Investment And Securities Operation In Nigeria By; Kingsley E Izimah, Esq

PREAMBLE:

The regulation of investment and securities business in Nigeria
is vested in the Securities and Exchange Commission by the
Investment and Securities Act, 2007 to carry out among other
things, the functions and powers to register and regulate
Securities Exchange, Capital Trade points, futures, options and
derivatives exchanges, commodity exchanges and any other recognized
investment exchanges.

The Securities and Exchange Commission is mandated to act in the
public interest having regard to the protection of investors and
the maintenance of fair and orderly markets and to this end to
establish a nation-wide trust scheme to compensate investors whose
losses are not covered under the investor’s protection funds
administered by the Securities Exchange and Capital Trade
points.

INTRODUCTION:

Investment and Securities operations in Nigeria are under the
monitor of Securities and Exchange Commission whose activities are
governed by the Investment and Securities Act CAP 124 Laws of the
Federation of Nigeria 2007. The activities of the Securities and
Exchange Commission are led by a nine member board and four
Management Executive Committee whose duties are to register and
supervise the issuance of securities of public companies, as well
as Mergers, Acquisitions and Take-Over, and collective Investment
Schemes.

The Commission is also responsible for the registration of all
market operators and recognized securities exchanges. It also
supervises unit trusts and venture capital activities and reviews
the financial health of publicly quoted companies to protect
shareholders, and ensure compliance with code of corporate
governance and other relevant guidelines.

This newsletter is targeted at the activities of Securities and
Exchange Commission in the regulation of investment and securities
business in Nigerian Capital Market

DEFINITION:

The courts have defined securities industry in the case of
Olubunmi Oladapo Oni v. Administrative Proceedings Committee of
Securities & Exchange Commission & Anor. (2013)
LPELR-CA/L/991/2008, as follows:

“What is the Securities Industry one may ask? The expression
‘Securities Industry’ is not defined by the Act. But the word
‘Securities’ is defined to include debentures, stocks, shares,
bonds or notes issued by a body corporate. To my mind, the
expression ‘Securities Industry’ includes anybody corporate that
issues debentures, stocks, shares etc.” I agree with the learned
trial Judge that anybody corporate that issues stocks, shares and
debentures is part of the Securities Industry.” per Iyizoba, J.C.A.
(Pp. 11-12, Paras. G-C).

As relating to the topic in discuss, the following terms are
defined as follows:

INVESTMENT: Means the act of committing money
or capital to an endeavour in order to gain profitable returns such
as interest, income or appreciation in value.

SECURITIES: Means debentures,  shares,
promissory notes, or notes issued or proposed to be issued by body
corporate or incorporated, certificates of deposits issued by banks
which has a tenure of not less than nine months, bills of exchange,
future contracts, stocks or bonds issued or proposed to be issued
by government.

ENABLING LAWS, ACTS AND STATUTES:

The Investment and Securities Act, CAP 124, Laws of the
Federation of Nigeria, 2007 was promulgated to regulate investment
and securities business in Nigeria and to provide for matters
connected therewith.

Notwithstanding the provisions of the Investment and Securities
Act, the relevant provisions of all existing enactments including:
The Trust Investment Act, The Borrowing by Public Bodies Act, The
Companies and Allied Matters Act, The Insurance Act, The Central
Bank of Nigeria Act, The Nigerian Social Insurance Trust Fund Act,
The Banks and Other Financial Institutions Act, The Nigerian
Investment Promotion Commission Act, The Foreign Exchange
(Monitoring and Miscellaneous Provisions) Act and Chartered
Institute of Stockbrokers Act shall be read with such modification
as to bring them into conformity with the provisions of the
Act.

If the provisions of any other law, including the enactments
specified in the Investment and Securities Act, are inconsistent
with the provisions of the Investment and Securities Act, the
provisions of the Investment and Securities Act shall prevail and
the provisions of that other law shall, to the extent of the
inconsistency, be void.

BRIEF HISTORY AND EXPLANATION OF TERMS:

The origin of Investment and Securities Act dates back to 1996
when a seven – man panel headed by Chief Dennis Odife was
commissioned to review the observed lapses in the activities of the
Securities and Exchange Commission to further enhance the
Commission’s pursuit of its objective of investor protection.

