No doubt, Nigeria’s capital market apex regulator has suddenly realised the growing interest in foreign equities by the locals as it makes attempt at muting growing demand for offshore stocks with its much publicised licensing of firms operating in that space.
Just recently, the Securities and Exchange Commission (SEC) notes that the requirement will ensure regulatory responsibilities in on-boarding clients, custody of assets and compliance with reporting requirements are met, adding that about 400,000 Nigerians invested in foreign stock through online brokers in the last 18 months.
Under a “digital sub-broker” regulation, the Nigeria’s SEC says the move is to provide a form of clarity to the activities of those brokers. This development is pushing many Fintech on-board. “I am sorting regulation. Pushing, pushing hard,” a CEO of a renowned Fintech firm told BusinessDay in a terse message when asked on his take in line with the regulator’s decision.
Through the Fintech firms, Nigerian investors have continued to build and preserve wealth through digital investment opportunities in foreign stocks, even as the financial firms are showing willingness to serve their customers with more investment options.
“There also appears to be an increasing interest among the younger population and this is of interest to the Commission primarily because it creates an avenue for exploitation if it is not properly monitored and regulated. Especially as this interest is not mirrored on the traditional and core asset class,” notes Dayo Obisan, executive commissioner, operations of the SEC.
Recently, the SEC states it is mindful that these platforms expose investors to both local and foreign stocks, and is mooting registration of these platforms under the Digital Sub-Broker regulations, which should provide some form of legitimacy for their activities.
The SEC management had in its notice on April 8 said: “The attention of the Securities and Exchange Commission has been drawn to the existence of several providers of online investment and trading platforms which purportedly facilitate direct access of the investing public in the Federal Republic of Nigeria to securities of foreign Companies listed on Securities Exchanges registered in other jurisdictions.
“These platforms also claim to be operating in partnership with Capital Market operators (CMOs) registered with the Commission. The Commission categorically states that by the provisions of Sections 67-70 of the Investments and Securities Act (ISA), 2007 and Rules 414 and 415 of the SEC Rules and Regulations, only foreign securities listed on any Exchange registered in Nigeria may be issued, sold or offered for sale or subscription to the Nigerian public.
“Accordingly, CMOs who work in concert with the referenced online platforms are hereby notified of the Commission’s position and advised to desist henceforth. The Commission enjoins the investing public to seek clarification as may be required via its established channels of communication on investment products advertised through conventional or online mediums.”
Like many other notable Fintech firms facilitating investment in foreign stocks, Chaka Technologies had noted that its mission remained the same on connecting African businesses and individuals to global financial markets.
Companies such as Apple, Google, Facebook, Amazon, Microsoft, Netflix, Samsung, and Twitter are some of the well-known American companies that many high return seeking investors have grown up using their products and services offered at one point in life of another.
Alongside benefiting from the products and services these companies offer, the question remains whether Nigerians can also be part of these companies by investing in their public shares?
Obisan, who noted this, says the SEC will register and actively monitor brokers selling stocks for foreign companies in furtherance of its mandate of ensuring investor protection and market transparency, especially for retail investors.
According to Obisan, “Ultimately, we expect that registration will ensure that only genuine platforms target retail investors. We already have one of the platforms at a very advanced stage in the registration process.
“The SEC has rules on foreign investments and cross-border transactions, which specify the requirements for foreign investors seeking to invest in Nigeria as well as issuers of securities. Broadly speaking, all capital market instruments are registrable – Equities, Bonds, Units of Investment Funds, Derivatives, etc.”
Other firms offering similar services to investors include: Bamboo, which is an online stock trading and investment platform that gives Nigerians unrestricted access to over 3,000 stocks that are listed on the Nigerian Stock Exchange and US stock exchanges. Bamboo was founded in 2019 by Yanmo Omorogbe and Richmond Bassey. It is partnering DriveWealth, a US-based digital trading technology; Lambeth Capital, a Nigerian stockbroking firm, and Flutterwave, a payment platform.
There is also Trove, which owns the first micro-investing platform (TroveApp) in Nigeria that gives access to Nigerians to invest in publicly traded US, Nigerian, Chinese stocks, Government Bonds, Cryptocurrencies, etc. Trove was established on July 10, 2018, by Austin Akagu, Desayo Ajisegiri, and Oluwatomi Solanke. It currently has close to 10 employees.
Again, there is eToro, which is one of the world’s leading social trading platforms that gives access to individuals and companies to invest both in stocks and cryptocurrencies as well as trading CFD with various underlying assets. eToro was founded in 2007 by Yoni Assia, Ronen Assia, David Ring, with its headquarters in London, Tel Aviv Yafo, Limassol. It currently has employed between 501-1000 staff and its parent organisation is eToro Group Limited.
