SEC DG, Arunma Oteh

Goddy Egene

The Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) are to adopt risk-based regulation of stockbroking firms instead of the current system where all operators   are required to have the same level of capitalisation.

According to the current capitalisation requirement by SEC, all stockbroking firms have a minimum of N70 million paid-up share capital. Although some firms have share capital above that benchmark, while others operate below it, there have been calls for an increase in capital base.

This development  attracted various reactions, some in support, while others were against.  SEC even attempted raising the capital base to N1 billion in 2008, a directive that was later withdrawn.

However,  given  the recent  market downturn and development in the global capital markets,  the need to strengthen regulation has thrown up  issue of   setting adequate capital base for operators in the Nigerian capital market.

But  instead of setting a  one-size-fits-all capital base for stockbroking firms, SEC and NSE would adopt a risk-based framework in the market.

Although details are still being worked out, the Chairman of Association of Stockbroking Houses (ASHON), Mr. Emeka Madubuike, told THISDAY last Friday in an interview that it was a consensus among stakeholders in the market that  a risk-based regulation should be adopted.

According to him,  a committee in that regard, comprising officials of SEC, NSE, Chartered Institute of Stockbrokers (CIS) and ASHON, was set up to work on the issue of capitalisation early this year.

“The committee was chaired by the former Commission of SEC in charge of operations, Ms. Daisy Ekineh. After  several meetings, it was agreed that in line with what is obtainable in other jurisdictions, risk-based supervision and regulation should be adopted. This implies that each operator would be required to have capital base depending on the level of risk it is carrying. The arrangement and framework is being worked and would be made known at the appropriate time,” he said.

He added that the broking firms would be classified into different categories including broker/dealer, broker or sub-broker. This is said would determine the level of capital each would require.

“Besides, the NSE would  then be reviewing each  operator using the   base set by SEC.  The NSE will look at the performance of each firm, the volume of transactions and decide to advise   on the need to increase the share capital or  otherwise,” he said.

Speaking on mergers and acquisition, the ASHON boss said it was a matter of fundamental business decision by operators. He explained that nobody would like to operate a business at a loss, noting that any opportunity to improve on performance was always a welcome development.