License withdrawals loom as 50% market operators remain undercapitalised

Less than 30 days from now, the mode of operation in Nigeria’s capital market landscape will change, giving the December 31 deadline for operators to recapitalise and the likely loss of licenses that will result from the regulator’s insistence.

A source at the Securities and Exchange Commission (SEC) told BusinessDay yesterday that over 50 percent of the targeted market operators are yet to recapitalise.

It was also learnt that some capital market operators are routing through the National Assembly, their appeals to pressure the apex regulator to extend the recapitalisation deadline.

“The exercise is in the medium and long term interest of the capital market. Look at it from the point of investor protection, risk management, and need for our capital market to be globally competitive.There are all kinds of appeals for extension of the recapitalisation deadline,” our source at SEC said.

He added, “But what I will say is that we will cross the bridge when we get there. Mind you, postponement and non-accomplishment of the exercise requirements are of same colour. Some of the operators have run to the National Assembly to put pressure on us, forgetting that our reporting line understands the basis of what we are doing.”

The board of  the Securities and Exchange Commission (SEC) in 2013 approved the new minimum capital requirements for all categories of Capital Market Operators, with a compliance deadline of December 31, 2014.

The capital requirement for Broker/Dealers was increased from N70 million to N300million; for brokers only, the capital requirement was increased from N40 million to N200 million; while for dealers, it was increased from N30 million to N100 million.

The minimum capital requirement for Issuing House was increased from N150 million to N200 million; while that of Underwriter was increased from N100 million to N200 million.

For a Registrar in the Nigerian capital market, the minimum capital requirement is now N150 million, from N50 million; while for those in the Trustees business, the capital requirement was raised to N300million, from N40 million.

“The position of SEC is that the considerations that led to the minimum capital requirement have not changed. All we are saying is that you (operators) must have capital to operate. An operator who does not have money should go and look for whom to peer.

“The deadline is knocking. Dormant chief executive officers of market operator firms which fail to recapitalise will lose their jobs,” our source at SEC further said.

The implication of the regulator’s position is that there will be withdrawal of operating licenses from firms which are unable to recapitalise on their own, or get a suitor in the Mergers & Acquisition (M&A) window.  It also implies that come January 2015, the Nigerian capital market will witness streamlining of jobs for both the Chief Executive Officers (CEOs) and employees of affected operators in the stock market.

Furthermore, the minimum capital requirement for Rating Agency was increased from N20 million to N150 million; while the capital requirement for Corporate Investment Adviser remains at N5 million.

“The demand for market operator service is not getting smaller because of recapitalisation. The new capital requirement is not a reflex action but a carefully considered SEC board position over four years. We have seen some migrations towards business combinations in form of M&As which is expected, but some pronouncements which some market operators are making are just to attract sympathy”, our source at the SEC added.

From an initial capital requirement of N500,000 every Individual Investment Adviser is expected to have  at least N2million as capital, by the end of this month; while Fund/Portfolio Manager’s minimum capital requirement was raised from N20 million to N150 million.

Iheanyi Nwachukwu