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.
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
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  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  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.  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.
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.,email@example.com;+234 (0) 806-809-5282; 0805-101-9362
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