Based on the panel’s recommendations, a new Act known as “The
Investment and Securities Act No. 45 of 1999” was promulgated on
May 26, 1999. The Act repealed the SEC Act of 1998. The new Act was
expected to promote a more efficient and virile capital market,
pivotal to meeting the nation’s economic and developmental
aspirations. The Investment and Securities Act (ISA) was further
reviewed, amended and subsequently passed into law in
2007.  The SEC currently derives its powers from
the Investment and Securities Act 29 of 2007.

The Securities and Exchange Commission (SEC), Nigeria is the
apex regulatory institution of the Nigerian capital market
supervised by the Federal Ministry of Finance.

EXTENT OF THE JURISDICTION OF THE INVESTMENT AND
SECURITY TRIBUNAL:

On the extent of the jurisdiction of the Investment and
Securities Tribunal, the Court of Appeal have held in the case of
Mrs. Minnie Ajuwede Igbrude v. Ecobank Ltd & Ors (2018)
LPELR-CA/L/61/2015, per Obaseki-Adejumo, J.C.A that:

“Section 274 of the Investment and Securities Act, 2007
establishes the Investment and Securities Tribunal. Jurisdiction is
so important that it is fundamental and goes to the competence of
the Court or tribunal. See also the case of UBA v. Davandy Finance
And Securities Ltd (2015) LPELR-25769 (CA). It is also the
authority which a Court has to decide matters before it or to take
cognizance of matters presented before it for its decision. See
also the cases of Ndaeyo v. Ogunaya (1977) 1 SC 11; Dapianlong v.
Dariye [2007] 4 SC (Pt.111) 118; Tetrazinni Foods Ltd v. Abbacon
Investment Ltd & Ors (2015) LPELR – 25007 (CA).

Thus, section 284(1) (a) (i-iv), (b) – (f), sets out clearly the
questions of law or dispute involving:

284 (1)a).     A decision or determination
of the commission in the operation and application of this act and
in particular, relating to any dispute:-

i).       Between capital market
operators;

ii).      Between capital market operators
and clients;

iii).     Between an investor and a securities
exchange or capital trade point or clearing and settlement
agency;

iv).    Between capital market operators and
self-regulatory organization;

b).      The commissions and self-regulatory
organization;

c).      A capital market operator and the
commission;

d).      An investor and the commission;

e).      An issuer of securities and the
commission;

f).      Disputes arising from the
administration, management and operation of collective investment
schemes.

Section 2 & 3 of the ISA further states as follows:

2)       The Tribunal shall also
exercise jurisdiction in any other matter as may be prescribed by
the act of the National Assembly.

3)       In the exercise of its
Jurisdiction, the tribunal shall have power to interpret any law,
rule, or regulation as may be applicable…

It is a trite law that for a Court to be competent and have
jurisdiction over a matter, proper parties must be identified.
Before an action can succeed, the parties to it must be shown to be
proper parties to whom rights and obligations arising from the
cause of action attach. The question of proper parties is a very
important issue which would affect the Jurisdiction of the Court as
it goes to the foundation of the suit in limine. Where the proper
parties are not before the Court then the Court lacks jurisdiction
to hear the suit… There is no doubt that jurisdiction is the life
blood and font et origo of the exercise of Judicial power and that,
being the threshold of Judicial power and judicialism and by
extension to extrinsic adjudication, parties cannot either by
connivance, acquiescence or collusion confer same on a Court that
is not seised of such jurisdiction. See the case of Okolo v. Union
Bank Of Nig. Plc [2004] All FWLR (Pt 197) 981; FGN v. Oshiomhole
(2004) 3 NWLR (Pt.86) 305 at 324, para B; Mobil Producing (Nig) Ltd
v. Monokpo (2004) All FWLR (Pt. 195) 575 at 657…”.

STATUTORY POWERS OF SECURITIES AND EXCHANGE
COMMISSION:

Section 13 of Investment and Securities Act, 2007 spells out the
functions and powers of SEC. Having stated that publicly quoted
companies are part of the securities industry, it follows that by
section 13(b) of Securities and Exchange Commission can disqualify
persons considered unfit from being employed in any arm of the
securities industry including directorship positions in public
companies”, per Iyizoba, J.C.A. in the case of Olubunmi Oladapo Oni
v. Administrative Proceedings Committee of Securities & Exchange
Commission & Anor. (2013) LPELR-CA/L/991/2008, (p. 13, paras.
A-D).

