Why SEC is banning stockbrokers from making guaranteed investments

Last week, Nigeria’s stock market regulator, the Securities and Exchange Commission (SEC), approved the amendments to its regulatory framework which now prohibits stockbrokers from engaging in any form of guaranteed investments on behalf of shareholders.

The amended regulation also requires stockbrokers to categorically inform their clients, in writing, that they cannot

engage in guaranteed iinvestments on their behalf.

In the same vein, stockbrokers are banned from guaranteeing shareholders against losses in the course of their business relationships.

Following this development, any stockbroker who violates the newly approved regulation by engaging in any form of guaranteed dealings on the Nigerian Stock Exchange, NSE, will be penalised.

The sanctions can come in the form of a 10-day suspension from trading activities on the NSE, N5 million fine, as well as a daily fine of N20,000 from the day the N5 million fine is imposed until the day it is fully paid.

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Furthermore, defaulting Authorised Clerks can be specially suspended for a period to be decided under the NSE’s disciplinary process. When deemed necessary, the operating licenses of defaulting Authorised Clerks can also be revoked.

In a situation whereby it is proven that a compliance officer of a dealing member is aware of a violation but refuses to report such, he or she would risk being blacklisted.

Ultimately, defaulting dealing members risk being expelled as a member of the Nigerian bourse.

The need to amend the SEC regulation and stipulate stiff punishment became necessary as “part of efforts to clearly outline the risk horizon of quoted securities and plug a loophole that has lured many unsuspecting investors into bogus investment schemes.”

Prior to this time, there had been a significant increase in the abuse of guaranteed investments which, unfortunately, resulted in losses.

Just last year, a stockbroking firm, Partnership Securities Limited, was alleged to have lured some 300 investors into participating in some form of guaranteed investment which resulted in losses to the tune of about  N4.8 billion.

The Securities and Exchange Commission does not want such an incident to reoccur.


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Author: see naija

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