The Nigerian Capital Market: Where Lawyers Fit In By: Egbetola Oluwasola

INTRODUCTION The legal profession in Nigeria is fused; a legal practitioner can practice law as both a Barrister and Solicitor. The practice of law is a very big field in Nigeria, there are no restrictions on what area of law one can practice. A Nigerian lawyer can choose whatever area he/she wants to operate in such as Education, Energy, information technology, power, health, commerce. There is therefore no gain saying the fact that lawyers have a place to fit in the Nigeria Capital Market and they play important roles in that same sector. The term capital market ‘’covers anything related to either the public or private sale of interest in some product-a corporation, a partnership or a loan and the selling of interest in that product’’[1] In other words, it is a market for buying and selling medium to long-term securities. Every business enterprise desires expansion same for government need to provide socio-amenities, to sustain expansion a long-term funding is required and this can best be achieved vide a well-structured capital market through long term securities like; Ordinary share, preference shares, bonds and debentures. The Nigerian Capital Market is a subset of the Nigerian financial system, it drives any economy’s economic growth and development through capital formation. Capital Formation is net addition to the existing stock of capital in the economy through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry etc.[2] The Nigerian Capital Market has a statutory regulatory institution namely; CBN, SEC, NAICOM AND PENCOM, these regulatory institutions are empowered by statutes (laws) to supervise this market and facilitate the exchange of funds between the surplus and deficit units.[3] The first input of lawyers starts from the formation/incorporation of the company either Private or Public as its mandatory based on the provision of Companies and Allied Matters Act Cap C20 LFN Section 35(3) that a statutory deceleration of compliance must be signed by a lawyer before a company can be incorporated. ABOUT THE NIGERIAN CAPITAL MARKET The commencement of the Nigerian Capital Market activities in Nigeria was in 1962, when the Lagos Stock Exchange Act was enacted, with three equities, six Federal Government bonds and ten industrial Loan making a total of nineteen listed stocks all together[4]. In 1977, the Lagos Stock Exchange was renamed as the Nigerian Stock Exchange (NSE). There are now over 200 securities listed on the NSE and the trading system has improved during this time from a manual call-over system to a screen based electronic trading system where traders transact business via the computer[5]. The Capital Market consist mainly of Stock (equity) and Debt markets.

1. EQUITY CAPITAL MARKET: This is the issuance of equities by companies that want to sell to investors a part of itself in order to raise funds for development and expansion of the company. The investors thereby become a part of the company and have the right to partake in the declared dividends and bonuses by the company. This is also called Ordinary Shares or Common stock and its issued through IPO (Initial Public Offers), Public Offers or through Right Issues.
2. DEBT CAPITAL MARKET: This covers many types of debt instrument, but generally speaking it deals with a borrower raising capital by selling tradable bonds to investors who expect the full amount lent to be paid back to them with interest. This is done by companies that do not want to immediately dilute their ownership interest. Government also issue debt instrument(bonds) when they want to raise funds for infrastructural project.

Furthermore, the capital market operations are structured into three broad categories;

1. PRIMARY MARKET: This segment of the capital market is responsible for the issue of new shares through the stock exchange or by private placement. Companies or government that issue securities are called Issuers. Their operations are conducted through the following methods; Offer for Subscription, Offer for Sale, Right Issue, Private Placing and Listing by Introduction.
2. SECONDARY MARKET: This segment of the capital market is responsible for buying and selling of shares, bonds, debentures and other long-term securities which the investors have bought from the primary market. This market comprises of the Organized Stock Exchange and the Over-the-counter (OTC) market. Secondary market transactions are carried out by licensed stock brokers on the trading floor of the Nigeria Stock Exchange.
3. THE DERIVATIVES MARKET: This is the market that trades, not in the issued securities, but are financial instruments that derive their value over a period from the value/performance of an underlying asset. A derivative transaction is often equated to a bilateral contract or a payment exchange agreement whose value is dependent on the value of an underlying asset[6].

REGULATORY BODIES OF THE CAPITAL MARKET TRANSACTIONS

1. The Central Bank of Nigeria (CBN): This is the highest governing body of the Nigerian financial system. It saddled with the responsibility of promoting a sound and efficient financial system in Nigeria.

2. The Securities and Exchange Commission (SEC): This is the main regulatory body of the capital market, saddled with the responsibility of overseeing the activities of the National Stock Exchange, preventing breach of market rules and policing unfair manipulations and trading practices.

3. The Nigerian Stock Exchange (NSE): This is responsible for servicing the largest economy in Africa and is championing the development of Africa’s financial market. It is the center point of the capital market. It creates a medium through which Investors in the Nigerian stock market can dispose income to buy products (stock and securities) with the belief that such product will rise in value in the future.

