The principal regulatory agency of the Nigerian capital market is the Securities and Exchange Commission (SEC). It is under the supervision of the Federal Ministry of Finance, but remains independent in its regulatory and developmental activities. Its powers are derived from the Investments and Securities Act of 1999, which charges the SEC with the registration and supervision of market operators, exchanges, and public securities. The SEC has responded to increased market activities by implementing mechanisms to improve the SEC's oversight capacity and effectiveness as a regulator. The Nigerian Stock Exchange (NSE) supports the SEC, supervises securities market operation, and regulates the second-tier capital market. Companies have been suspended from the NSE for noncompliance with financial reporting requirements. The 2004 World Bank Report on the Observance of Standards and Codes for Accounting and Auditing judges that the SEC does not successfully fulfill its supervisory or enforcement roles. However, there is insufficient publicly available information to fully assess Nigeria's compliance with the International Organization of Securities Commissions' Principles of Securities Regulation.

General Overview

According to a 2007 presentation given by Sylvester O. Akele, Director of Research and Planning at the Nigerian Securities and Exchange Commission (SEC), the principal regulatory agency of the Nigerian capital market is the SEC. It is under the supervision of the Federal Ministry of Finance, but remains independent in its regulatory and developmental activities. Its powers are derived from the Investments and Securities Act of 1999, which charges the SEC with the registration and supervision of market operators, exchanges, and public securities. The Act is under review to allocate greater power to and clarify the responsibilities of the Commission. The regulatory tools available to the SEC are registration, investigation, and surveillance. The Act also provides the SEC with powers to enforce the law. The Administrative Proceedings Committee is a quasi-judicial committee set up by the SEC to resolve market disputes. Other laws that are relevant to the capital market are the Companies and Allied Matters Act of 1990, the Insurance Act of 2003, the Central Bank of Nigeria Act of 1991, the Nigerian Social Insurance Trust Fund Act of 1995, the Banks and Other Financial Institutions Act of 1991, the Nigerian Investment Promotion Act of 1995, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995, and the Chartered Institute of Stock brokers Act of 1992.

The increased government involvement in the capital market through indigenization, privatization, and the Economic Reform Program (ERP) has greatly increased capital market activities and, consequently, enhanced the importance and role of the SEC. In his 2007 presentation, Akele explained that to improve the SEC's oversight capacity, Nigeria introduced a code of conduct for market operators, a code of corporate governance, a code of conduct for shareholder associations, and the creation of capital market committees in both houses of the National Assembly. Also, the SEC set up a number of committees to enhance market efficiency including the Committee on Reactivating the Bond market, the Committee on Private Pension Fund Management, the Committee on Corporate Governance Practices of Public Companies in Nigeria, and the Committee on Unclaimed Dividends. To respond to an increased number of market operators the SEC has implemented measures for effective regulation, such as emphasizing the quality of staff, establishing a database, holding periodic meetings with stakeholders, supporting the development of professional trade groups and their evolution into self regulatory organizations (SROs), promoting shareholder meetings, and evaluating matters of importance through studies and research.

According to a 2004 report by Larry Uffot of the Central Bank of Nigeria (CBN), the principal Nigerian securities market institutions are the SEC, the Nigerian Stock Exchange (NSE), the issuing houses, and stockbroker firms. The three elements of the capital market are the primary market, for issuing new securities; the secondary market for trading existing securities; and the unit trust scheme for "mobilizing the financial resources of small and big savers and managing such funds to achieve maximum returns with minimum risks through efficient portfolio diversification" (p. 13). The SEC website reports that the exchanges in Nigeria are the NSE (which is a private self-regulatory organization), the Capital Trade Point (a smaller exchange with fewer listing requirements), and the Abuja Securities and Commodity Exchange (ASCE), which is the incorporated multi-product exchange. The Central Securities Clearing System (CSCS) is a clearing and depository house and a subsidiary of the NSE.

The World Bank's 2004 ROSC for Accounting and Auditing indicates that on behalf of the SEC, the NSE is responsible for monitoring the financial disclosure and reporting of issuers of publicly traded equity or debt securities and enforcing sanctions against violators. The NSE supports the SEC, supervises securities market operations, and regulates the second-tier capital market. Companies have been suspended from the NSE for non-compliance with financial reporting requirements. However, conflicts may arise between the SEC and NSE over disciplinary powers, and the ROSC judges that the SEC does not successfully fulfill its supervisory or enforcement roles. According to the ROSC: "SEC enforcement is weak, and administrative sanctions and civil penalties are not adequate to deter noncompliance" (p. 9).

