Thursday, January 12, 2017 10:24 AM / SEC
The following are proposed rules/amendments for exposure to stakeholders/general public for comments and input.
All comments should be forwarded to email@example.com or through the DG, SEC not later than two (2) weeks from the date of this publication.
Capital Market Holding Companies Rules
Definition of terms
Capital Market Holding Companies (CMHC) means a financial group of companies which carry out securities business, asset management, and other capital market businesses within the financial group.
CBN means Central Bank of Nigeria
Commission means the Securities and Exchange Commission, Nigeria
Control means 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 ;
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);
exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns.
Financial Holding Company (FHC) means an entity that has investments in various companies 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.
Related Party a party is related to an entity if:
Related Party Transaction is a transfer of resources, service or obligations between related parties, regardless of whether a price is charged.
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.
Operating CMHC means a company holding equity investments in capital market and non-capital market subsidiaries whilst also carrying out a capital market function.
SEC means Securities and Exchange Commission, Nigeria
Pre –Registration Conditions
A CMHC shall prior to registration with the Commission submit the following documents:
(1) A CMHC shall submit the following documents:
(2) 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;
(a) a minimum of two sets of completed Form S.E.C. 2 to be filed by the sponsored individuals;
(b) 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;
(c) a copy of Memorandum and Articles of Association certified by the Corporate Affairs Commission;
(d) a copy of CAC Form containing particulars of directors certified by the Corporate Affairs Commission;
(e) copy of latest audited accounts or audited statement of affairs for companies in operation for less than one (1) year;
(f) profile of the company covering among others, a brief history of the company organizational structure, shareholding structure, principal officers, etc. (seeForm S.E.C. 3 for details);
(g) Fidelity bond representing 20% of paid-up capital;
(i) sworn undertaking to keep proper records and render returns;
(j) evidence of minimum paid-up capital.
Structure of the CMHC –
Any other requirements as may be determined by the SEC from time to time.
Corporate Governance –
Ownership and Control
1. Ownership and Management shall be separate and distinct.
Permissible Activities –
Shared services shall be provided at arm’s length and transactions in respect of such services shall require the consent of the Board of Directors of the subsidiar
(1) A CMHC is prohibited from undertaking the following activities:
Internal Management of Subsidiaries
No CMHC shall:
No CMHC shall:
Change in ownership structure
Except with the prior written approval of the SEC, no CMHC or any director, shareholder, agent or instrumentality of such an entity or its shareholders shall enter into an agreement or arrangement which results in:
(a) a change in the control of the CMHC
(b) For the sale, disposal or transfer of the whole or any part of the business of the CMHC;
(c) For the amalgamation or merger or takeover of the CMHC with any other person;
(d) For the reconstruction of the CMHC; or
(e) To employ a management agent or to be managed by or to transfer its business to any such agent.
Appointment of Directors and Top Management
No CMHC shall appoint:
(a) As director, any person who at the relevant time is a director of any of its subsidiaries/associates of the subsidiary, except with the prior written approval of the SEC. Where such an appointment is approved, the aggregate number of directors from the subsidiaries and associates of the subsidiary at any point in time shall not exceed 30% of the membership of the Board of Directors of the CMHC.
(b) Any member of its board to serve on the board of its subsidiaries, except with the prior written approval of the SEC. Where such an appointment is approved, the number of directors from the CMHC at any point in time shall not exceed 30% of the membership of the Board of Directors of each of the subsidiaries.
(c) A person who has served as a director(executive or non-executive) for the maximum allowable period as stipulated by the relevant industry regulator into any subsidiary, or an associate of such a subsidiary until after a minimum period of three (3) years after the expiration of the tenure of such director, and vice versa.
Intra-Group Transfer of Assets
Intra-group transfer of assets shall be carried out in a transparent manner and at arm’s length.
Prudential Regulations of Capital Market Holding Companies –
(1) Minimum paid-up capital and capital reserves
The minimum capital requirement for a CMHC shall be the sum of the aggregate capital of all its subsidiaries.
