POWER OF SEC TO REGULATE THE SECURITIES CAPITAL INDUSTRY

1

OLUYEMISI O. DANSU

ARGYLE & CLOVER, 1st Floor (West Wing) City Hall Catholic Mission Street Lagos Island

Tel: 07025239755; 07098504751

Email: [email protected]; Website: www.argyleandclover.com

EXTENT OF POWER OF THE SECURITES AND EXCHANGE

COMMISSION TO REGULATE THE SECURITIES AND CAPITAL

MARKET INDUSTRY IN NIGERIA

The Investment & Securities Act 2011 (ISA) is the primary legislation governing the

Securities and Capital Market industry in Nigeria.

PART I; Section 1 ISA establishes the Securities and Exchange Commission (SEC).

Part II of the ISA provides for the Functions and Powers of SEC. Section 13 ISA provides

as follows:

“The Commission shall be the apex regulatory organisation for the Nigerian capital

market and shall carry out the functions and exercise all the powers prescribed in this

Act and, in particular, shall-

(a) regulate investments and securities business in Nigeria as defined in this Act;

(b) register and regulate securities exchanges, capital trade points , futures, options

and derivatives exchanges, commodity exchanges and any other recognised

investment exchange;

(c) regulate all offers of securities by public companies and entities;

(d) register securities of public companies;

(e) render assistance as may be deemed necessary to promoters and investors

wishing to establish securities exchanges and capital trade points;

(f) prepare adequate guidelines and organise training programmes and

disseminate information necessary for the establishment of securities

exchanges and capital trade points;

(g) register and regulate corporate and individual capital market operators as

defined in this Act;

(h) register and regulate the workings of venture capital funds and collective

investments schemes in whatever form;

2

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


(i) facilitate the establishment of a nationwide system for securities trading in the

Nigerian capital market in order to protect investors and maintain fair and

orderly markets;

(j) facilitate the linking of all markets in securities with information and

communication technology facilities;

(k) act in the public interest having regard to the protection of investors and the

maintenance of fair and orderly markets and to this end establish a nationwide

trust scheme to compensate investors whose losses are not covered under the

investors protection funds administered by securities exchanges and capital

trade points;

(l) keep and maintain a register of foreign portfolio investments;

(m) register and regulate securities depository companies, clearing and settlement

companies, custodians of assets and securities, credit rating agencies and such

other agencies and intermediaries;

(n) protect the integrity of the securities market against all forms of abuses

including insider dealing;

(o) promote and register self-regulatory organisations including securities

exchanges, capital trade points and capital market trade associations to which

it may delegate its powers;

(p) review, approve and regulate mergers, acquisitions, takeovers and all forms of

business combinations and affected transactions of all companies as defined in

this Act;

(q) authorise and regulate cross-border securities transactions;

(r) call for information from and inspect, conduct inquiries and audit of securities

exchanges, capital market operators, collective investment schemes and all

other regulated entities;

(s) promote investors' education and the training of all categories of intermediaries

in the securities industry;

(t) call for, or furnish to any person, such information as may be considered

necessary by it for the efficient discharge of its functions;

(u) levy fees, penalties and administrative costs of proceedings or other charges on

any person in relation to investments and securities business in Nigeria in

accordance with the provisions of this Act;

3

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


(v) intervene in the management and control of capital market operators which it

considers has failed, is failing or in crisis including entering into the premises

and doing whatsoever the Commission deems necessary for the protection of

investors;

(w) enter and seal up the premises of persons illegally carrying on capital market

operations;

(x) in furtherance of its role of protecting the integrity of the securities market, seek

judicial order to freeze the assets (including bank accounts) of any person

whose assets were derived from the violation of this Act, or any securities law or

regulation in Nigeria or other jurisdictions;

(y) relate effectively with domestic and foreign regulators and supervisors of other

financial institutions including entering into co-operative agreement on matters

of common interest;

(z) conduct research into all or any aspect of the securities industry;

(aa) prevent fraudulent and unfair trade practices relating to the securities industry;

(bb) disqualify persons considered unfit from being employed in any arm of the

securities industry;

(cc) advise the Minister on all matters relating to the securities industry; and

(dd) perform such other functions and exercise such other powers not inconsistent

with this Act as are necessary or expedient for giving full effect to the provisions

of this Act.”

