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The Nigerian Stock Exchange (NSE) is proposing amendments to the Rulebook of The Exchange (Dealing Members’ Rules), by the addition of rules on securities transactions between dealing members of the Exchange; rules on placing of caution on accounts.
The proposed rules seek to codify the practice in the market, set the conditions upon which an agreement is enforceable, and a Dealing Member will be bound, and penalised for default.
In addition, the rules seek to minimise the risk of exposure to financial and reputational damage, suffered by a Dealing Member as a result of a default, or where a Dealing Member reneges on an agreement for securities transactions.
The proposed rules include definitions of key terms used in the rules, general requirements which are to guide transactions between Dealing Members, provisions on the obligations of parties to the transactions, as well as sanctions in the event of breach.
“The need to codify and set standards relating to agreements on securities transactions between Dealing Members of The Exchange (Dealing Members) has become necessary owing to the increase in default by parties to these transactions.
“This has not only affected investors’ confidence in the market but also exposed stockbroking firms to significant losses and reputational damage”, the NSE said in a notice to dealing members signed by Tinuade T. Awe, Executive Director, Regulation.
Presently, agreements between Dealing Members are generally governed by law, trade practices established by long usage, norms and trust based on the basic foundation of the stockbroking profession, which dictate that a stockbroker’s word is his bond, with no additional specific set of rules to bind parties to their agreements.
The Rules on Placing of Caution on Accounts will address concerns about dissipation of investors’ assets while addressing complaints or during investigations, the Exchange seeks to introduce a framework for imposing cautions that will directly protect the investor and/or the Dealing Member, as appropriate.
A caution is a restriction on an account domiciled with the Central Securities Clearing System Plc (CSCS), which account would otherwise be under the control of a Dealing Member without such restriction. The restriction is placed such that securities can only be purchased into the cautioned account but cannot be sold during the period that the caution is in place.
Under this framework the Exchange can place a caution on an affected Dealing Member’s clients’ accounts, or its proprietary accounts, or both sets of accounts, until any complaints against the Dealing Member are resolved or any investigations are completed, or in both cases even if not resolved or completed, the Exchange is satisfied that a caution is no longer warranted.