(2) Shareholders’ Funds
The CMHC shall maintain the minimum capital requirement at all times by ensuring that the shareholders’ funds does not fall short of the prescribed minimum capital.
(3) Percentage of Holdings and Nature of Subsidiaries
The CMHC shall at all times specify the nature and percentage of holdings in subsidiaries.
(4) Capital Adequacy Ratio
Capital adequacy ratio as prescribed in the SEC Rules and Regulations shall be applied to all capital market subsidiaries where applicable.
(5) Sources of Revenue
Major sources of revenue of each subsidiary should be from core and related capital market activities including:
(6) Acquisition of Subsidiaries
In the acquisition of subsidiaries, the SEC shall be satisfied that the CMHC has adequate capital resources to carry out the acquisition.
(7) Intra-group Exposure
No member of the group shall directly or indirectly lend or borrow and or have an aggregate contingent liability from or to any member of the group above 10% of its shareholder
s fund unimpaired by losses.
(8) Limits on related party borrowing and lending
(a) A Director or a related party shall not borrow or lend more than 0.1% of the CMHC’s shareholder funds from the subsidiaries within the group.
(b) The maximum loan to all related parties shall not exceed 1% of the CMHC’s shareholders funds.
(9) CMHC limit on Contingent Liabilities
A CMHC’s total exposure on contingent liabilities on behalf of its subsidiaries shall not exceed 20% of its shareholders’ funds.
(10) General Service Agreement
Where facilities are shared by members of the group, a comprehensive Service Sharing Agreement should be drawn, and submitted to the SEC for approval. This should be disclosed in the quarterly returns and annual audited accounts.
(11) Internal Control
Each subsidiary shall have a Compliance Officer who reports to both the Board of the subsidiary and Group Compliance Officer.
(1) Reporting Obligations
A CMHC shall file with the Commission:
(a) any organizational or structural changes.
(b)reports listed in Schedule IV of the Rules and Regulations of the Commission.
A CMHC shall:
(a) Establish and maintain policies and procedures, records, systems reasonably designed to conduct, monitor and manage the CMHC’s investments and the risks associated with those investments and make these policies, procedures and records available to the Commission upon request.
(b) Establish an independent comprehensive and effective risk management Rules, accompanied by a robust system of internal controls and effective internal audit and compliance functions.
(c) Carry out a periodic group wide stress tests and scenario analysis for major sources of risks.
(1) A CMHC shall be supervised by the Commission while subsidiaries within the group shall be supervised by relevant financial sector regulators where applicable.
(2) The Consolidated supervision of the CMHC shall be guided by the Rules for Consolidated Supervision of Financial Institutions in Nigeria and Rules issued by Financial Services Regulation Coordinating Committee (FSRCC).
(3) The Capital Market Holding Companies shall be required to render statutory returns to the Commission as may be required from time to time.
(4) The Commission shall conduct inspections on the CMHC and its subsidiaries as required from time to time.
Appropriate sanctions and penalties as prescribed under the SEC rules and regulations shall apply for any violation of these rules.
Proposed Amendment To Rule 420- Rule On Global Depository Receipts
Depository Receipts by Nigeria Entities – Rule 420
Rule 420 of the Securities and Exchange Commission Rules is hereby amended by substituting, for the current heading, a new heading “Depository Receipts” to cater for all kinds of depository receipts which may be issued or traded in Nigeria or by Nigerian entities. The entire Rule 420 is hereby amended as follows:
This Rule shall apply to sponsored and unsponsored Global Depository Receipts representing ownership of securities issued by Nigerian entities and such other Depository Receipts representing ownership of securities issued by foreign entities which are tradable on the international capital market;
Rule 420 (1) – Definitions
A new sub-section (1) on definitions is hereby inserted as follows:
“Depository” means a bank or institution incorporated in Nigeria or other jurisdiction with valid registration as a capital market operator/intermediary or a foreign capital market operator/intermediary which carries on the business of issuing depository receipts, acting as transfer agent, and corporate actions agent in relation to depository receipts;
“DR” means Depository Receipts;
“Global Depository Receipts” means negotiable certificates or instruments which confers ownership of a specified number of shares or debentures issued by Nigerian entities which are tradable on the international capital markets;
“Issuing Entity/Issuer” means the Underlying Entity in the case of Sponsored DRs and the Depository in the case of Unsponsored DRs.