CAPITAL MARKET OPERATORS

1. Issuer (Company)
2. Issuing House: These are investment bankers who packages offers for company. They are involve in rendering investment advisory services and can underwrite issues.
3. Registrars: They are involved in maintaining a register of shareholders, payment of dividends of a company to its shareholders, distribution of annual reports and accounts and sending out notices of meeting of the company.
4. Stockbrokers: These are registered and licensed professionals who trades on the floor of the Nigerian stock exchange on behalf of investors. They are saddled with the responsibility of opening CSCS account for their clients before they can start buying or selling shares.
5. Underwriters: This is a financial service firm which enters into a contract with a company issuing shares (issuer) to buy part or all of its shares to be offered to the public
6. Solicitors: They act in two capacities either as a solicitor to the issuer in a public offering of securities responsible to the company or solicitor to the issue, responsible to the investing public. It is the duty of the solicitor to an offer to make sure there is no deliberate misstatement of facts or concealments in the offer document.

ROLES OF A LAWYER IN CAPITAL MARKET A public liability company that desires to raise funds vide the capital market can do that either through Primary or Secondary Market. The roles of a lawyer is prominent in the Primary Market compared to the Secondary Market. As a solicitor he acts in two capacities; solicitor to the issuer in a public offering, responsible to the company or solicitor to the issue, responsible to the investing public. General Roles

1. LEGAL AND Regulatory Advice: In equity offerings, a solicitor is saddled with the responsibility of giving advises on legal aspect of preparing for listing, re-registration it as a public company to comply with the provisions of the law, share restructuring and other changes needed in respect of the company’s constitutional documents.
2. Drafting Documents: Capital Market transactions requires documentations on every stages of the transactions; prospectus, rendering underwriting and other agreements. These documents require key clauses which must comply with the provisions of the law. Due to the nature of the documents a solicitor is engaged to prepare, amend or advice on the content of the documents.
3. Negotiation: The contracts involve in the capital market transaction are signed off by different parties, each parties wants the best terms and acceptable clause. The solicitor is engaged to negotiate the terms and clauses for the parties involve.

STATUTORY ROLES OF A SOLICITOR IN CAPITAL MARKET According to RULE 180 OF SEC CONSOLIDATED RULES AND REGULATIONS 2017 (AS AMENDED)

• Review the statutory corporate documents of an issuer and other transaction parties to ensure that they have the necessary legal capacity and authority to enter into a transaction;
• Carry out due diligence to ensure that all information material to a transaction are disclosed in the transaction documents;
• Advise on the legal structure of the transaction and on legal risks associated with it; 104 SEC Rules;
• Negotiate, draft and review all legal documentations required for a transaction including but not limited to the prospectus, offer/scheme documents, trust deeds, vending agreements, powers of attorney/consents and underwriting agreements;
• Advise parties on disclosure obligations and general observance of and compliance with sound corporate governance principles, rules and regulations as they relate to a transaction;
• Advise on compliance with the requirements of the Corporate Affairs Commission, the Securities and Exchange Commission, the listing requirements of the Nigerian Stock Exchange and other relevant industry specific regulatory requirements;
• Certify or obtain certification of compliance with all statutory requirements by the issuer and other parties to a transaction;
• Make all statutory filings and provide confirmations (legal opinion) as to the enforceability and effectiveness of transaction documents;
• File necessary applications in Court in support of transactions;

SPECIFIC ROLES (TO THE ISSUER): This is the solicitor in an equity offering who advises the company making the equity offering to the public.

1. To ensure the issuer is legally capable of making the offer to the public. The solicitor will confirm the status of the company as a Public Company if not will ensure a re-registration is done to assume the status of a Public Company.

2. To review the constitutional books of the company; Memorandum and Articles of Association to confirm if it confirms with the legal provisions in respect of public company and where amendments are necessary.

3. To ensure that the authorized capital is enough to accommodate the proposed issue and, in the process, can ensure compliance with the law on increase of share capital to accommodate such issues.

5. To review all contractual documents of the company and also the officers of the company which include disclosure of Director’s interest in any contract of the company
6. To disclose any ongoing litigation that might negatively affect the transaction
7. To prepare comfort letter to the issuing house and also confirmation that the issuer has been properly advised and that the directors have collectively and individually accepted full responsibility of the accuracy of the information given in the offering documents.

SPECIFIC ROLES (OFFER): This is the solicitor who acts on behalf of the general investing public and issuing house. His roles are as follows;

1. To advise the issuing house in relation to the offer process
2. To review the offering documents and relevant agreement
3. To verify the legal status of the company whose securities are about to be offered to the public
4. He liaises with the issuer’s solicitors with a view to assist the issuing house in preparing and possibly sites the rendering underwriting and other agreements.
5. To examine all documents, contracts and correspondences, verifying the accuracy and authenticity of the issuer and compliance with all condition precedents.

CONCLUSION [1] https://www.chambersstudent.co.uk/where-to-start/newsletter/capital-markets-explained [2] http://www.finance.gov.pk/survey/chapter_12/06-CapitalMarkets.pdf [3] Opportunities in the Nigerian Capital Market by The Securities and Exchange Commission Abuja; Being a paper presented to the NYSC Members at the Orientation Camps [4] ibid [5] ibid [6] John Osuoha, Transforming Nigeria Economy through the Use of Derivatives, 2013, available at (file:///C:/Users/Dolapo/Downloads/1396-3682-1-PB%20(1).pdf), Egbetola Oluwasola, can be reached on 08138765200]]>