SEC releases new guidelines for settlement of security and Bonds

In a move to re-position the capital market and restore the confidence of investors, Security and Exchange Commission (SEC) and the Central Bank of Nigeria (CBN) have released new guidelines for the settlement of securities and government bonds for the 2017 trading
year.

In an approved document, both agencies stated that the objective of the new guideline is to promote competitive,efficient, safe and sound post trading arrangements in Nigeria.

“This should ultimately lead to greater confidence insecurities markets and better investor protection and should in turn limitsystemic risk. In addition, the guidelines seek to improve the efficiency ofthe market infrastructure, which should in turn promote and sustain theintegration and competitiveness of the Nigerian securities markets.”

According to SEC, the guideline will covers all transactions and settlement of securities in Nigeria, including the rights and obligations of the parties especially transactions carried out in the following platform:  The Nigerian Stock Exchange(NSE), Financial Markets Dealers Quotation (FMDQ) Over The Counter Securities, NationalAssociation of Securities Dealers (NASD) Over The Counter Securities,Nigerian Commodity Exchange (NCX) traded securities as well as Africa Exchange Holdings(AFEX) Commodities Exchange.

“As a general rule, any securities transaction must trade or be reported through a licensed Exchange inline with the standard settlement guidelines

“After each day’s transaction(Day T), the clearing/settlement agent Central Securities Clearing System (CSCS) shall generate the financial obligations of each dealing member firms. The clearing/settlement agent shall sort the financial positions of the dealing member firms based on their respective settlement banks to arrive at net position per settlement banks. The clearing/settlement agent shall alert both the settlement banks and the dealing member firms of their net positions on Day T.

“On Day T+2 for Equities and T+1 for Bonds, the clearing/settlement agent shall transmit the final financial net settlement obligation of dealing member firms to settlement banks through a payment system agent  (if the clearing/settlement agent has no direct access to the CBN Real-Time Gross Settlement System  (RTGS)

“Where the clearing/settlement agent has direct access to the CBN RTGS, the clearing/settlement agent shall transmit the final financial net settlement obligation of the settlement banksto the CBN RTGS at the same time when the security records are updated so as to achieve simultaneous Delivery versus Payment (DVP).

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“On settlement day (i.e. Day T+3for Equities and day T+2 for Bonds),
the clearing/settlement agent deliver thesecurity while the payment
system agent applies the net settlement adviceagainst the settlement
bank account with CBN. On same day, settlement banksshall equally
credit or debit (funds) the bank account of the respectivedealing
member firm. On settlement day, the clearing/settlement agent
shallupdate the record of the investors (buyers & sellers) with
theregistrar.

“On the settlement of FederalGovernment Securities, the guideline
stipulates that after each day’stransaction (Day T), the
clearing/settlement agent shall generate the financialobligations of
each dealing member firms just as the the clearing/settlementagent
shall generate the financial positions of the dealing member firms
basedon their respective settlement banks to arrive at net position
per settlementbanks while the clearing/settlement agent shall alert
both the settlement banksand the dealing member firms of their net
positions on Day T.

“Where the clearing/settlementagent has direct access to the CBN RTGS,
the clearing/settlement agent shalltransmit the final financial net
settlement obligation of the settlement banksto the CBN RTGS at the
same time when the security records are updated so as toachieve
simultaneous Delivery versus Payment (DVP).

“The dealing member firms shalldebit/credit the customer account not
later than the next working day.

Part of the guideline for thesettlement of Federal Government
Securities (Primary Auction) states thus:

“After the release of auctionresult, the Government Securities Issuing
Agent shall notify each successfulBidder (primary dealer) their
financial obligations.

“The successful Bidder shall fundits account with the Government
Securities Issuing Agent for settlement on orbefore Day T+2.

“The Government SecuritiesIssuing Agent shall debit the cash account
of successful Bidder on Day T+2 andcredit their securities portfolio
account (DVP)

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“Where the cash account ofsuccessful Bidder is not funded on Day T+2,
the Government Securities IssuingAgent reserves the right to cancel
the trade.

“On settlement day, theclearing/settlement agent shall update the
record of the commodity holders(buyers & sellers) with the warehouse.

SEC further stated that these onInvestor’s Payments Procedure

“Customers account should becredited with proceeds from sale of their
securities directly into their bankaccount or deposit into their stock
broking account or other acceptable paymentmodes.

“Payments shall reach the beneficiary’saccount not later than the next
working day after settlement.

On the payment of Dividend andInterest Payment to customers, the
following conditions were laid down:

“Issuers issuingdividends/interests shall make funds available to the
Registrar not later thanseven working days after approval.

“Registrars shall obtain accountdetails of investors for the purpose
of electronic payment of dividend andinterest.

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“The Registrars shall paydividend to investors electronically on due
date and advise the investorsthrough a credit advice.

“Banks shall credit the accountof investors not later than T+1 from
the date of receipt of mandate and fundsfrom the Registrars.

“Where the banks  cannot apply funds into some investorsaccount, the
funds and a schedule containing the list of the affected
investorsshall be returned to the Registrar on or before Day T+2 with
reasons for therejection.

“The Registrar shall contact theaffected investors within two working
days to correct or supply the requiredinformation and a copy of the
list of affected investors and reasons forrejection shall be sent to
SEC. Upon receipt of the required information, theRegistrar shall
re-send the funds and the payment details to the banks withintwo
working days.

“From the date of operationsof these guidelines, all new issuance of
securities should indicate thatdivided

On Tariff and Charges byregistrars and stock brokers, the guidelines
further stipulates thus:

“Payment by the Registrars andStockbrokers: Charges for transactions
should be agreed between the
Registrars/Stockbrokers their banks, and Service Providers and
included intheir SLA “.

The guidelines further statedthat there shall be no charges to
investors on e-payment of dividend/interestjust it re-affirmed that
CBN, SEC, The Exchanges, Chartered Institute ofStockbrokers (CIS) and
Investment and Security Tribunal (IST) shall mediate ondispute
Resolution in respect of securities

The guidelines also affirmed that regulatorybodies shall review and
apply appropriate sanctions in the event of defaultand/ or infractions
in securities settlement.