Twelve stockbroking firms have been blacklisted by the Nigerian Exchange Limited, NGX, for failing to comply with the regulations regarding shareholders’ funds in order to operate in the Nigerian stock market.
The firms affected by this blacklisting are as follows: First Stockbrokers Limited, GMT Securities Limited, Standard Alliance Capital & Asset Management Limited, Enterprise Stockbrokers Limited, Adamawa Securities Limited, Gombe Securities Limited, CEB Securities Limited, and Horizon Stockbrokers Limited.
In addition, ITIS Securities Limited, ML Securities Limited, and Supra Commercial Trust Company Limited are also among the firms facing blacklisting.
According to the NGX, these companies have insufficient shareholders’ funds as of June 19, 2023.
It has been reported that the firms have been suspended from trading until they fulfill the requirements.
Verifying the occurrence, an insider from the Exchange disclosed, “All of the firms listed in the schedule – Trading License Holders with inadequate shareholders funds – are inactive. They have been suspended for more than three months following the NGX rules on capital adequacy for trading license holders.
“The disciplinary procedure for these firms is currently being implemented, and some of them are working assiduously to recapitalize and return to active market operations.
“The impact on investors is minimal as all investors’ accounts are intact and can be transferred to other firms of the investor’s choice.”
According to gathered information, it has been reported that the stockbroking firms that have been blacklisted were expected to maintain a minimum capital base of N200 million each. The requirement for a Dealer’s license is N100 million, whereas for a broker-dealer license, the minimum capital base is N300 million.
In response to this development, Victor Chiazor, the Head of Research and Investment at FSL Securities Limited (formerly known as Fidelity Securities Limited), provided his remarks by stating: “Where trading license holders don’t meet the minimum required capital, this suggests that a firm with a broker’s license has a capital base below N200 million; a dealer’s license has a capital base below N100 million, while a firm with a broker-dealer license has a capital base below N300 million.
“Such firms are required by law to raise their capital base to the required amount within a certain period to avoid sanctions from capital market regulators.
“However, the regulators have also put in place structures to protect investors against loss of funds by mandating that all new accounts are opened with the direct settlement option except when the client decides to opt out of the option.
“The direct settlement ensures that any sale of securities on the trading floor is settled directly into your bank account by the Central Securities Clearing System (CSCS), as against your stockbroking account, giving only you access to the funds.
“For the market at large, dealers with lower capital base won’t have the financial muscle to trade large volumes in the market, and if this inadequate capital becomes widespread, it would reduce stock market activities and weaken investors’ confidence.”
Adding his perspective, Mallam Garba Kurfi, the Managing Director of APT Securities & Funds Limited, also shared his comments by stating: “Any Trade Licence Holder that has inadequate capital indicates that the firm has to be withdrawn from trading or else being suspended by the regulators. Otherwise, they need to change status to either Broker or Sub-broker to meet the required capitalization.”
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Sharing his reaction, David Adonri, the Vice Executive Chairman of HIGHCAP Securities Limited, expressed his thoughts by saying: “Meeting the statutory minimum capital requirement is the primary prerequisite for operating in the capital market.
“However, the shareholders’ funds of many firms declined in the recent past due to the hostile economic environment. The erosion of investors’ disposable income due to galloping inflation adversely affected the income of firms.
“Although adequate capital is essential for stockbroking business, its importance to investor protection and safety of investment is minimal.
“This is because Stockbrokers are agents to their clients, who are the principals. They buy securities in the name of clients and deliver to them.
“This is unlike the relationship between a depositor and his banker, which is a creditor/debtor relationship that requires commensurate capital to secure the deposit liabilities.
“Other risk mitigants in the Capital Market like Fidelity Guarantee Insurance and investors’ protection fund can address the safety of investments better. “Therefore, investors have nothing to worry about even if firms are temporarily undercapitalized. Their investments are safe in the Capital Market due to the ring-fencing of their portfolios.”