Section 14 ISA further provides that SEC may establish specialised departments for the

purpose of regulating and developing the Nigerian capital market.

Part V ISA 2011 regulates the Registration and Regulation of Securities Exchanges, Capital

Trade Points and Other Self-Regulatory Organizations.

Section 28 (1) ISA provides thus:

“No securities exchange or capital trade point as defined in section 315 of this Act

shall commence operation unless it is registered with the Commission in accordance

with the provisions of this Act and the rules and regulations made thereunder.”

4

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


Section 315 ISA is the definition and interpretation section of the Act. Relevant definitions of

specific terms are reproduced below:

"Capital trade point" means a mini exchange registered by the Commission pursuant

to this Bill, which constitutes, maintains or provides market place or facilities for

bringing together purchasers and sellers of securities or for otherwise performing,

with respect to securities, the functions commonly performed by a securities

exchange;”

“Depository or Custodian company” means a company acting as a custodian of

securities in connection with a system of central handling of securities whereby all

securities of a particular class of an issuer deposited within the system are treated as

fungible and may be transferred, loaned or pledged by bookkeeping entry without

physical delivery of certificates;

“Securities” means—

(a) debentures, stocks or bonds issued or proposed to be issued by a

government;

(b) debentures, stocks, shares, bonds or notes issued or proposed to be issued

by a body corporate or unincorporated;

(c) any right or option in respect of any such debentures, stocks, shares, bonds or

notes; or

(d) any interest as defined in section 106 of the Companies and Allied Matters Act;

(e) futures contracts;

(f) bills of exchange;

(g) promissory notes or certificates of deposit issued by a bank which has a

tenure of not less than nine months,

and the term securities in this Act includes those securities in the category of the

securities listed in (a)–(g) above which may be transferred by means of any electronic

mode approved by the Commission and which may be deposited, kept or stored with

any licensed depository or custodian company as provided under this Act;

5

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


“securities exchange" means an exchange or approved trading facility such as a

commodity exchange, metal exchange, petroleum exchange, options, futures

exchanges, over the counter market, and other derivatives exchanges;”

Section 28 (2) ISA provides that an application for registration as a securities exchange or

capital trade point shall be made to the Securities and Exchange Commission (“SEC”) in the

prescribed form and in the manner specified by SEC.

Section 29 ISA provides further:

“

(1) Every securities exchange or capital trade point shall be a body corporate

incorporated under the Companies and Allied Matters Act.

(2) The Commission may register a body corporate as a securities exchange or

capital trade point if it is satisfied that the rules of the body corporate make

satisfactory provisions-

(a) for the exclusion from its membership persons who are not of good character

and who do not possess a high degree of business integrity;

(b) for the expulsion, suspension or discipline of members for conduct

inconsistent with just and equitable principles in the transaction of securities

business or for contravention of or failure to comply with the rules of the

securities exchange or capital trade point or the provisions of this Act;

(c) with respect to the conditions under which securities may be listed for

trading on that particular securities exchange or capital trade point;

(d) with respect to the conditions governing dealings in securities by the

members;

(e) with respect to the class or classes of securities which may be dealt in by

members; and

(f) with respect to a fair representation of persons in the selection of members of

the Board of the securities exchange or capital trade point and the

administration of its affairs and provided that listed companies and investors

shall each be represented by one or more members on its board.

6

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


(3) The Commission, in granting approval to register a securities exchange or

capital trade point under this section, shall ensure that the interest of the public

will be served by the grant of the approval.

(4) The Commission shall issue a certificate of registration to a body corporate

registered pursuant to this section.”

Section 305 ISA provides for offences and penalties thus:

“

(1) Where an offence under this Act has been committed by a company, every

person who at the time the offence was committed was in charge of, and was

responsible to, the company for the conduct of the business of the company, as

well as the company, shall be deemed to be guilty of the offence and shall be

liable to be proceeded against.

(2) Notwithstanding anything contained in subsection (1), where an offence under

this Act has been committed by a company and it is proved that the offence has

been committed with the consent or connivance of, or is attributable to any

neglect on the part of, any director, manager, secretary or other officer of the

company, such director, manager, secretary or other officer shall also be

deemed to be guilty of the offence and shall be liable to be proceeded against.

