. Existing Rule 67(1)(j) which provides that Corporate Sub-Broker (to show) evidence of minimum paid-up capital of N1million.

Amendment of Rule 67(1)(j) to provide that Corporate Sub-Broker (to show) evidence of minimum paid-up capital of N10million.

2. Existing Schedule I, Part B(5) which reflects N5million as minimum paid up capital requirement for Corporate Sub-Brokers

Amendment of Schedule I, Part B(5) to reflect N10million as minimum paid up capital requirement for Corporate Sub-Brokers

3. Existing Rule 67(2)(a)(ii) which provides that Individual Sub-Broker (to show) evidence of minimum net worth of N500,000.00

Amendment of Rule 67(2)(a)(ii) to provide that Individual Sub-Broker (to show) evidence of minimum net worth of N1million.

4. Existing Schedule I, Part B(6) which reflects N500,000.00 as minimum net worth requirement for Individual Sub-Brokers.

Amendment of Schedule I Part B(6) to reflect N1million as minimum net worth requirement for Individual Sub-Brokers.

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