Nigerian Securities and Exchange Commission

Module 2

UNIT 4 THE NIGERIAN SECURITIES AND EXCHANGE COMMISSION

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 History of the Securities and Exchange Commission
3.2 Functions of the Securities and Exchange Commission
3.3 The Activities of the Securities and Exchange
Commission
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading
1.0 INTRODUCTION
In the previous unit, you were taken through the Nigerian Capital
Market. You still remember the activities of the Nigerian Securities and
Exchange Commission. You are now aware that it is an apex regulatory
body of the capital market, which regulates securities, the conduct of
operators in the market, as well as sales practices.
In this unit, your focus will be more on the Security and Exchange
Commission, with emphasis on its origin, functions and activities.
2.0 OBJECTIVES
At the end of this unit, you should be able to:
 outline the historical evolution of the Securities and Exchange
Commission
 describe the functions of the Securities and Exchange
Commission
 evaluate the activities of the Securities and Exchange
Commission critically.

3.0 MAIN CONTENT
3.1 History of the Securities and Exchange Commission
The origin of Securities and Exchange Commission dates back to 1962
following the establishment of an ad hoc consultative, advisory body
known as the Capital Issue Committee, with the support of the Central
Bank of Nigeria. Its primary function was to examine applications from
companies seeking to raise capital from the market and to recommend
the timing of such issues. The committee, however, had no legal
backing, but operated, un-officially, as a capital market’s advisory body
within the Central Bank of Nigeria.
An increase in the level of economic activities, and consequently, capital
market activities at the end of the civil war, coupled with the
promulgation of the Nigerian Enterprises Promotion Decree in 1972,
necessitated the creation of another body, known as the Capital Issues
Commission (CIC) in March, 1973 which was vested with the power to
determine the price, amount and time at which shares or bonds of a
company are to be sold to the public. Only public companies, both
quoted and unquoted, fell within the sphere of CIC.
In 1976, the Financial System Review Committee (FSRC)
recommended the establishment of Securities and Exchange
Commission, after considering the role of CIC and realising the need to
protect investors and keep them informed of companies and securities
issues in the market. Most importantly, the recommendation of the
FSRC was also based on the realisation that there was the need for an
apex capital market regulatory body, which will promote efficiency in
the market.
Consequently, the Securities and Exchange Commission (SEC) was
established by the Securities and Exchange Commission Decree of 27
September, 1979, effective, albeit retrospectively, from April, 1978, to
supersede the Capital Issue Commission. The Securities and Exchange
Commission was vested with a wider power to regulate and develop the
Nigerian capital market, in addition to determining the price of issues
and setting the basis of allotment of securities.
The Commission, however, took off effectively on January 1
st
, 1980. In
1988, the Securities and Exchange Commission Decree of 1979 was reenacted by the Securities and Exchange Commission Decree of 1988,
with additional provisions to address observed lapses in the previous
arrangement and to enable the commission carry out its functions, more effectively.
To further enhance the pursuit of the objectives of the commission, a 7-man panel, headed by Chief Dennis Odife was constituted in 1996.
Based on the panel’s recommendations, a new act known as the
Investment and Securities Act of 1999 was promulgated on May 26,
1999. The Act repealed the Securities and Exchange Commission Act of
1988. The new act was expected to promote a more efficient and virile
capital market, pivotal to meeting the nation’s economic and
developmental aspirations in the new millennium.

SELF-ASSESSMENT EXERCISE 1
Outline the historical evolution of the Securities and Exchange Commission
3.2 Functions of the Securities and Exchange Commission
The functions of the Commission, according to the provisions of the
Investments and Securities Act (ISA) of 1999, are as listed below:
1. Regulation of investments and securities business in Nigeria, as
defined in the Investment and Securities Act.
2. Registration and regulation of securities exchanges, capital trade
points, options and derivative exchange, commodity exchange
and any other recognised investment exchange.
3. Registration of securities to be offered for subscription to the
public.
4. Rendering assistance in all aspects- including funding, as may be
deemed necessary- to promoters and investors wishing to
establish securities exchange and capital trade points.
5. Provision of adequate guidelines, modalities and information
necessary for the establishment of securities exchange and capital
trade points.
6. Registration and regulation of corporate and individual capital
market operators as defined by the ISA.
7. Registration and regulation of the workings of venture capital
funds and collective investments schemes including mutual
funds.
8. Facilitating the establishment of nationwide system for securities
trading in the Nigerian capital mar ket, in order to protect
investors and maintain fair and orderly market.
9. Facilitating the linking of all markets through modern
communication and data processing facilities in order to foster
efficiency, enhance competition, and increase the information
available to brokers, dealers and investors.
10. Acting in the public interest, with regards to the protection of investors and the maintenance of fair and orderly markets. In doing this, the commission is expected to establish a nationwide trust scheme to compensate investors whose losses are not covered under the investors protection funds administered by securities exchange and capital trade points.
11. Keeping and maintaining separate registers of foreign direct
investments and foreign portfolio investments.
12. Registering and regulating central depository companies and
clearing and settlement companies, custodians of securities, credit
rating agencies and such other agencies and intermediaries.
13. Protecting the integrity of the securities market against abuses
arising from the practice of traders.
14. Acting as a regulatory apex organisation for the Nigerian capital
market including the promotion and registration of self-regulatory
organisation and capital market trade association to which it may
delegate its powers.
15. Review, approve and regulate mergers, acquisition and all forms
of business combinations.
16. Promote investors education and the training of all categories of
intermediaries in the securities industry.
17. Inspect, audit the securities exchange, mutual funds, capital trade
point, futures, options, and derivative exchange as well as other
intermediaries and self-regulatory organisations in the securities
industry.
18. Call for information or furnish any agency with information, as
may be considered necessary, for the efficient discharge of its
function.
19. Levy fees or other charges on any person/entity for carrying out
investment and securities business in Nigeria.
20. Conduct research into all or any aspect of the securities industry.
21. Prevent fraudulent and unfair trade practices in relation to the
securities industry.
22. Advice government on all matters relating to the securities
industry.
23. Disqualify unfit individuals from being employed anywhere in
the securities industry.
24. Liaise, effectively, with the regulators and supervisors of other
financial institutions, locally and overseas.

