NIGERIA: How NSE Protects Investors from ‘Compromising’ Stockbrokers

The Nigerian Stock Exchange (NSE) has compelled capital market operators who play the dual roles of broker/ dealer to separate their bank accounts from those of their clients as a way of protecting investors in the market, THISDAY investigations have revealed.
Considering the nature of their business in Nigeria, most operators function as broker-dealers. This means that they trade stocks on behalf of clients and themselves. However, there have been apprehensions among some stakeholders over the possibility of  some dealers  taking advantage of their clients (investors).
While such possibility is not ruled out, THISDAY investigations showed that regulators have put in place certain strategies to prevent stock dealers from converting the funds of their clients into their own use.
It was gathered that the NSE made it mandatory for dealers to have separate accounts for their clients different from their own accounts.
“The separation of the accounts was made mandatory since 2011 and there are severe sanctions for any dealing member that fails to comply. Besides, the regulators in the market demand regular reports on those accounts to monitor how dealing members are running them.
The NSE requires monthly returns from operators in this regard,” a senior market operator said.
Further checks also revealed that stock dealers are required to submit their jobbing books where details of clients’ mandates are recorded for inspectors to check.
Another broker said investors are  also protected  through  Trade Alert, which  sends instant messages to client immediately there  a transaction on their shares. The alerts tell  when the transaction was done, the  volume, price and date of the transaction.
“This helps to protect investors because through the alert, the client will know the when the shares sold and the price. This information can then be used to check the mandate given to the dealer. Besides, regulators now have  zero tolerance for issues that have to do with investor protection. Any dealing members  found wanting  is suspended immediately,”  the broker said.
The Chief Executive Officer of the NSE, Mr. Oscar Onyema last week assured  shareholders that the exchange was  committed to  the protection of investors, hence the re-constitution of  the Board of Trustees for the Investor Protection Fund (IPF).
According to him, having received approval of the Securities and Exchange Commission (SEC) for the IPF’s rules, the NSE will continue to look forward to working closely with the Fund’s Board of Trustees to sustain and promote investor confidence in the Nigerian capital market.
“We have proposed several rules to codify the accepted mode of engagement in our market. Two that might be of particular interest to you are our proposed related parties transaction rule and rules around the conduct of AGMs,” Onyema said.
According to the NSE, Part XIV of the Investment and Securities Act 2007, (CAP 124, LFN, 2004) (“ISA”) requires the NSE  to establish and maintain an investor protection fund.
The fund is meant to provide compensation for investors that have genuine claims of losses against dealing member firms.
The claims of losses are expected to revolve around such things as “insolvency, bankruptcy or negligence of a dealing member firm of a securities exchange or capital trade point.”
The fund is also expected to compensate investors that have genuine claims resulting from “defalcation committed by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or received by the dealing member firm in its course of business  as a capital market operator.”

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