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- Can New Rules Unravel Investors’ Problem?
Can New Rules Unravel Investors’ Problem?
- By Kayode Ogunwale
- Published May 3rd, 2010
- StockWorld
- Unrated
Introduction
The Securities and Exchange Commission (Sec) last week in Abuja came out in another dimension with introduction of new rules that would enable it reposition the nation’s capital market. The apex regulatory body of the capital market said the legislation, comprising 23 new rules and eight amendments, would help to ensure transparency and efficiency of the Nigerian capital market. Ms Arunma Oteh, director general of Sec while unveiling the new rules said the move became imperative due to the crisis that rocked the capital market in the wake of the global financial crisis in 2008.
The commission in September 2008 constituted committees to reposition the market for greater efficiency and international competitiveness.
She argued that the dynamic nature of the capital market called for rules and regulations to be changed regularly to meet the challenges arising from such market dynamism. The high point of the new rule is the provision that allows the commission to approve the appointment of executive directors of market operations. This, she said, was to ensure that only “fit and proper persons run the affairs of market institutions.” Another new rule on the validity of accounts submitted to the commission required that it should not be more than nine months for corporate bodies and not more than 12 months for government and supranational bodies.
What Oteh said
“Rule making is one of the regulatory tools employed by the commission to regulate activities in the Nigerian capital market. The other tools include registration, monitoring, investigation and enforcement. As you are well aware, the instruments traded in the market are intangible and this is one of the rationales for regulation. It is also important to note that financial markets do not, for obvious reasons, tend towards equilibrium. As a result of this, they cannot be left to their own devices. Rule making is therefore employed by the commission to ensure transparency and efficiency in the capital market. The commission is empowered under section 313 of the Investments and Securities Act (ISA) 2007 to, from time to time, make rules and regulations for the purpose of giving effect to the provisions of the Act. It is a well known fact that in financial markets, periodic crisis bring forth regulatory reforms. It was as a result of this that the commission in September 2008 constituted some industry-wide committees with the objective of repositioning the market for greater efficiency and international competitiveness. One of such committees was the Dotun Sulaiman committee on the review of the capital market structure and processes. The committee submitted its report in March 2009 and the implementation of the accepted recommendations has since commenced.
“The rules being presented today are in furtherance of the implementation of the recommendations of that committee and in fact with these new rules, about 95 per cent of the rule-based recommendations of the committee have been implemented. The present
amendments which comprise 23 new rules and 8 amendments to existing rules, cover a wide range of issues in the market. The purpose of this is to reach out to the investing public through the press to increase awareness of regulatory developments and responses to market dynamics.
The dynamic nature of the capital market therefore requires that rules must be changed from time to time to meet the challenges arising from such market dynamism.”
Key provisions in the new rule
The requirement for approval by the commission of appointment of executive directors of market operators is meant to ensure that only fit and proper persons run the affairs of market institutions.
The rule on validity of accounts submitted to the commission requires that it should not be more than 9 months for corporate bodies and not more than 12 months for governments and supranational bodies.
The requirement to make underwriting of issues the discretion of the issuer has made underwriting of issues in the market no longer mandatory.
However where an issue is underwritten, the underwriting commitment by a single underwriter shall not be more than 3 times its shareholders fund for equity offering and not more than 4 times for fixed income securities. Issuers are now required to list their securities not more than 30 days after allotment clearance (where the issuer had stated in its prospectus that the securities would be listed).Another key amendment relates to a reduction in the cost of issuance.
Separate rules have now been issued for corporate bonds. Before now, the same rules that apply to equity also applied to corporate bonds.
The new rules now issued are specifically to guide issuance of corporate bonds. Also new rules have been issued for the regulation of money market funds. One major new rule just issued is rule 234 C which is in furtherance of the anti competition powers of the
commission under section 128 of the ISA. The section empowers the commission to order the breakup of a company where its business practices are capable of restraining competition or creating a monopoly in its line of business. The new rules therefore provide details of those practices that would be considered by the commission as substantially preventing or lessening competition in the company’s line of business. This will help to check companies using their dominant position to cause a restraint on competition.
And lastly, the new rules require public companies to make additional financial reporting such as quarterly reports, half yearly report and to file annual reports with the commission in accordance with the requirements of sections 60 – 65 of the ISA.
Conclusion
With these new rules the issue of unclaimed dividends will reduce as companies are now required to forward the Sec approval together with the bonus share certificates (where applicable) to the registrar within one working day of receipt of the approval.
In the same vein, the registrar must forward the required data to CSCS within five working days and the CSCS shall credit shareholders’ account within two working days.
According to the new rule, bonus issues shall be distributed and credited to the shareholders’ account at the securities depository within five working days of approval by the commission and where the shareholder requests in writing for a physical certificate, or did not provide the registrar with his clearing house number or the company is a public unlisted company, the certificate shall be dispatched within one month of approval by the commission. Failure to credit a shareholders account or dispatch the certificate within the specified period shall attract a penalty of N100,000 in the first instance, and thereafter, N5,000 per day for the period of default.