2006 was a successful year for the NSE. The Country Commercial Guide released in 2007 by the U.S. Department of Commerce indicates that an increase in the volume of shares traded and market capitalization can be attributed, in part, to "the introduction of the contributory pension system in late 2005, government's divestment of equity in parastatal companies, as well as initial public offerings (IPOs) and issuances of additional shares by listed companies" (p. 44). In June 2007, there were 260 equities listed on the NSE.

According to the International Organization for Securities Commissioners (IOSCO) website, the IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The SEC is a signatory to the MMoU and an ordinary member of IOSCO.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

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The principal regulatory agency of the Nigerian capital market is the SEC. It is under the supervision of the Federal Ministry of Finance, but remains independent in its regulatory and developmental activities. Its powers are derived from the Investments and Securities Act of 1999, which charges the SEC with the registration of market operators, registration of exchanges and registration of public securities. According to Akele's 2007 presentation, the Act is under review to allocate greater power to and clarify the responsibilities of the Commission. The regulatory tools available to the SEC are registration, investigation and surveillance. The Act also provides the SEC with powers to enforce the law. The Administrative Proceedings Committee is a quasi judicial committee set up by the SEC to resolve market disputes. Other laws that are relevant to the capital market are the Companies and Allied Matters Act of 1990, the Insurance Act of 2003, the Central Bank of Nigeria Act of 1991, the Nigerian Social Insurance Trust Fund Act of 1995, the Banks and Other Financial Institutions Act of 1991, the Nigerian Investment Promotion Act of 1995, the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995, and the Chartered Institute of Stockbrokers Act of 1992. However, the publicly available information does not directly address Nigeria's compliance with this principle.

Akele goes on to disclose that the increased government involvement in the capital market through indigenization, privatization, and the ERP has greatly increased capital market activities and, consequently, enhanced the importance and role of the SEC. To improve the SEC's oversight capacity, Nigeria introduced a code of conduct for market operators, a code of corporate governance, a code of conduct for shareholders associations, and the creation of capital market committees in both houses of the National Assembly. Also, the SEC set up a number of committees to enhance market efficiency, including the Committee on Re-activating the Bond market, the Committee on Private Pension Fund Management, the Committee on Corporate Governance Practices of Public Companies in Nigeria, and the Committee on Unclaimed Dividends. To respond to an increased number of market operators, the SEC has implemented measures for effective regulation. These include emphasizing the quality of staff, establishing a database, periodic meetings with stakeholders, supporting the development of professional trade groups and their evolution into self regulatory organizations (SROs), the promotion of shareholder meetings, and evaluating matters of importance through studies and research.

According to the 2004 report by Larry Uffot, the principal Nigerian securities market institutions are the SEC, the NSE, the issuing houses and the stockbroker firms. The three elements of the capital market are the primary market for issuing new securities, the secondary market for trading existing securities, and the unit trust scheme for "mobilizing the financial resources of small and big savers and managing such funds to achieve maximum returns with minimum risks through efficient portfolio diversification" (p. 13). The SEC website reports that Nigeria's exchanges are the self-regulating NSE, the Capital Trade Point (a smaller exchange with fewer listing requirements), and the ASCE, which is the incorporated multi-product exchange. The CSCS is a clearing and depository house and a subsidiary of the NSE.

The World Bank's 2004 ROSC for Accounting and Auditing indicates that on behalf of the SEC, the NSE is responsible for monitoring the financial disclosure and reporting of issuers of publicly traded equity or debt securities and enforcing sanctions against violators. The NSE supports the SEC, supervises securities market operation and regulates the second-tier capital market. Companies have been suspended from the NSE for non-compliance with financial reporting requirements. However, conflicts may arise between the SEC and NSE over disciplinary powers, and the ROSC judges that the SEC does not successfully fulfill its supervisory or enforcement roles. "SEC enforcement is weak, and administrative sanctions and civil penalties are not adequate to deter noncompliance" (p. 9).

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

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The principal regulatory agency of the Nigerian capital market is the SEC. It is under the supervision of the Federal Ministry of Finance but remains independent in its regulatory and developmental activities. Its powers are derived from the Investments and Securities Act of 1999, which charges the SEC with the registration of market operators, registration of exchanges and registration of public securities. In his 2007 presentation, Akele, reports that that the Act is under review to allocate greater power to and clarify the responsibilities of the Commission. However, the publicly available information does not directly address Nigeria's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

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The SEC's powers are derived from the Investments and Securities Act of 1999 which charges the SEC with the registration of market operators, registration of exchanges and registration of public securities. In his 2007 presentation, Akele, reports that the Act is under review to allocate greater power to and clarify the responsibilities of the Commission. The regulatory tools available to the SEC are registration, investigation and surveillance. The Act also provides the SEC with powers to enforce the law. To respond to an increased number of market operators the SEC has implemented measures for effective regulation such as emphasizing the quality of staff, establishing a database, periodic meetings with stakeholders, supporting the development of professional trade groups and their evolution into self regulatory organizations, the promotion of shareholder meetings, and evaluating matters of importance through studies and research.