Also on the growing list of the Fintech firms’ SEC target in its “digital sub-broker” regulation is Wealth.ng, which is one of the investment companies that enables an individual to invest money in treasury bills, stocks, mutual funds, and real estate through their investment app or the web. Wealth.ng is a product of WealthTech Limited – a financial technology company and an affiliate of Sankore Securities Limited and it is registered with the Nigerian Stock Exchange and regulated by the SEC, Nigeria.
Also, with as low as $10, investors were made to start investing in US stocks from the Rise app. Rather than investing by themselves, some investors chose to let Rise experts manage and invest their money into a portfolio of “expertly-selected US stocks”.
Chaka, founded on May 1, 2019, by Tosin Osibodu has partnered two brokers Citi Investment Capital and US-based DriveWealth to facilitate stock purchases. The Fintech firm prides itself as client’s investment passport to owning US, Nigerian, Chinese and global companies like Apple, Google, Dangote, Alibaba and more from any device. “At Chaka, we have always maintained a strict commitment to compliance,” Tosin Osibodu, co-founder/CEO, Chaka Technologies had said in statement to its stakeholders.
The go-to global investment platform for African businesses and individuals further noted that, “From inception, we made it imperative that all equities available through Chaka’s app are offered through regulated parties like Citi Investment Capital Limited (CICL) and others who are licensed by the Nigerian SEC and other financial regulators.
“We are pleased to inform our stakeholders and the general public that Chaka has taken the necessary steps to register with the Securities and Exchange Commission of Nigeria (SEC) for a newly created license, as SEC continues to maintain its avowed intention to encourage innovation within the market space,” the Fintech firm had noted.
“The Nigerian Market has been open to listing of securities by Foreign Issuers and there are no restrictions in that regard. As mentioned earlier, Part H of our Rules deals with the regulation of foreign investments and cross-border securities transactions. Most foreign issuers take advantage of the reciprocal agreements which exist between Nigeria and the Country of the Issuer especially where the securities regulator of that country is a member of the International Organisation of Securities Commissions (IOSCO).
“This is quite distinct from the activities of the online platforms which are brokering secondary deals in securities which have been issued in another country and essentially performing a function for which they have not been registered or licensed, which is what necessitated the circular by the Commission”.
Obisan disclosed that Nigerians, like other citizens across the globe have the liberty to trade across borders, but what had become a growing trend however was the participation by retail investors in cross-border transactions, which had hitherto been undertaken by institutional and high net worth investors.
He said: “This sort of savvy investors have the resources and skillset to undertake independent evaluations of potential cross-border investments beyond disclosures made to them. What we can confirm, based on our interactions with some of the online platform operators which are facilitating these trades, is that there has been a sharp increase over the last 18 months in the number of users of these platforms.
“We are aware that there is a growing number of people utilising these platforms for investing in foreign stocks. The platform operators indicate that there is a mix, which is not static because different factors may affect the final execution of transactions, which in itself may not be a true reflection of the interest of the investor. Hence, we don’t have exact figures right now, but we are aware that there has been a growing number”.
On the way forward, the SEC Executive Commissioner said the Commission is speaking to CMOs, has engaged and will keep engaging the platform owners who are trying to deploy tech solutions for capital market activities.
“We will also be engaging CMOs which have partnered or are looking to partner with platform owners in performing their registered functions. We understand that these partnerships are being forged in a bid to enhance the performance of functions for which they are already registered, however, the Commission needs to be clear on the roles and responsibilities of each party and also obtain clarity on how they choose to support these investments in foreign stocks bearing in mind the currency exposure, ownership and direct custody of assets, adequacy of information being provided to enable the investor make an informed decision and ability to take benefit of corporate actions such as dividends”, Obisan stated.
“It would aid our understanding of dispute resolution mechanisms, existence of insurance and backup facilities, trade settlement and other measures which are in place or which should be in place for the protection of investors on-boarded through these platforms bearing in mind the exposure and potential effect on the local market and the economy in general.
“In terms of resolutions, direct investments in foreign stocks are something to be considered carefully. The IOSCO report on cross-border trading recommends that emerging markets such as ours should consider the peculiarities of our corporate environment, extent of investor education, and protection measures which are available to investors. There is a high risk of fraud which must be minimised by whatever approach we eventually adopt. This informed our decision to preliminarily issue a halt order. The outcome of our inclusive engagements with all stakeholders will inform the ultimate outcome and approach. We don’t expect this engagement and resolution process to take an inordinate amount of time given that engagements have been ongoing,” he said.