The Securities and Exchange Commission (Sec) last week in Abuja came out in another dimension with introduction of new rules that would enable it reposition the nation’s capital market. The apex regulatory body of the capital market said the legislation, comprising 23 new rules and eight amendments, would help to ensure transparency and efficiency of the Nigerian capital market. Ms Arunma Oteh, director general of Sec while unveiling the new rules said the move became imperative due to the crisis that rocked the capital market in the wake of the global financial crisis in 2008.
The commission in September 2008 constituted committees to reposition the market for greater efficiency and international competitiveness.
She argued that the dynamic nature of the capital market called for rules and regulations to be changed regularly to meet the challenges arising from such market dynamism. The high point of the new rule is the provision that allows the commission to approve the appointment of executive directors of market operations. This, she said, was to ensure that only “fit and proper persons run the affairs of market institutions.” Another new rule on the validity of accounts submitted to the commission required that it should not be more than nine months for corporate bodies and not more than 12 months for government and supranational bodies.
What Oteh said
“Rule making is one of the regulatory tools employed by the commission to regulate activities in the Nigerian capital market. The other tools include registration, monitoring, investigation and enforcement. As you are well aware, the instruments traded in the market are intangible and this is one of the rationales for regulation. It is also important to note that financial markets do not, for obvious reasons, tend towards equilibrium. As a result of this, they cannot be left to their own devices. Rule making is therefore employed by the commission to ensure transparency and efficiency in the capital market. The commission is empowered under section 313 of the Investments and Securities Act (ISA) 2007 to, from time to time, make rules and regulations for the purpose of giving effect to the provisions of the Act. It is a well known fact that in financial markets, periodic crisis bring forth regulatory reforms. It was as a result of this that the commission in September 2008 constituted some industry-wide committees with the objective of repositioning the market for greater efficiency and international competitiveness. One of such committees was the Dotun Sulaiman committee on the review of the capital market structure and processes. The committee submitted its report in March 2009 and the implementation of the accepted recommendations has since commenced.
“The rules being presented today are in furtherance of the implementation of the recommendations of that committee and in fact with these new rules, about 95 per cent of the rule-based recommendations of the committee have been implemented. The present
amendments which comprise 23 new rules and 8 amendments to existing rules, cover a wide range of issues in the market. The purpose of this is to reach out to the investing public through the press to increase awareness of regulatory developments and responses to market dynamics.
The dynamic nature of the capital market therefore requires that rules must be changed from time to time to meet the challenges arising from such market dynamism.”
Key provisions in the new rule
The requirement for approval by the commission of appointment of executive directors of market operators is meant to ensure that only fit and proper persons run the affairs of market institutions.
The rule on validity of accounts submitted to the commission requires that it should not be more than 9 months for corporate bodies and not more than 12 months for governments and supranational bodies.
The requirement to make underwriting of issues the discretion of the issuer has made underwriting of issues in the market no longer mandatory.
However where an issue is underwritten, the underwriting commitment by a single underwriter shall not be more than 3 times its shareholders fund for equity offering and not more than 4 times for fixed income securities. Issuers are now required to list their securities not more than 30 days after allotment clearance (where the issuer had stated in its prospectus that the securities would be listed).Another key amendment relates to a reduction in the cost of issuance.
Separate rules have now been issued for corporate bonds. Before now, the same rules that apply to equity also applied to corporate bonds.
The new rules now issued are specifically to guide issuance of corporate bonds. Also new rules have been issued for the regulation of money market funds. One major new rule just issued is rule 234 C which is in furtherance of the anti competition powers of the
commission under section 128 of the ISA. The section empowers the commission to order the breakup of a company where its business practices are capable of restraining competition or creating a monopoly in its line of business. The new rules therefore provide details of those practices that would be considered by the commission as substantially preventing or lessening competition in the company’s line of business. This will help to check companies using their dominant position to cause a restraint on competition.
And lastly, the new rules require public companies to make additional financial reporting such as quarterly reports, half yearly report and to file annual reports with the commission in accordance with the requirements of sections 60 – 65 of the ISA.
Conclusion
With these new rules the issue of unclaimed dividends will reduce as companies are now required to forward the Sec approval together with the bonus share certificates (where applicable) to the registrar within one working day of receipt of the approval.
In the same vein, the registrar must forward the required data to CSCS within five working days and the CSCS shall credit shareholders’ account within two working days.
According to the new rule, bonus issues shall be distributed and credited to the shareholders’ account at the securities depository within five working days of approval by the commission and where the shareholder requests in writing for a physical certificate, or did not provide the registrar with his clearing house number or the company is a public unlisted company, the certificate shall be dispatched within one month of approval by the commission. Failure to credit a shareholders account or dispatch the certificate within the specified period shall attract a penalty of N100,000 in the first instance, and thereafter, N5,000 per day for the period of default.
