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SEC Proposes New Rule On Derivatives Trading



The Securities and Exchange Commission (SEC) has proposed changes and new rules regarding derivatives trading for commodity brokers.

SEC has continue to intensify efforts to revive and spur the trading on the Nigerian Commodity Exchange.

A commodities exchange is an exchange where various commodities and derivatives products are traded. Derivatives means any financial instrument or contract that creates rights and obligations and whose value depends on or is derived from the value of one or more underlying asset, rate or index, or a measure of economic value or on a default event.

SEC said the rules would be applicable to Exchange Traded Derivatives (ETD) and OTC Derivatives. It said for registration, its approval should be sought and obtained prior to the introduction of any contract, adding that any application for registration of a contract must be filed with the commission by or on behalf of an exchange with the SEC form and an information memorandum.

The statement read in part, “No participant or any capital market operator shall trade in ETD without the prior registration by the commission. Funds shall only invest in derivatives if it is expressly stated in their Trust Deeds. Where an underlying security is suspended from trading or delisted, contracts on such underlying shall cease to trade.

“ETD can only be traded on exchanges recognised by the commission. No persons shall trade on ETD either for proprietary accounts or on behalf of clients except entities registered as derivatives trading members and/or derivatives clearing members.

“The Exchange shall have the responsibility for market surveillance to ensure derivatives prices reflect demand and supply and that all forms of market manipulations are prevented. Participants and registered capital market operators shall disclose their outstanding derivative exposures to the commission on a periodic basis as may be determined by the commission.”

SEC said a derivatives clearing member would be in default if it failed to fulfil any of its contractual obligations. On the amendment to registration requirements for commodity brokers, SEC said the filing, processing and registration fees payable were deliberately reduced to attract participants.

It said the evidence of payment of filing/application fee, processing fee, registration fee and sponsored individual fee would be N10,000, N20,000, N50,000 and N10,000, respectively. The commission added that the evidence of required minimum paid-up capital would now be N3 million for commodity brokers and commodity dealers, while that of a commodity broker/dealer would be N10 million.

According to SEC, the justification for the minimum capital is that commodity brokers are expected to play in the spot market and as such, do not require much capital. It stated that “the nature of the market is such that it does not require professionals with huge capital base.”

Speaking to LEADERSHIP, recently, the managing director of HighCap Securities Limited, Mr. David Adonri said commodities exchanges play a central role in facilitating economic development in some countries especially by helping farmers to enhance their marketing and risk management capacity such as reducing their exposure to price and other production risks.

He said Nigeria ranks number one in global export rankings for commodities such as kolanut, shea nuts and shea butter, cassava, and yams and also feature in top exporters for other commodities such as cocoa, rubber, oil palm, cashew and sesame seed.

SEC also recently said that in order to complement the government in the area of agriculture, there is need to strengthen commodity exchange to enable the farmers have value for their products.