The NigeriaBusinessInfo website notes that the other laws pertaining to securities, corporate finance, and investment empower the SEC. These include the Companies and Allied Matters Decree Act of 1990, giving the SEC the responsibility for administration of unit trust schemes, the Trustees Investments Acts of 1957 and 1962, and the Technical Committee and Privatization and Commercialization (TCPC) Decree of 1988. Despite this, conflicts may arise between the SEC and NSE over disciplinary powers and the 2004 ROSC on Accounting and Auditing judges that the SEC does not successfully fulfill its supervisory or enforcement roles. "SEC enforcement is weak, and administrative sanctions and civil penalties are not adequate to deter noncompliance" (p. 9). However, the publicly available information does not directly address Nigeria's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

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The Administrative Proceedings Committee is a quasi judicial committee set up by the SEC to resolve market disputes. According Akele's 2007 presentation, to improve the SEC's oversight capacity, Nigeria has introduced a code of conduct for market operators, a code of corporate governance, a code of conduct for shareholder associations, and the creation of capital market committees both houses of the National Assembly. Also, the SEC set up a number of committees to enhance market efficiency, including the Committee on Reactivating the Bond Market, the Committee on Private Pension Fund Management, the Committee on Corporate Governance Practices of Public Companies in Nigeria, and the Committee on Unclaimed Dividends. However, the publicly available information does not directly address Nigeria's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

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There is insufficient information publicly available that directly addresses this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

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The 2004 World Bank report conveys that the NSE is a self regulating organization and was established by the NSE Act of 1961. The NSE supports the SEC, supervises securities market operations, and regulates the second-tier capital market. The SEC website indicates that the Investment and Securities Act of 1999 provides the SEC with the authority to register SROs and subsequently delegate its powers to them. However, the publicly available information does not directly address Nigeria's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

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In a 2007 presentation, Akele reports that the SEC's powers are derived from the Investments and Securities Act of 1999 which charges the SEC with the registration and supervision of exchanges. However, the publicly available information does not directly address Nigeria's compliance with this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

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The SEC's powers are derived from the Investments and Securities Act 1999 which charges the SEC with the registration of market operators, registration of exchanges and registration of public securities. Akele reported in a 2007 speech that the Act is under review to allocate greater power to and clarify the responsibilities of the Commission. The regulatory tools available to the SEC are registration, investigation, and surveillance.

The World Bank's 2004 ROSC for Accounting and Auditing indicates that, on behalf of the SEC, the NSE is responsible for monitoring the financial disclosure and reporting of issuers of publicly traded equity or debt securities and enforcing sanctions against violators. The NSE supports the SEC, supervises securities market operation, and regulates the second-tier capital market. Companies have been suspended from the NSE for non-compliance with financial reporting requirements. Nevertheless, conflicts may arise between the SEC and NSE over disciplinary powers and the ROSC judges that the SEC does not successfully fulfill its supervisory or enforcement roles. However, the publicly available information does not directly address Nigeria's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

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According to a 2007 presentation by Akele, the SEC's powers are derived from the Investments and Securities Act 1999 which charges the SEC with the registration of market operators, registration of exchanges and registration of public securities. It is under review to allocate greater power to and clarify the responsibilities of the Commission. The regulatory tools available to the SEC are registration, investigation and surveillance. The Act also provides the SEC with powers to enforce the law. The SEC website indicates that the SEC's Enforcement and Compliance Department is responsible for the detection and investigation of several potential violations and enforcing the Investment and Securities Act of 1999 as well as other relevant legislation. On the other hand, the World Bank's 2004 report on Accounting and Auditing judges that the SEC does not successfully fulfill its supervisory or enforcement roles. "SEC enforcement is weak, and administrative sanctions and civil penalties are not adequate to deter noncompliance" (p. 9). However, the publicly available information does not directly address Nigeria's compliance with this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

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There is insufficient information publicly available that directly addresses this principle.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

II

There is insufficient information publicly available that directly addresses this principle.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

II

There is insufficient information publicly available that directly addresses this principle.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

II

The IOSCO website discloses that the IOSCO's MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The SEC is a signatory to the MMoU and an ordinary member of IOSCO. However, the publicly available information does not directly address Nigeria's compliance with this principle.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