“Level I” means an Unsponsored or Sponsored DR Programme tradable only on an OTC market.
“Level II” means a Sponsored DR programme listed on an Exchange;
“Level III” means a sponsored DR programme used for the purpose of capital raising through a public offering and listed on an Exchange;
“Nigerian Depository Receipts” means negotiable certificates or instruments which confers ownership of a specified number of shares or debentures issued by foreign entities which are listed/tradable on an Exchange in Nigeria;
“Sponsored DR program” means the issuance of DRs at the idiscretion of the Underlying Entity and in accordance with the deposit agreement between the issuer and the depository.
“Underlying Entity” means the entity that issues the securities represented by the DRs.
“Underlying Securities” means securities issued by the Underlying Entity.
“Unsponsored DR program” means the issuance of DRs without the involvement of the Underlying Entity (non-capital raising) and in accordance with the terms and conditions of the issuance.
Rule 420 (2) – Depository Receipts by Nigerian Entities
The former Rule 420 (1) has been moved to Rule 420 (2)(b). A new Rule 420 (2) (a) is inserted as follows:
Depository Receipts by Nigerian Entities
Rule 420(3) Level I GDR- Unsponsored DR Programs
A new Rule 420(3) has been created to highlight the specific requirements which are peculiar to Unsponsored DR Programs as follows:
Rule 420(4) Level II GDR- Sponsored DR Programs
A new Rule 420(4) has been created to highlight the specific requirements which are peculiar to Sponsored DR Programs as follows:
Rule 420(5) – Level III GDR – Capital Raising
Rule 420 (2) has been moved to Rule 420(5) – A new Heading “Level III GDR – Capital Raising” has been created for ease of reference.
Where the Global Depository Programme is for the purpose of raising capital, the Issuer is required to file a memorandum containing the following information with the Commission:-
Rule 420(6) – Nigerian Depository Receipts
A new Rule 420(6) has been inserted to make provisions for the issuance/listing of Depository Receipts in Nigeria by Foreign entities as follows:
Rule 420 (7) – Additional Information
A new Rule 420 (7) has been created as follows:
In addition to the provisions of Rule 420 (1) – (6) above, the Commission, in deciding whether to grant an application for approval, may request further information which may be reasonably required to verify whether the provisions of the Investments and Securities Act and the Rules have been complied with, or any information that the Commission considers appropriate to protect investors and ensure the smooth operation of the market.
Proposed Amendment To Rule 35 (7)- Change Of Status Of Registrant
(a) “Any person who fails to comply with the provisions of this regulation shall be liable to a minimum penalty of N20, 000.00 and a further sum of not more than N5, 000.00 for every day that the default subsists.
(b) Such person shall have their registration summarily suspended if the period of default exceeds 90 days.
Rules On Registration Of All Capital Market Operators With Relevant Trade Groups/Associations
Rule 25 is hereby amended as follows:
Self Regulatory Organizations/Trade Associations
2. A broker or dealer shall be a member of an association of securities dealers to effect transactions in an over-the-counter (OTC) market
3. Where the broker dealer effects transactions on any exchange and over-the-counter market, the appropriate self-regulatory organization shall be the exchange(s) and the association of the relevant over-the-counter (OTC) market
All Trade Associations whose members have been registered to perform any capital market function shall be registered with the Commission
Harmonization Of Registration Requirements For Incidental Functions
Rule 56 (1) – Functions of Brokers
Proposed Amendment –
Registered brokers shall have the following functions amongst others:-
Disclosure Reporting Requirement
(f) disclose to the Commission any dealings in a security valued at a minimum of
N50million N500,000 executed in a single deal or in multiple deals on the same day on behalf of his clients.
