By Peter Egwuatu & Nkiruka Nnorom

There are indications that the Securities and Exchange Commission, SEC may soft-pedal on the implementation of new minimum capital base for capital market operators following the change of leadership in the commission.

Also, the Nigerian Stock Exchange, NSE, has said that implementation of minimum operating standard for stock broking firms operating in the Nigerian capital market will commence by the December 31, 2015.

It will be recalled that the commission had extended the deadline for the recapitalisation of capital market operators from December 30. 2014 to September 30, 2015 under the leadership of the immediate past Director General, Ms. Arunma Oteh.

Vanguard gathered that some major capital market operators have concluded arrangement to meet with the new leadership of the commission led by Mr. Mounir Gwarzo and other government functionaries to discuss on the capitalisation issue as well as other incentives needed to attract investors and boost market activities.

It was gathered that some of the market operators will dialogue with key officials in government agencies to ensure proper alignment of the capital market to Nigeria Fiscal and Monetary policy implementation.

A source said “ It is not unlikely that the issue of recapilisation would be discussed again with the new leadership of SEC to see how the implementation can be soft-pedal or even the entire recapilisation requirement be restructured in a way that all operators would meet the minimum level without stress. You know that the Acting Director General of SEC , Mr. Gwarzo has been an operator and a regulator , so he knows where the shoe pinches and would likely consider the views of operators when confronted.”

Speaking further, the source said “ Though, I believe that over 50 per cent of the operators have met the new capitalisation requirement, but we still believe that capitalisation should not be a major issue in the market especially for stock broking firms. We don’t need much of that capital to carry out our business. This is because we buy and sell based on clients’ order. This is part of the things that will be tailoured to the new leadership of SEC.”

It will be noted that the apex capital market regulator increased minimum capital base for broker/dealer by 329 per cent from the existing N70 million to N300 million.

A Broking firm, which currently operates with capital base of N40 million, will now be required to have N200 million, representing an increase of 400 per cent. Minimum capital base for dealer was increased by 233 per cent from N30 million to N100 million.

Also, issuing houses, which facilitate new issues in the primary market, will now be required to have minimum capital base of N200 million, as against the current capital base of N150 million. The capital requirement for underwriter also doubled from N100 million to N200 million. A Registrar will now have a minimum capital base of N150 million, as against the current requirement of N50 million.

While the minimum capital base for corporate investment adviser remained unchanged at N5 million, individual investment advisers will have to increase their capital base by 300 per cent, from N500,000 to N2 million.

Meanwhile, on the issue of minimum operating standard by the NSE, the Chief Executive Officer of the exchange, Mr. Oscar Onyema said that only stockbroking firms that meet the minimum operating standard would be allowed to continue operating in the market at the expiration of the deadline.

The guidelines on the Minimum Standard requirements for Operations of Broker Dealers address the following five broad areas and provide the minimum standards expected in the operations of all Broker Dealers in the Nigerian capital market: manpower and equipment; organizational structure and governance; effective processes; global competitiveness; and technology.

According to the guideline obtained by Vangaurd, a broker/dealer firm is expected to have efficient human resource to see to the daily operations of the firm in order to ensure effective service delivery and risk control, adding that it is essential that it employs high quality staff that should be adequately supervised where required.

This, according to the Exchange, will prevent exposure of the business to avoidable actions and unscrupulous practices which in turn threaten the integrity of the market. Furthermore, it stated that building capacity also requires continuous training of staff, while stipulating the standard academic qualification to be attained by different officers in a stockbroking firm.

On the minimum equipment required a dealing member firm, the NSE stated that sufficient office space and other materials regularly used in offices by businesses and other organizations for smooth operations should be in place. Such include small, expendable items in daily use to furniture, machines and other higher-cost equipment.

The following minimum equipment items are recommended: an accessible office with decent ambience, space and meeting rooms; photocopying machine/scanner, adequate power supply with adequate backup; decent ambience, including table and chairs for staff and clients; fire proof cabinets and safe; desk telephone and/ or dedicated GSM line, help desk and operational vehicle.

The operational structure, the NSE stated in the guideline, should determine how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management.

The organizational structure is influenced by the objectives and strategies of the firm and is manifested in the operations and performance of the firm, among other stipulated guidelines.

The interpretation guidelines released by the NSE prior to this time explained that broker dealers are high risk operators by the nature of their business. The guideline has it that although market activity has risen significantly for a number of dealing member firms, their operating standards have remained the same.

The NSE said in the guidelines, “Many have not established structures commensurate with the growth of their businesses, the capital market’s challenges and the associated risks.

“The Exchange has taken the position that it is imperative for broker dealers to build strong corporate and operational structures for their operations in order to mitigate risk and strengthen the market. It takes the view that healthy and well established firms are in a better position to manage and absorb any shocks that may be experienced in the capital market.”

The approach, the NSE said, is in line with the regulatory tools employed globally to manage risks in the activities of capital market operators, saying that the minimum standards also aim to nurture confidence in the capital market and enhance investor protection.

Throwing more light on the operating standard, Onyema said that implementation minimum operating standard by dealing member firms is quite distinct from recapitalization being pursued by the Securities and Exchange Commission, SEC.

He noted that though the SEC might have shifted the deadline for recapitalization, the implementation deadline for minimum standard remains unchanged.

He said, “We did not postpone the deadline for meeting our minimum standard, it was the SEC that moved the deadline for recapitalization to September. We did not move our minimum standard, so it still remains the end of 2014.

“What we released was an implementation timeline. So, as you know, we are expecting that dealing members will begin to turn in their financial statements and their reports to the Exchange by the end of March. So, we cannot go on until we receive those reports and then we will schedule an inspection. We will go and inspect them to be sure that they actually have what they claimed.

“When we’ve completed our inspections, that is when we will begin to talk about remedial actions and enforcement and all of that will take us till December 2015. That does not means that somebody that has not meet the standard should then relax