SEC Mulls Recapitalisation for Stockbroking Firms

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Acting Director General of SEC, Ms. Mary Uduk d

Obinna Chima and Goddy Egene

The Securities and Exchange Commission (SEC) is considering jacking up the minimum capital requirement for stock broking companies, its Acting Director General, SEC, Ms. Mary Uduk, has said.

She told reporters yesterday in Lagos that capital market operators should start preparing for another round of industry recapitalisation.

She, however, did not disclose when the recapitalisation would begin and the structure it would take.
The last time SEC increased the minimum capital requirement for operators was in September 2013 with a deadline of December 2014.
However, the deadline was then extended to September 30, 2015, following pressure and protest by some stockbrokers.

The apex capital market regulator had then increased the minimum capital base for brokers/dealers from N70 million to N300 million.
Also, the minimum capital for broker only was raised from N40 million to N200 million, while the minimum capital base for dealers was increased from N30 million to N100 million.

Responding to a question on the need for recapitalisation in the industry, Uduk said: “A number of other sectors are recapitalising. For instance, the Central Bank of Nigeria (CBN) has indicated that the banks should start thinking about recapitalising and we are also telling the capital market operators to start thinking about it because sooner or later, it would have to happen.”

Also, the Acting Commissioner, Legal and Enforcement, SEC, Mr. Reginald Karawusa, said stronger and better recapitalised firms would be beneficial to the capital market.

“If we have say 20 or 50 big firms playing, as opposed to the about 255 firms we have now, I think the market will be better.

“We want strong and well-capitalised firms. It is something that should happen, as opposed to the situation we have now,” he added.

Earlier in her presentation, Uduk had said the 2020 outlook for the commission took into account initiatives such as regulatory regime, information technology, financial technology, master plan execution and enforcement.

Under the regulatory regime, she said: “The commission will continue to implement risk-based supervision, to ensure our monitoring effort is more efficient. The upgrade of identity management on investor accounts will include Bank Verification Numbers and verifications against the Nigerian Interbank Settlement Systems Limited (NIBSS) BVN validation portal.

“As part of its implementation in 2020, the commission will be driving a harmonised regulatory agenda by working with other regulatory agencies to create clear and specific licensing regimes for different fintech businesses in Nigeria. We will also seek to operationalise the framework for the regulation of crypto-currencies, virtual financial assets, ICOs and crowd-funding.”

She added that the commission would, this year, complete the capital market master plan review it started last year as well as continue to coordinate the federal government’s work group assignment on the National Savings Strategy, among others.

“The focus of the commission enforcement programme in 2020 as with previous years will be the protection of investors with particular attention to retail and unsophisticated investors in the Nigerian capital market.

“In 2019, the commission witnessed an upsurge in the activities of Ponzi scheme in Nigeria. The commission went after many of the promoters and directors of such scheme, securing a conviction last year and many others are presently being prosecuted. We will continue to combat Ponzi scheme this year.

“We intend to continue leveraging on the Memoranda of Understanding that were signed between the commission and key stakeholders like the Nigeria Financial Intelligence Unit (NFIU) and the Economic and Financial Crimes Commission (EFCC) to strengthen our ability to do this.

“The commission will continue to adopt a zero-tolerance policy on unethical practices by the capital market with a view to promoting a culture of compliance and enhanced reporting. We will adopt a more proactive inspection and market surveillance regime to nip unethical practices and misconduct in the bud. We shall be referring more cases of infractions for hearing before the SEC Administrative Proceedings Committee. “Furthermore, we shall be referring more matters for criminal prosecution to the office of the Attorney – General of the Federation in line with the provisions of Section 304 of the Investments and Securities Act 2007.

“Going forward into the year 2020, we expect the equities segment to benefit from various government initiatives targeted at improving the country’s business environment as well as efforts to lower interest rate and increase liquidity through increase in loan to deposit ratio,” he stated.

Some market operators had said they were expecting the announcement of a recapitalisation, given the rules 57 and 58, that were introduced by the SEC effective January 2020.

The rules require all stockbroking firms, on monthly basis, to compute and file with the commission and the Nigerian Stock Exchange (NSE) their net liquid capital position not later than five days after end of the month.

After imputing the requirements on the report, it will show compliance or non-compliance.
An operator who spoke off the record said with this, the regulator would be able to know broking firms that are in good or bad shape.

“Some of us suspect that SEC may, at the end of the day, use these rules to determine the way forward for stockbroking firms and other operators in the market because we have over 200 stockbroking firms and less than five per cent control over 80 per cent of the trading activities in the market.
“So, some of us are expecting that a recapitalisation process may take place. What we do not know is the time,” the broker said.