NASD seeks compliance with SEC rule on trading unlisted securities

NASD OTC Exchange has urged public limited companies (PLCs) to comply with the rule of the Securities and Exchange Commission (SEC) that specifies that securities of unlisted public companies be mandatorily traded on a SEC-registered Over-the-Counter Exchange.

By the rule, purchase, sale and transfer of unlisted securities are prohibited for dealing between bilateral parties outside a registered stock exchange in order to ensure transparency. Such transactions should be done on a SEC-registered OTC Exchange because the securities of public companies are, by regulation, supposed to be registered with the SEC immediately they are created. The Commission reserves the right to sanction erring companies in line with the provision of the Investment and Securities Act (ISA).

The Rule specifically states that: “All Securities of unlisted public companies shall be bought, sold or transferred only by means of a system approved by the Commission and under such terms and conditions as the Commission may prescribe from time to time.

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“No person shall buy, sell or otherwise transfer securities of an unlisted public company except through the platform of a registered securities exchange established for the purpose of facilitating over-the-counter trading of securities.

“Any unlisted public company, director, company secretary, registrar, broker/dealer or such other persons who facilitate the buying, selling or transfers of the securities of an unlisted public company otherwise than through the platform of a duly registered securities exchange, shall be liable to a penalty of not less than N100, 000 in the first instance and not more than N5, 000, for every day of default.”.

A statement from NASD, indicates that currently, securities of many unlisted public companies are not traded on the SEC-registered OTC Exchange and this prevents SEC from monitoring the activities of these companies as part of its investor protection mechanism .

“If the Rule is enforced by the Commission, it will make the securities of unlisted public companies more accessible to investors and other interested market participants on a trusted platform. This will enhance liquidity of shares for the issuers. Transactions on such securities will no longer be among investors that have contact with the company’s management, minimize underhand dealing in securities, curb fraudulent transactions and boost investor confidence in the capital market.

“The SEC-registered OTC Exchange Platform provides an opportunity for price discovery through the interplay of market forces. The rule also enhances portfolio diversification with ease as equity investors can easily access securities from different sectors of the economy”, NASD said in the statement.