Friday, October 22, 2021

    Nigeria seeks to reduce demand for foreign stocks with new tightened rules for local brokers

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    Nigeria is once again trying to calm demand for foreign stocks through tighter regulatory oversight of local brokers.

    The Abuja-based Securities and Exchange Commission now plans to register brokers selling shares of foreign companies as more Nigerians cram assets to protect against inflation and currency weakness.

    An effort earlier last month met with locals resistance, turning on them after warnings alerting people to the risks and threats to sanction local traders.

    Read: Nigerians Avoid Naira For Foreign Currency To Store Wealth

    “The commission plans to actively monitor the local foreign equity market as part of our mandate to ensure investor protection and market transparency,” Dayo Obisan, SEC executive commissioner of operations, said in an interview.

    The regulator wants to draw a curtain on a period that has seen legions of young Nigerians turn to online platforms to invest in stocks and digital currencies. The need to protect savings became more urgent after the central bank devalued the local currency three times in a year, while inflation accelerated at the fastest rate in four years.

    Previously, online platforms could connect high net worth individuals without an independent license. The SEC now wants to regulate them directly because of concerns it targets retail investors who need protection.

    The All-Share Index, Nigeria’s benchmark stock market gauge, has fallen 2% this year, compared to a gain of around 11% in the S&P 500 Index.

    Buy Frenzy

    At least 400,000 Nigerians have invested funds in foreign stocks through online brokers in the past 18 months, Obisan said.

    Nigerians actively trading or owning foreign stocks now overtake those who invest in local collective investment schemes schemes or mutual funds, depending on the regulator. About 70% are between the ages of 18 and 40, a demographic that has shunned the local stock market, which has a total active investor base of less than one million.

    “There is growing interest among the younger population and this concerns the commission mainly because it creates an avenue for exploitation,” Obisan said.

    The SEC will license companies offering foreign stocks under so-called “digital sub-brokerage” regulation, which it says should give some form of legitimacy to their activities.

    The requirement will ensure “that regulatory responsibilities for welcoming clients, custody of assets and complying with reporting requirements are met,” Obisan said.

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