The World Bank's 2004 ROSC for Accounting and Auditing indicates that, on behalf of the SEC, the NSE is responsible for monitoring the financial disclosure and reporting of issuers of publicly traded equity or debt securities and enforcing sanctions against violators. The NSE reviews annual financial statements of listed companies for compliance with the listing requirements, including the Companies and Allied Matters Act's disclosure requirements and NASB accounting standards, before they are approved for publication. Noncompliance is sanctioned with de-listing. In addition, companies must file audited financial statements with the SEC, NSE, and CAC within three months after the end of the year. The Investment and Securities Act of 1999 requires accurate record keeping but does not provide standards for preparing financial statements. However, the publicly available information does not directly address Nigeria's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

The law includes provisions for the rotation of directors, which increases shareholders opportunity to dispose of unsatisfactory directors. However, Oyejide and Soyibo, in their 2001 paper "Corporate Governance in Nigeria," question the ability of shareholders to effectively assess the performance of directors when making the decision to re-elect them. The Companies and Allied Matters Act of 1990 establishes the one-share/one-vote system, providing shareholders with voting power in proportion to the number of shares owned, except in the case of preferential shares. The Act allows for preferential shares but prohibits non-voting shares. In addition, changes in ownership interests and values must be included in the registered office and available to all shareholders, but for a fee. The Act requires public disclosure of directors' identity, size of shareholding, and remuneration. In addition, a list of all members of a company must be available at the registered office.

The Code of Corporate Governance 2003 is a voluntary code which includes best practices with regards to the roles and duties of the Board of Directors and Management, the role and duties of the Audit Committee and the rights of shareholders. According to a 2004 report by Nmehielle and Nwauche the Code's provisions for the inclusion of shareholders in general meetings require that the location should be easily accessible and affordable, notice of meeting should be given 21 days in advance, and shareholders should be encouraged to participate. Also, at least one director should represent minority shareholders on the Board. Musa Al-Faki's 2005 paper on "Corporate Governance: Essentials for Leadership and Performance Excellence," reports that the Code applies to quoted and public companies.

The SEC provides the following parameters for compliance with the Code: the board must be made up of predominantly independent directors to avoid conflicts of interest; the board should create specialized committees and their recommendations must later be discussed by the full board; an independently chaired audit committee with a written charter and be appointed in compliance with S 359 (4&5) of the Companies and Allied Matters Act of 1990; an Internal Audit function whose head reports directly to the CEO; the adoption and disclosure of director qualification standards, director responsibilities, director remuneration, director orientation and credentials, management succession, and annual evaluation of board performance; the adoption of a code of ethics for directors, officers and employees that covers conflicts of interest, confidentiality, fair dealing, protection and use of company assets, and reporting of non-compliance; and disclosure of the level of compliance or an explanation of non-compliance with the Code. In addition, in their 2001 paper "Corporate Governance in Nigeria," Oyejide and Soyibo, report that the Companies and Allied Matter Act of 1990 includes provisions protecting minority shareholders, such as allowing a shareholder with more than one share to split votes and the use of proxies.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

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There is insufficient information publicly available that directly addresses this principle.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

There is insufficient information publicly available that directly addresses this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

There is insufficient information publicly available that directly addresses this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

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There is insufficient information publicly available that directly addresses this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

There is insufficient information publicly available that directly addresses this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

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There is insufficient information publicly available that directly addresses this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

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A new capital base for capital market operators will become effective as of December 31, 2008. It is being implemented as part of an effort to increase the competitiveness of the domestic capital market and attract investment. However, the publicly available information does not directly address Nigeria's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

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There is insufficient information publicly available that directly addresses this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

There is insufficient information publicly available that directly addresses this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

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There is insufficient information publicly available that directly addresses this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

There is insufficient information publicly available that directly addresses this principle.

27. Regulation should promote transparency of trading.

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The World Bank's 2004 ROSC for Accounting and Auditing indicates that, on behalf of the SEC, the NSE is responsible for monitoring the financial disclosure and reporting of issuers of publicly traded equity or debt securities and enforcing sanctions against violators. The NSE reviews annual financial statements of listed companies for compliance with the listing requirements, including the Companies and Allied Matters Act of 1990 disclosure requirements and NASB accounting standards before they are approved for publication. Noncompliance is sanctioned with de-listing. In addition, companies must file audited financial statements with the SEC, NSE, and CAC within three months after the end of the year. The Investment and Securities Act of 1999 requires accurate record keeping but does not provide standards for preparing financial statements. However, the publicly available information does not directly address Nigeria's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

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See Principle 27.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

There is insufficient information publicly available that directly addresses this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

II

The SEC website reports that CSCS is a clearing and depository house and a subsidiary of the NSE. It is responsible for the clearing and settlement of all trades on the floor on the NSE. However, there is insufficient information publicly available that directly addresses this principle.