17 September 2008

Nigeria: SEC Issues New Stock Market Rules

The Security and Exchange Commission (SEC) Monday in Abuja issued new rules to guide and stabilise the Nigeria's Stock Market.

They are Rule 109B and Rule 31C which refer to Rules relating to acquisition of own share by companies and rules on market makers respectively. Rule 182C stipulates the functions of market makers.

This is in line with the Federal Government's directive which mandated SEC to issue new guidelines to stabilise the capital market. Director General of SEC Musa Al-faki released the guidelines after the inauguration of two technical committees on the review of code of corporate governance for public companies and the review of capital market structure and process by the SEC' s Chairman Senator Udoma Udo Udoma.

Rule 31C defines Market Makers as any entity desirous of performing the function of a market maker in the capital market shall file an application for registration with the Commission in the appropriate SEC form.

Market Makers "mean any specialist permitted to act as dealer, any dealer acting in the position of a block positioners, any dealer who with respect to a security, holds himself out as being ready to buy and sell such securities for his own account on a regular and continuous basis."

To be eligible as a market maker, the rule states that a company shall have a minimum paid up capital of N2 billion and at all time maintain sufficient liquid assets to cover its current indebtedness.

Other eligibility conditions states that the market maker "shall clearly state in its Memorandum and Articles of Association that it can deal in securities in the capital market, and "shall convey any change in information which affects the status of the company to the Commission as required by Rule 49 of these rules and regulations."

A market maker is expected to be a specialist in designated securities and shall holds itself out as being willing to buy and sell the designated securities for its own account on a regular or continuous basis. It is also expected that the market maker promote continuous liquidity in the market at all times and facilitate a smooth trading atmosphere and engender market stability as well as promote price discovery. The rule states that a market maker cannot combine its function with stock broking but can carry out underwriting.

Aside the functions above, a market maker shall have the capacity for continuous 2-way quotes in the relevant stocks throughout the trading session in a minimum quote size of 100, 000 units of shares. On the share buy - back, SEC said the aggregate number of shares to be bought back shall not exceed 15% of its existing issued and paid-up equity capital in any given financial year. SEC amended Rule 109B (3) by adding that resolution of the company authorizing the share buy-back shall be a special resolution as provided in the Companies and Allied Matters Act (CAMA).

Rule 109B (3) (vi) said shares shall only be re-purchased out of share premium account and or accumulated profit of the company which would otherwise be available for dividends and shall be reflected in the latest audited accounts. "The latest audited accounts shall not be more than nine (9) months old." Meanwhile, the technical committee for the review of corporate governance for public companies is to be headed by Mr. A.B. Mahmood with fourteen other members.

The committee on the review of the capital market structure and processes is headed by Mr. Adedotun Suleiman. The committee is to make recommendations to SEC for measures that can be taken to improve its operational efficiency. There fifteen members.

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