Pursuant to the powers of the Securities & Exchange Commission (SEC) conferred on it by section 13 and further section 312 (3) of the ISA 2007 and in exercise of the powers conferred on the Central Bank of Nigeria (CBN) by section 47 (2) of the CBN Act 2007 to promote and facilitate the development of efficient and effective systems for settlement of transactions, the SEC and the CBN hereby issue the following guidelines for the settlement of all types of securities in Nigeria.
This article will be looking at the notable provisions of these guidelines.
What are the objectives of the guidelines?
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The main aim of this guideline is to promote competitive, efficient, safe and sound post trading arrangements in Nigeria.
This should ultimately lead to greater confidence in securities markets and better investor protection and should in turn limit systemic risk.
In addition, the guidelines seek to improve the efficiency of the market infrastructure, which should in turn promote and sustain the integration and competitiveness of the Nigerian securities markets.
What is the applicability scope of the guidelines?
The guidelines set out the procedures for the settlement of securities in Nigeria, including the rights and obligations of the parties. It also covers the settlement procedures and settlement cycle for the trades executed in the following exchanges:
- The Nigerian Stock Exchange traded securities.
- FMDQ Over The Counter (OTC) Securities.
- NASD Over The Counter (OTC) Securities
- Nigerian Commodity Exchange (NCX) traded securities.
- Afex Commodities Exchange.
Who are the parties to securities settlement in Nigeria as recognized by the guidelines?
Parties to Securities Settlement in Nigeria shall include but not limited to:
– Capital Market Registrars.
– The Central Bank of Nigeria.
– The Central Securities Clearing System (CSCS) PLC (Central Securities DepositoryClearing & Settlement Agent).
– Custodians.
– Dealing Members Firms.
What are the securities settlement rules and procedures outlined by the guidelines?
As a general rule, any securities transaction must trade or be reported through a licensed exchange in line with the standard settlement guidelines . Consult your lawyer for further information on this.
What is the Investors Payments Procedure outlined by the guidelines?
-Customers account should be credited with proceeds from sale of their securities directly into their bank account or deposit into their stock broking account or other acceptable payment modes.
Payments shall reach the beneficiary’s account not later than the next working day after settlement.
What are the rights and responsibilities of the relevant parties involved in securities settlement in Nigeria?
Registrars
The Registrar shall have the following responsibilities to :
-Select the bank or service provider for electronic payments.
– Provide the basic infrastructure requirements for electronic payments.
– Define and adhere to appropriate operational processes for initiating electronic payments.
Rights and Responsibilities of CSCS (The Central Securities Clearing System) Plc.
– To be the financial market infrastructure that provides Central Securities Depository (CSD) and sub-registry services for Nigerian Capital markets.
-Provides electronic clearing and settlement services for all eligible Securities on the principle of Delivery versus Payment (DVP).
– Define requirements for Settlement Banks.
– Advice Settlement Banks and NIBSS/CBN on dealing member firms financial obligations arising from Securities transactions.
Rights and Responsibilities of Custodians
-Custodians as clearing members are to ensure that bank accounts are funded on or before Settlement day.
-To ensure asset separation between Custodians and clients at all times.
– To provide periodic account updates to the investors.
Rights and Responsibilities of PDMMS
– To act as dealers to fund their settlement account on behalf of their clients on/before settlement day.
– To act as dealers to transmit proceeds to investors latest by the next day after settlement.
Rights and Responsibilities of Investors
An Investor has the following responsibilities:
– To maintain an account with a DMB.
– To confirm and provide proper details of the account to the Registrar and Stockbrokers.
– To alert the Registrar or Stockbroker if payment is not effected after being advised.
Rights and Responsibilities of Banks
Banks have the following responsibilities:
– To process electronic payments instructions in accordance with the terms defined by the payments system.
– To provide correct account numbers and bank sort codes to beneficiaries.
– To provide timely information on customer enquiries.
Payment Service Providers
The Payment Service Providers have responsibility for the payment initiation platform and the electronic reporting system used by the Registrars and Stockbrokers. Their other responsibilities include:
– The provision of a secure electronic platform for payment initiation and online transaction reporting.
– Implementation and support of the electronic payment platform.
What is the dispute resolution mechanism and procedure prescribed by the guidelines?
Dispute Resolution in respect of securities settlement shall be governed by the relevant rules issued by CBN, SEC, The Exchanges, CIS and IST’s directives.
What are the provisions of the guidelines for sanctions?
Regulatory bodies shall review and apply appropriate sanctions in the event of default and/or infractions in securities settlement.