NINETY-FOUR inactive companies which could not comply with the new minimum capital base for capital market functions are to lose their licences. In a circular issued at the weekend, the Securities and Exchange Commission (SEC) directed the 94 firms to state on or before December 4 why “their registration as capital market operators should not be cancelled”. Extant capital market rules require the regulators to give quoted companies and operators notices before delisting them. The circular at the weekend served as both a pre-notice on the cancellation of the certificates of registration of the 94 firms as well as a notice to the investing public on the status of the firms. The Commission stated that the capital market firms “have consistently failed to render their statutory returns to the Commission and may have been unable to comply with the new minimum capital requirements before the deadline stipulated by the Commission which expired on 30th September, 2015”.
SEC had started post-recapitalisation audit of capital market operators with a view to providing a final list of active and well-capitalised bona fide capital market operators by the end of this year. It had earlier released the preliminary list of firms that had met the September 30, 2015 deadline for recapitalisation. Both the SEC and the Nigerian Stock Exchange (NSE) are engaged in coordinated concerted efforts to weed out poorly capitalised capital market firms, which they had fingered as sources of several infractions. The regulators had argued that well-capitalised firms would be able to retain competitive technology, human resources and capital to operate effectively without recourse to infractions and pilferage of investors’ funds. But, some operators said infractions were not limited to small firms, noting that stockbroking service, as an agency service, requires no such huge capital but rather the integrity capital of the professionals. They warned that muscling out small firms might inadvertently hinder the spread and depth of the market since they are easily approachable by small-scale retail investors.
The Nation noted that revocation of licences of the inactive firms as well as small-size firms may not have any significant impact on the operations at the stock market. There are 220 active broker-dealers on the NSE, but less than 15 per cent of the operators account for more than three-quarters of trading turnover at the market. The SEC circular confirmed several reports by The Nation that the NSE and SEC planned to delist poorly capitalised and inactive firms. The NSE is verifying compliance with its Minimum Operating Standards (MOS), which became effective on January 1, 2015. The MOS requirements were introduced last year by the management of the Exchange. The MOS requirements relate to all the dealing members of the Exchange and they address the five broad areas of manpower and equipment; organisational structure and governance; effective processes; global competitiveness; and technology.
A new rule on the revocation of dealing licences and expulsion of inactive firms, which came into effect on June 29, empowers the Exchange to revoke the licence of any dealing member that has been inactive for six consecutive months. According to the rule, under no circumstances shall a dealing member cease to carry out its day-to-day business activities for which it was licensed to operate without any reasonable cause. A dealing member may be deemed inactive voluntarily and involuntarily. Voluntary inactivity occurs where the firm has not recorded any trading activity without being suspended by the Exchange or SEC. Involuntary inactivity occurs where the firm has been suspended by the NSE or SEC for any infraction. Also, under the new amendments, the suspension of any stockbroking firm by SEC will lead to immediate suspension by the NSE. Revocation of any broker’s registration will lead to expulsion of the firm by the NSE. ”Where a Dealing Member’s registration is revoked by the Commission, as soon as the Exchange is notified, it shall immediately commence the process of expulsion of the dealing member,” the rules states.
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