WHETHER THE PROVISIONS OF THE COMPANIES AND ALLIED
MATTERS ACT AND THOSE OF THE CRIMINAL CODE DO NOT DEROGATE FROM THE
DUTIES AND POWERS OF SECURITIES AND EXCHANGE
COMMISSION? 

Sections 60 – 65 of the ISA provides for the corporate
responsibility of Public Companies such as the filing of annual
reports with the Securities and Exchange Commission, system of
internal control of public companies and penalties for
contravention etc.

Section 66 of the ISA further provides:

“66 – (1) where a contravention of any provision under this Part
is committed by a body corporate and it is proved that the
contravention has been committed:

(a)      With the connivance of or as a
result of any neglect on the part of a director, manager, secretary
or other similar officer, servant or agent of the body corporate or
any person purporting to act in any such capacity; or

(b)     As a result of a director, manager,
secretary or other similar officer, servant or agent of the body
corporate or any person purporting to act in any such capacity
knowingly or willfully authorizing the contravention, the director,
manager, secretary or other similar officer, servant or agent of
the body corporate or any person purporting to act in any such
capacity shall be deemed liable to the extent as the corporate
body.

(2)     The commission may administratively apply
any of the penalties prescribed for the contravention of any of the
provisions of this Part.” From these provisions, it is not in doubt
that SEC has the power to regulate the activities of companies and
its board.

Thus, the provisions of the Companies and Allied Matters Act and
those of the Criminal Code do not derogate from the duties and
powers of the Securities and Exchange Commission. On the contrary,
they complement each other. See the case of Okike v. L.P.D.C.
[2005] 15 NWLR (Pt. 949) 471.per Iyizoba, J.C.A. as cited in the
case of Olubunmi Oladapo Oni v. Administrative Proceedings
Committee of Securities & Exchange Commission & Anor. (2013)
LPELR-CA/L/991/2008, (pp. 13-14, paras. D-E)

ADVANTAGES OF INVESTING IN THE SECURITIES
MARKET:

The capital market is that division of the financial system that
serves as engine of growth in modern economies. The capital market
provides the platform for government and companies to raise
investment capital targeted in providing long-term funds for
productive use. These financial instruments such as equities and
bonds can be used to finance projects and provide basic amenities
within the society.

The capital market also functions as a tool to acquire other
companies through mergers and acquisition. For instance, the merger
of United Bank for Africa Plc with Standard Bank and
Intercontinental Bank to Access Bank are quite good examples of
functions and advantages of Investment Securities operation.

A cursory look at the capital market is its composition as
network of institutions and individuals made up of regulators and
operators who work together for an effective market operation.

Finally, the capital market is a network of institutions and
mechanisms through which medium and long-term funds are made
available to businesses and governments and instruments outstanding
are transferred among investors.

DISADVANTAGES OF INVESTING IN THE SECURITIES
MARKET:

The first major challenge within the Investment Securities
operation is the lack of clarity about the type and features of
investment instruments being used by sub-national governments. Most
of the sub-national government bonds are issued as ‘revenue bonds’
(RBs) whereas by their features, they are strictly speaking,
‘general obligation bonds’ which are unsecured and represent
general claims on the government.

A second major challenge is the extent of information disclosure
requirements and the security structure in place.

CONCLUSION:

One of the functions of the capital market is to promote
economic development through efficient allocation of resources and
to smoothen the distribution of consumption pattern over time. The
capital market thrives on information. Inadequate disclosure of
information can lead to wrong investment choices and resource
misallocation. Therefore, the type of investment instrument must be
transparent to the investor and the security structure must be
appropriately tailored to the characteristics of the investment
instrument. Similarly, the information requirements must also be
tailored to address the characteristic features of the instrument
being sold in the market.

Please do not hesitate to contact us if you need more
clarifications.

KINGSLEY E IZIMAH, ESQ.,kingsley.izimah@gmail.com^[1];+234
(0) 806-809-5282; 0805-101-9362