Capital market authorities are considering major amendments to the securities market trading rules in a shift that will disallow trading on shares and other securities of investors that did not provide bank account for direct payment of the net proceeds from their transactions.
A draft on amendments to new rules under consideration obtained at the weekend indicated that Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), has further amended proposed rules on direct cash settlement (DCS) to include additional review by the Commission’s rules committee and other stakeholders.
Under the direct cash settlement, the stock market will transit from the current dealer-mediated payment system under which proceeds of shares sales are remitted to the dealer for onward remittance to the investor to a new system under which payment will be made directly to the investor’s account.
The new payment system will become the mandatory payment process for the securities market as against the current dealer-mediated payment system. While the previously exposed rules allowed any investor to apply for specific or continuing remittance of his net proceeds to his stockbroker, the amended provisions disallows trading without bank account.
According to the draft, all dealing members shall provide their clients’ bank account details, including Bank Verification Number (BVN) to an approved clearing and settlement entity for purpose of direct cash settlement.
“Where a client does not provide account details, the dealing member shall not execute any sell trade on behalf of the client. Where a dealing member execute a sale trade without account details of the client, the clearing and settlement entity shall ensure that such trade is cancelled prior to the settlement day,” the draft stated.
The rules indicated that settlement of all sale exchange-traded securities shall be made by direct payment into the client’s account within the clearing and settlement entity’s stipulated settlement cycle.
The draft stipulated that settlement of exchange-traded securities carried out on a securities exchange shall be done by direct payment into the client’s account by an approved clearing and settlement entity. Where a client seeks to opt out, the client will write a letter and the dealing member shall notify the clearing and settlement entity of such letter not less than three business days prior to executing any sale trade on behalf of the client.
All clearing and settlement entities and the dealing members of registered exchanges are mandated to ensure compliance with the rules.
Where any clearing and settlement entity violates the provisions of the rules, such entity shall be liable to a penalty of not less than N10 million in addition to any other sanction which the Commission may impose.
Also, where a dealing member violates the provisions of the rules, it shall be liable to a penalty of not less than N1 million and a fine of not less than three times the value of the amount settled, in addition to any other sanction the Commission may impose.
The proposed rules are expected to further strengthen capital market’s campaign against identity theft and shares fraud. The rules are also expected to forestall the use of securities market for money laundering and other illicit financial transactions.
While infraction rate has reduced drastically, fraudulent sale of client’s shares remains a major concern at the securities market.
Authorities at the Nigerian capital market and law enforcement agencies have stepped up efforts to tackle the problem of shares fraud and identity theft, otherwise known as unauthorised sale of client’s shares. The Nigerian Stock Exchange (NSE) recently launched an amendment to existing rules and regulations, which enables it to henceforth maintain a record to be known as “Blacklist” in which it will keep records of all corrupt persons and indicted officials who are deemed unfit to engage in stock market activities.
In the new amendment, the NSE has now been mandated to formally open a “blacklist” for the purpose of records of corrupt persons. The amendment, approved by the SEC, strengthened the Exchange’s zero tolerance for infractions and places greater responsibility on all capital market operators.
Those to be included in the “blacklist” included any person that the Exchange determines that he or she no longer entitled to privileges, services, recognition or access to the Exchange and its facilities as well as those not permitted to deal or transact with or be employed by a dealing member or person.
The rule applies to dealing member, an authorized clerk, an employee or director of a dealing member, a sub-broker, or any other capital market operator.
A check indicated that about 90 per cent of the existing blacklisted persons were due to unauthorised sales of client’s shares. Other ranking crime was manipulation of the market or share prices.
The Nation had recently reported that the Economic and Financial Crimes Commission (EFCC) was investigating about 35 fraud cases at the Nigerian capital market.
Although the full details of the cases could not be disclosed due to legal confidentiality and ongoing investigations, a review of the preliminary findings indicated that most cases relate to fraudulent sale of clients’ shares and diversion of clients’ funds, impersonation and false representation of products and services.