SELF-ASSESSMENT EXERCISE 2
Outline the functions of the Securities and Exchange Commission.

3.3 The Activities of Securities and Exchange Commission
The Securities and Exchange Commission, as earlier mentioned, is the
apex regulatory body of the capital market. In regulating the market, the
Commission undertakes the following activities meant to protect
investors, market operators, to ensure that market integrity is
maintained.
1. Regulatory activity
This is aimed at strengthening investors’ confidence in the capital
market by creating the enabling environment for the orderly trading of
securities and ensuring that fair and equitable prices prevail. To achieve
this, the Securities and Exchange Commission ensures:
a) The registration of securities and market intermediaries to ensure
that only fit and proper persons/institutions are allowed to operate
in the market;
b) The surveillance of the exchanges and trading systems in order to
forestall breaches of market rules, as well as, detect and deter
unfair manipulations and trading practices to prevent market
disruption.
c) The investigation of alleged breaches of the law and regulations
governing the capital market, and ensuring the enforcement of
sanctions where appropriate.
2. Price determination/share valuation
This was necessitated by the desire to protect investors; given that most
Nigerian investors are prone to easy price manipulation and deceptive
information. Over-valuation could also lead to huge losses on the part of
investors. The Commission ensures that the approved prices are fair to
both buyers and sellers.
3. Capital market development
In order to develop the capital market, the Commission builds up public
confidence, by embarking on public enlightenment programmes through
seminars and symposia. It also creates a forum for the dissemination of
information on the operation of the capital market with publications like
fact books, Journals, and so on. This is aimed at ensuring public
awareness on the role of capital market in economic development. SEC
also makes proposals to the government, from time to time, on specific
measures that can encourage the growth and development of the capital market.

4. Monitoring the capital market
Securities and Exchange Commission monitors operations of the capital market in order to prevent unscrupulous practices and to uphold investors’ confidence.
5. Timing of issues
The Commission is able to carry out the role since all issues are
channeled through it. This is important since the success of any issue is,
substantially, dependent on proper timing.
The timing of issues is also important to prevent problems of oversaturation of the capital market resulting from it being flooded beyond its absorptive capacity. Thus, the SEC considers the market’s absorptive
capacity before releasing securities to the market.

Next Unit 5 The Role of the Central Bank of Nigeria

SELF-ASSESSMENT EXERCISE 3

Mention and describe the activities of the Securities and Exchange Commission.

4.0 CONCLUSION

In this unit, you are made aware that the Securities and Exchange Commission (SEC) is the apex regulatory institution for the capital market, in Nigeria. The Commission has evolved over time, beginning with the establishment of the Capital Issues Committee in 1962 as a non-statutory committee, which later changed into the Capital Issues
Commission (CIC) in 1973. Following a comprehensive review of the Nigerian financial system, the Securities and Exchange Commission Decree of 1979 was enacted to provide the statutory backing for the establishment of the Securities and Exchange Commission (SEC). SEC
replaced the CIC, and was given greater powers and functions relating to
capital market activities.
The SEC decree has been reviewed several times. The last was in 1999,
and it paved way for the promulgation of the Investments and Securities Act (ISA) of 1999. The ISA enlarged the powers of the SEC and also saddled it with dual responsibility of regulating the capital market with a view to protecting the interest of all investors in the market and developing the capital market in order to enhance its efficiency.

5.0 SUMMARY
In this unit, you have learnt about the Securities and Exchange Commission of Nigeria. You have been regaled with the historical evolution of the Securities and Exchange Commission. You can now list the functions of the Securities and Exchange Commission. An evaluation of the activities of the Securities and Exchange Commission
has also been done. This should have further enriched your knowledge
of capital market operations in Nigeria.

6.0 TUTOR-MARKED ASSIGNMENT
1. Describe, in details, the activities of the Securities and Exchange
Commission
2. Outline the functions of the Securities and Exchange
Commission.

7.0 REFERENCES/FURTHER READING
Anyanwu, J.C. (1993). Monetary Economics: Theory, policy and
institutions. Onitsha: Hybrid Publishers Ltd.
Ekezie, E.S. (1997). The Elements of Banking. Ibadan: Intec Printer
Limited.
Olowe, R.A. (2008). Financial Management: Concepts, Financial
System and Business Finance. Lagos: Brierly Jones Nigeria
Limited.