(g) shall report any suspected market manipulation or insider dealing to the Commission within 48hrs.
Rule 67 – SUB-BROKER; Registration Requirements
Proposed Amendment –
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. (this is an amendment of opening sentence)
(d) copy of
CAC Return on allotment and particulars of Directors Forms CO2 & CO7 certified by the Corporate Affairs Commission;
(l) letter of recommendation and undertaking signed by the sponsoring Broker/Dealer on behalf of the Sub-Broker.
Deletion of Rule 67 (2) Individual Sub-Broker
(a) An application for registration as an individual sub-broker shall be filed on Form SEC 2 as provided in schedule III of these rules and regulations and shall be accompanied by the following:
Certified copy of certificate of registration of business name (where applicable); (ii) Evidence of minimum net worth of N500,000; (iii) Sworn undertaking to comply with the provisions of the Act and the rules and regulations as may be required from time to time by the Commission; (iv) Evidence of compliance with rule 20(4); (v) Sworn undertaking to keep proper records and render returns. (b) Rule 83(3) and (4) shall, with all necessary modifications, apply in case of denial or suspension of registration of a sub-broker.
Rule 84 – Functions of Issuing House
Proposed Amendment –
Creation of a new sub (5) as follows:-
(5) underwriting issues of securities
New Rule – RULE 84(6)
(6) Sponsoring issuers of publicly offered/privately placed fixed income securities including bonds (sovereign, agency, sub-national, corporate and supranational), asset-backed or mortgage-backed securities and mutual funds for listing on a recognized Exchange
New Rule – RULE 84(7)
(7) any other roles ancillary to any of the above”.
Rule 88 (1) – Issuing House; Registration Requirements
Proposed Amendment –
Where a corporate body intends to be registered as an Underwriter, it shall file FORM S.E.C 3 as contained in schedule III to these Rules and Regulations and shall be accompanied by …
Rule 89 (1) – Underwriters; Eligibility
Proposed Amendment –
No person, other than an Issuing House, may act as underwriter in any public issue of securities unless such a person is registered by the Commission to perform the function.
Rule 89 (2) – Underwriters; Eligibility
Proposed Amendment –
(2) The following may be registered as underwriters—
(b) insurance companies;
(c) any other person as may be determined by the Commission from time to time.
Rule 92 – Functions of Fund/Portfolio Manager;
Fund/portfolio managers may perform the following functions amongst others:-
(1) investment advisory services;
(2) selection of securities for the fund/portfolio in exercise of a discretionary mandate;
(3) publication of financial market periodicals;
(4) management of funds and portfolios on behalf of investors;
(5) any other role ancillary to any of the above.
Rule 178 (1) – Capital Market Experts or Professionals;
Proposed Amendment –
(1) The following experts/professionals whose opinion impact directly on capital market transactions are subject to registration by the Commission:
Rule 179 – Reporting Accountants
New Rule –
(5) The Reporting Accountant to an entity cannot act as Auditor to that same entity or affiliated entity.
Rule 181 to be Amended – Estate Surveyors
Proposed Amendment – Heading is amended to read: Estate Surveyors and Valuers;
Rule 181 – Estate Surveyors and Valuers;
New Rule –
(4) The estate valuer to an entity cannot act as property manager to that same entity or affiliated entity
1. Guidelines on Securities Settlement in Nigeria
2. Proposed Amendments to Laws Affecting Investment in Nigeria
3. SEC Issues Circular on Regulatory Institution Directing Some Persons to Register as Dealing Members
4. SEC Directs CMOs to Update Registration Information with the Commission
5. SEC Proposes New Rule & Sundry Amendments to its Rules and Regulations
6. SEC publishes list of rules for review in the next 12 months
7. SEC Publishes Rules for Exposure
8. SEC Proposes New Rule on Application of 12 Years and Above Unclaimed Dividends