(3) If the Commission is satisfied that a person (corporate or individual)-

(a) is engaged or has engaged in any form of market abuse or other violations

under this Act; or

(b) by taking or refraining from taking any action, has required or encouraged

another person or persons to engage in behaviour which if engaged in by a

market participant or company would amount to market abuse or violation

under this Act, it may impose on the person a penalty of such amount or of

such nature as it considers appropriate.

(c) where the Commission is entitled to impose a penalty on a person, it may

impose a penalty on the person, or in addition, publish a statement to the

effect that the person has engaged in market abuse or violation under this

Act.”

7

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


Section 313 ISA empowers SEC to make rules and regulations thus:

“

(1) The Commission may, from time to time, make rules and regulations for the

purpose of giving effect to the provisions of this Act and may in particular and

without prejudice to the generality of the foregoing provisions, make rules and

regulations-

(a) to alter or modify, from time to time, in consultation with the Minister, the

provisions of the Second Schedule to this Act;

(b) prescribing the forms for returns and other information required under this

Act;

(c) prescribing the procedure for obtaining any information required under this

Act;

(d) requiring returns to be made within the period specified therein by any

company or enterprise to which this Act applies;

(e) prescribing the procedure and criteria for approval of mergers, take-overs,

acquisitions and business combinations under this Act;

(f) prescribing any fees payable under this Act;

(g) prescribing the procedure and criteria for regulating cross border offerings,

listing and trading of securities by foreign issuers;

(h) prescribing that the provisions of this Act shall not apply or shall apply with

such modifications (if any) as may be specified in the regulations to any

person or class of persons or any securities or class of securities or to any

transaction;

(i) prescribing the information to be contained in any prospectus or offer

documents filed under this Act;

(j) prescribing the procedure, criteria for the authorisation, revocation and

operation of collective investment schemes including prudential and product

regulation;

(k) prescribing the activities which constitute "insider dealings" the rules

governing dealings in securities by insiders and defining the term "insider

dealings";

(l) without prejudice to the provisions of the Companies and Allied Matters Act

specifying for the protection of investors-

8

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


(i) the matters to

(ii) be disclosed relating to the public issue of securities, transfer of securities

of public companies and other matters incidental thereto;

(iii) the returns that are required to be filed by all public companies;

(iv) the form, manner and procedure for obtaining proxies including the

information to be disclosed to investors before proxies are given by any

person; and

(v) the manner in which such matters shall be disclosed by the companies.

(m) prescribing the requirement for the identification of persons doing business

with capital market operators;

(n) prescribing as it deems appropriate, necessary rules for dealing with

unclaimed dividends and unclaimed certificates by public companies and

their agents;

(o) providing for anything requiring to be prescribed under this Act; and

(p) generally for carrying out the principles and objectives of this Act.

(2) The Commission shall in the exercise of powers to make rules in this section

consult with stakeholders.

(3) Any instrument issued under subsection (1) of this section shall be under the

signature of the Director-General of the Commission and the Secretary or any

two members as may be authorised.

(4) Any regulation under this Act shall be deemed made fifteen days after receipt by

the Minister unless the Minister, before the expiration of the fifteen days, directs

that it be modified, amended or rescinded.

(5) Every regulation made by the Commission shall be published in the Gazette or

any official document.

(6) Notwithstanding the provisions of subsection (1) of this section the Commission

may, from time to time, amend or revoke rules or regulations for purposes of

9

OLUYEMISI O. DANSU


Tel: 07025239755; 07098504751


giving effect to the provisions of this Bill and the rules and regulations made

thereunder.

(7) Any regulations or rules made under this Act may, where appropriate, prescribe

penalties for default.”

Further to Section 313 ISA empowering SEC to make rules, the SEC Rules and

Regulations were made for regulation of the Securities Industry. SEC Rules provides

participants in the capital market with more precise notice of what is expected of them, what

conduct will be sanctioned and also promotes fairness and equality of treatment among

similarly situated persons. The Rules are applicable to securities exchanges; capital market

operators; securities offered for sale or subscription; mergers, acquisitions and

combinations; collective investors protection fund; borrowing by states, local government

and other agencies amongst other things.

The power of SEC to make rules and regulations is continuous and the rules may be

amended from time to time. SEC also issues interpretative rules and general statements of

policy which guides participants in the industry.

Documents

POWER OF SEC TO REGULATE THE SECURITIES CAPITAL INDUSTRY