In one circular published According to the Nigerian capital market regulator SEC today, investment platforms giving access to foreign securities could work on dangerous grounds.
According to the SEC regulations that have just been updated, these platforms trade in foreign securities not registered in the country and have been warned not to do so anymore. Capital market operators, in partnership with them, have also been warned to stop providing brokerage services for foreign securities.
Over the past three years, Robinhood-like platforms like Bamboo, Trove, Chaka and Rise have sprung up in the Nigerian fintech space. They offer Nigerians access to stocks, bonds and other securities in local and international markets. These platforms have gained popularity among the middle class and are a safe haven to protect the profits from devaluations of the naira.
That said, there is a big difference in how they operate compared to Robinhood. In addition to being a trading app, Robinhood offers online brokers (introduction and clearing) as well as commission-free transactions. Nigerian investment platforms do not, and while any trading platform can get a brokerage license in the United States, it can be a Herculean task to get one in Nigeria. This is where capital market operators (local and foreign brokerage firms in this case) come in, forming strategic partnerships with these firms so that Nigerians can access fractions of both local and foreign securities. .
After a series of regulatory attacks by different government agencies against tech startups last year, the SEC followed suit in December. It distinguished Chaka, one of the platforms and accused her of selling and advertising stocks. The definition of the alleged infringement by the regulator was that Chaka “was engaged in investment activities, including providing a platform to buy shares in foreign companies such as Google, Amazon and Alibaba, outside of the United States. scope of the Commission regulations and without registration required ”.
Company CEO Tosin Osibodu has denied any wrongdoing, and since the start of the year, the SEC hasn’t heard much about the matter until today’s circular was released. Unsurprisingly, the regulator continued where it left off, but this time everything investment platforms including brokerage firms – not just Chaka – are involved. The SEC’s subtle directive is to stop selling, issuing or offering for sale foreign securities not listed on a stock exchange registered in Nigeria.
What this inherently means from here on out is that investment platforms will have their work cut out for them and may only offer individuals access to local stocks and securities. This affects the business models of these startups. And the core value they bring, which is to help Nigerians store their monetary value and protect themselves against the devaluation of the naira, is in danger of being wiped out.
However, following his brawl with the SEC, Chaka announced last month that he had contacted the regulator to get a newly created license to offer these services likely to exempt the company from this new regulatory threat. This is a route that other investment platforms may also have to take to bring their activities under the responsibility of the SEC.
Here is the information published by the regulator as it appears on its website:
The attention of the Securities and Exchange Commission (the Commission) has been drawn to the existence of several providers of online investment and trading platforms which allegedly facilitate direct access by the investing public in the Federal Republic of Nigeria to securities. foreign companies listed in securities. Scholarships registered in other jurisdictions. These platforms also claim to work in partnership with capital market operators (CMOs) registered with the Commission.
The Commission categorically states that, in accordance with the provisions of Articles 67-70 of the Investment and Securities Act (ISA), 2007 and Rules 414 and 415 of the SEC Rules and Regulations, only foreign securities listed on a Stock exchange registered in Nigeria may be issued, sold or offered for sale or subscription to the Nigerian public. As a result, CMOs who work together with the referenced online platforms are hereby notified of the Commission’s position and urged to refrain from now on.
The Commission urges the investing public to seek clarification, where appropriate, through its established communication channels on investment products advertised on conventional media or online.
This is a developing story. More soon…
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