May 16, 2020 / 06:12 PM / NASD Plc / Header Image Credit: NASD
In our newsletter last week, we continued our series on Crowdfunding and highlighted the potential benefits accruable to MSMEs who seek patient capital by sourcing via Crowdfunding. Click here to read more.
In this week's edition on crowdfunding, we shall discuss the importance of regulating Crowdfunding as a source of capital for Start-ups; the consequence/outcome if the entire process is left unregulated. The importance of capping excesses of all players - MSMEs, Investors, Crowdfunding Platforms/Portals.
The goal of the proposed Rules on Crowdfunding is to ease the means of funding that had long been considered risky. Also, to provide an opportunity for retail investors to participate in start-up investing. It is a great attempt at opening the capital markets both to businesses raising capital and investors desiring to invest in small businesses.
1. Cap On Amount To Be Raised
According to the proposed SEC Guidelines, MSMEs seeking to raise capital on a Crowdfunding Platform are limited to a 12-month period within which they can raise funds:
i. The maximum amount which may be raised by a Medium enterprise shall not exceed N100 Million.
ii. The maximum amount which may be raised by a Small enterprise shall not exceed N70 Million.
iii. The maximum amount which may be raised by a Micro enterprise shall not exceed N50 Million.
MSMEs must for each funding round reach minimum fund raising threshold before funds can be disbursed. Where the minimum threshold is not achieved the monies pooled are returned to the Investors.
There is also a short list of Instruments approved by the Commission for issuance through a crowdfunding portal from time to time; these include equity/shares, plain vanilla bonds or debentures, and simple contracts.
2. Disclosure Requirements
According to the proposed SEC Guidelines, MSMEs are bound by disclosure requirements. MSMEs are required to provide reviewed financial statements to the SEC, investors, and crowdfunding portals. They are also bound by ongoing disclosure requirements i.e. quarterly and annually. The disclosure requirements and use of professionals in vetting these reports is important to protect investors who may be less sophisticated.
The proposed SEC rules prescribed limits for investors' contribution to crowdfunding campaigns. Interestingly, the caps are not a single campaign, but aggregate on all campaigns. These are aggregates over all offerings in a twelve-month period.
i. Retail investors may not invest more than 10% of their annual income in a calendar year.
ii. Sophisticated, High Net worth and Qualified Institutional Investors are not subject to the limits set forth above.
Investors are allowed a cooling off period of 48 hours from the date of close of a campaign within which they may withdraw their investment. If there is a material adverse change, affecting the project or the issuer, investors may rescind the investment within 7 days from the date the material adverse change became public.
Where an investor cancels the offer or agreement to purchase securities or investment instruments, all funds which may have been debited from or blocked in the account of the investor shall be refunded or released within 48 hours of the request to cancel. This is to adequately protect an Investor from suffering any undue loss.
It is important to state that the Crowdfunding portals are saddled mostly with vetting an Issuer and protecting an Investor simultaneously. First, Issuers conducting offerings must provide educational materials to investors explaining a laundry list of things which includes, their investment process, the types of securities offered as well as resale restrictions and investment limits.
Secondly, due diligence must be performed on the issuers to a 'reasonable' basis to ensure that they are not committing fraud, as well as on investors to ensure their compliance with investment limitations. In addition to those requirements, which are generally meant to protect against fraud, the portal must monitor offerings, investors and assist with transparency.
NASD in its capacity as a regulator shall continue to ensure transparency within the capital market and also protect investors with regards to transactions and activities on our market. We believe our values position us suitably to provide excellent service to our stakeholders and contribute meaningfully to the growth of the Nigerian Capital Market.
NASD OTC Securities Exchange Market closed on a negative note this week, as the market recorded a decrease in performance. NASD Security Index Year to date return fell by -0.52%. Total volume traded Year-to-Date stands at 7,617,720,159 units in 550 deals and total Value traded is N7,434,428,437.88.
Week 20 Overview
NASD OTC Securities Exchange closed the week with a negative return in NSI. The NSI return fell by -0.92% to close the week at 693.94 points against 700.39 points in the preceding Friday, May 08 2020.
In addition, Week 20 saw NASD Investors lose N4.71 Billion in value. NASD OTC Market capitalization closed at N509.75 Billion compared to N514.46 Billion in the preceding Friday, resulting from a negative movement in prices.
There was a 82.5% increase in the total value traded during the week as week 20 saw NASD Investors trade a total of N9,671,300.00 in value compared to N5,289,300.00 in the previous week. Total trade activity for the year is valued at N7,434,428,437.88.
In the same pattern, volume traded during the week was 73,715 units compared to 226,825 units in the previous week leading to a -67.7% decrease in trade volume compared to week 19. Total volume traded for the year is 7,617,720,159 units.
Top Traded Securities by
The week closed with Niger Delta Exploration and Production Plc Ranking top among top five most traded securities by volume and Afriland properties as the least traded among the five most traded in week 20.
Top Traded Securities by Values
The week closed with Niger Delta Exploration and Production Plc Ranking top among top five most traded securities by value and Afriland properties as the least traded among the five most traded securities by value in week 20.
Guess Who Gains!
One of NASD OTC big stocks closes the week with a positive increase in value. Afriland Properties Plc which currently holds a Market Capitalization of N3.02 Billion closes the week at N2.2 representing a 4.67 percent increase from the previous close of N2.1.
Big Stocks Decline!
Two of NASD OTC big stocks closes the week with a negative decrease in value. Niger Delta Exploration and Production Plc which currently holds a Market Capitalization of N52.97 Billion closes the week at N292 representing a -1.02 percent decrease from the previous close of N295.
Central Securities Clearing System Plc which currently holds a Market Capitalization of N63.45 Billion closes the week at N12.69 representing a -6.35 percent decrease from the previous close of N13.55.