By MICHAEL EBOH

The Securities and Exchange Commission, SEC, said that it is currently working to ensure that an enabling law is created that would allow it focus and develop a framework for asset securitization in the Nigerian capital market.

To this end, the Nigerian Stock Exchange, NSE, disclosed that plans are at an advanced stage to launch an Exchange Traded Fund, ETF, before the end of 2011.

Speaking at a one-day national seminar on asset securitization in Nigeria, with the theme: ‘Asset backed securities, Real Estate Investment Trust, REIT, Capital Market and Housing Finance,’ Director-General of SEC, Ms Arunma Oteh said asset securitization is critical to the development of the mortgage sector of the country and the economy in general.

Asset Securitisation is a process whereby non-tradable or illiquid financial assets are transformed into tradable securities. It involves the transfer of an asset or a pool of assets, directly or indirectly, by the owner of the assets to a special purpose vehicle which is funded through an issue of debt securities or notes backed by the cash flows generated by the assets.

An exchange-traded fund, ETF, on the other hand, is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index and may be attractive as investments because of their low costs, tax efficiency, and stock-like features.

Oteh further stated that asset securitization will help in deepening the Nigerian capital market and also help alleviate the problems associated with housing in Nigeria, adding that a key success of asset securitization is that it will help create standards for people to conform to.

She, however, warned that in developing asset-backed securities, stakeholders in the Nigerian capital market should be wary of situations that led to the mortgage crisis in the United States which triggered the Global Financial meltdown.

Speaking in the same vein, Chief Executive Officer, NSE, Mr. Oscar Onyema said that the NSE has already developed a framework to guide the development and listing of Asset-backed securities on the NSE.

He said that among the most critical elements it will take into consideration before allowing an Asset-backed security to be listed on the NSE is the rating of the security and the issuer and also a credit enhancer or a guarantor for the securities. He further stated that the NSE will focus on the issuer, credit enhancement, agreement guiding the securities and underlying asset disclosure.

Onyema said its recent emphasis on Asset-backed securities in the Nigerian capital market is guided by the need to fully integrate the Nigeria economy with the Nigerian capital market and deepen the capital market by providing investors with a variety of products.

He further stated that the NSE is guided by the need to protect investors’ interest by ensuring the absence of conflict of interest amongst the parties to the issue of an asset-backed security.

Onyema expressed the commitment of the NSE to ensuring that the housing needs of the vast of Nigerians are met.