The Securities and Exchange Commission (SEC) has proposed new rules regarding derivatives trading and registration requirements for commodity brokers in the Nigerian stock market.
In a statement issued on the proposed regulatory measure, the commission stated that the rules would be applicable to Exchange Traded Derivatives and OTC Derivatives.
It stated further that for registration, its approval should be sought and obtained prior to the introduction of any contract, stressing that any application for registration of a contract must be filed with the commission by or on behalf of an exchange with the SEC form and an information memorandum.
SEC clarified further on the rules: “No participant or any capital market operator shall trade in ETD without the prior registration by the commission. Funds shall only invest in derivatives if it is expressly stated in their Trust Deeds. Where an underlying security is suspended from trading or delisted, contracts on such underlying shall cease to trade.
“ETD can only be traded on exchanges recognised by the commission. No persons shall trade on ETD either for proprietary accounts or on behalf of clients except entities registered as derivatives trading members and/or derivatives clearing members.
“The Exchange shall have the responsibility for market surveillance to ensure derivatives prices reflect demand and supply and that all forms of market manipulations are prevented. Participants and registered capital market operators shall disclose their outstanding derivative exposures to the commission on a periodic basis as may be determined by the commission”, the commission added.
Expatiating further, the capital market regulatory institution stated that a derivatives clearing member would be in default if it failed to fulfil any of its contractual obligations, adding that where a DCM is unable to meet its obligation, the Exchange and/or the central counterparty will take appropriate steps to close out, auction or liquidate the proprietary positions of the DCM.
To ensure efficient implementation of the rules, the commission disclosed that it would charge fees for registration of contracts and issue guidelines on fees for trading and clearing of contracts in the secondary markets.
It cautioned that violation of any provision of the rules and regulations will be liable to a penalty of not less than N1m and a further sum of not more than N25,000 for every day of default.
On the amendment to registration requirements for commodity brokers, the market regulator stated that the filing, processing and registration fees payable were deliberately reduced to attract participants.
This is even as explained further that the evidence of payment of filing/application fee, processing fee, registration fee and sponsored individual fee would be N10,000, N20,000, N50,000 and N10,000, respectively.
According to the commission, the evidence of required minimum paid-up capital would now be N3m for commodity brokers and commodity dealers, while that of a commodity broker/dealer would be N10 million.
It also stressed that the justification for the minimum capital was that commodity brokers are expected to play in the spot market and as such, do not require much capital, adding that “the nature of the market is such that it does not require professionals with huge capital base.”
The commission advised market stakeholders to forward any comments and input on the rules to the Secretariat, Rules Committee of the commission or through the acting Director-General, SEC, not later than two weeks from the date of this amendment.
