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SEC has hammer to break up company that flaws market rules

Direactor General of the Securities and Exchange Commission (SEC), Ms. Arunma Oteh in an interactive session with Vanguard speaks on the new rules of the Commission which came into effect on March 24, 2010 and other issues affecting the activities of the Nigerian capital market.
Excerpts :

DG, SEC

Under the new rules will SEC be able to execute its power to approve or reject the appointment of executive directors of the Nigerian Stock Exchange (NSE) that is a self regulator

Yes of course, the NSE is under the regulatory purvey of the SEC, hence any appointment of its principal officers will have to get the approval of the Commission.

Rule 15 A was created to empower the Commission to approve the appointment of Executive Directors and provide for the minimum qualifications for appointment as Directors of capital market operators. Already the SEC has advised the Council of the Nigerian Stock Exchange (NSE) to appoint credible professional that will recruit qualified person to run the affairs of the Exchange when its current Director General, Professor Ndi Okereke Onyiuke retires in November. We have told them also to make the appointment an open and transparent one by advertising the position for people who are qualified to apply given the importance of the Exchange to the market and economy in general.

What will happen when securities are listed on the NSE without meeting the SEC criteria?
No securities can be listed and traded on the Exchange without getting SEC’s approval. Before any securities is listed on the Exchange it must be registered with the Commission before the NSE will go ahead to list it.

The new rule under Rule 50 on the condition for approval of IPO and listing by introduction has it that for any quoted company to undertake an IPO of pure equity or convertibles or listing by introduction it must produce three years financial track record;

Track record of distributable profit for two out of the immediately proceeding three years and positive shareholders funds. This is to strengthen the market. Though, in the past companies whose promoters have good records were en couraged to be listed on the Exchange , this will no longer be tolerated since the market crisis has thought the regulators lessons. The SEC does not have the power to regulate private companies except when such company is involved in the sale of shares.

Will SEC have the courage to order break up of a company when its practices restrain competition
Yes we have the hammer to nail any operator restraining competition in the market. The rule 234 C empowers the Commission to break up companies where it believes its activities constitute a restrain to competition.

The rule lists those business practices capable of restraining competition and creating monopoly and for which the Commission may take the ultimate sanction of ordering the break up of the company in accordance with section 128 of the ISA. We will only break up a company as a last resort when warning, sanctions have been taken without the operator stopping such act.

On the verification of share certificate, is it feasible for Registrars to conclude the exercise in 10 days
Yes of course it is feasible. The various operators responsible for share verification were engaged before the rule was made.

All of them contributed their inputs, even two separate committees were set up, in one of the them was headed by the Managing Director of First Registrar, Mr. Bayo. So the rule was amended to provide for additional responsibilities for Registrars.

The responsibilities are: Share certificate received from investors for verification by the stockbroker shall be forwarded to the Registrar within 24 hours; The registrar shall within 10 days verify the certificates; the stockbrokers shall confirm the verification with the Registrar after 10 days; where the signature of the investors requires Bankers confirmation, the Registrar shall return the certificate and the stockbroker has 2 days to contact the shareholder. It is our hope that the problem of share certificates will become a thing of the past because we are going to ensure that registrars comply to this rules or face sanction.

Does SEC have the capacity and muscle to monitor projects financed by state bonds
Of course we have challenges in this regard but we hope to address this since the Commission is undergoing reforms. Nevertheless, with our limited resources we have been inspecting projects financed through proceeds from bonds. We don’t inform the states when we are coming to verify this project. We take them unaware. So when we come they take us to those projects and show us. If we are not satisfied with the level of work in place we tell them to strengthen up the work as the case may be.

What about companies that raise money from the market without utilizing the proceeds for the project listed in the prospectus. Does SEC monitor the operators that raised funds from the market.

Yes of course, as stated before we do not announce our routine checks on these companies. We visit them and ask them to show us how they have used the proceeds of the offer raised from the market. We should note that some of the things they mention in the prospectus are not something physical, such as working capital, deployment of software for the information technology etc. But we insist that they should show us document for the acquisition and installation of these software and so on. For the physical items we ask them to shows us.

However, the new rule that has been created provide that all subsequent capital raising shall be approved only upon satisfactory account of utilization of previous issue proceeds.

Under the current rule, does investor has the right to sue SEC for companies misguiding them to take investment decision through false accounts.

No, investors cannot sue SEC because we already told the quoted companies that all their directors are responsible for the statement provided in the annual report. So in the issue of liability, the directors of those companies bears the consequence. SEC is not directly involved we only look at the books when they are presented to us. This is why we always warn investors to read the prospectus of any company who want to raise money and determine whether to commit their resources or not. In fact, we usually advise investors to consult professionals to advise them. SEC cannot be held responsible for any misstatement of financials.

Why are banks refusing to accept shares as collateral for loans and what is the position of margin facilities
Well banks have the prerogative to accept or refuse shares as collateral for lending. They can even refuse the house one present as collateral for loan based on the kind of house o probably where they are located. However, in the case of margin facilities and the Central Bank of Nigeria (CBN) and SEC have decided that banks’ shares cannot be used for marginal trading. In fact, a comprehensive rule on margin trading drafted by both CBN and SEC will soon be released.


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