PART 7 – CAPITAL MARKET ADVISERS

An entity looking to offer securities to the public requires the assistance of professionals to ensure the success of the transaction. The SEC Rules provide for a plethora of advisers necessary to ensure the success of such a transaction, prescribing their functions and requirements for registration. Some of the advisers typically involved in the public offer of securities include:

a.?Issuing houses [1] – An Issuing house is a capital market operator required to seek registration with the SEC. The Issuing House plays a fundamental role in the issuance of securities or establishment of a scheme, providing financial advisory services to the Issuer, and generally acting as the agent of the Issuer for the purpose of issuance of securities and the establishment of a scheme. The Issuing House is also involved in coordinating the activities of other professionals and parties to an issue or scheme, and prepares the registration statement, the prospectus, the scheme document or any and other transaction documents.

The Issuing House may act as a receiving bank in the same issue, although the SEC Rules lays out the conditions, subject to which an Issuing House may act as receiving bank.[2]

b. Underwriters – The SEC Rules define underwriting as an arrangement whereby an underwriter undertakes, for a permissible commission, to pay an issuer of securities at a predetermined date, an amount based on the price of the securities determined in conjunction with the issuer and the issuing house with a view to resale not as a form of investment. [3]

In simple terms, underwriting is when an underwriter agrees (for a commission) to buy securities from a company at a set price on a future date, with the goal being to resell the securities, rather than keep them as an investment.

By implication, the role of an underwriter is the underwriting of securities in line with the definition of Underwriting above. The SEC Rules further provide that the underwriting of public issues shall be on a firm, standby or best effort basis.[4] This means:

1.?Firm commitment – They buy all the securities and then resell them to investors.

2. Standby – They agree to buy any unsold securities after an offering.

3. Best effort – They try to sell as much of the securities as possible without a guarantee to buy the unsold ones.

The SEC Rules provide that no person may act as underwriter in any public issue of securities unless same is registered with the SEC. the SEC Rules further provide that the following entities/person may be registered as underwriters – banks, issuing houses, insurance companies, and such other persons as may be determined by the SEC from time to time. [5]

Thus, an Issuing House may in addition to executing its functions as an issuing house, act as a receiver bank and an Underwriter in compliance with the provisions of the SEC Rules.

c. Broker/dealers – Brokers/Dealers are capital market operators registered with the SEC to carry out the sale and purchase of securities on a recognized securities exchange on behalf of investors. [6]

d. Receiving banks – Receiving Banks are commercial/merchant banks[7] registered with the SEC to carry out the functions of accepting application monies from investors in respect of securities offers, refunding application monies not approved by the SEC in the name of the Registrar to the issuing house, refunding excess application monies in the name of the Registrar to the issuing house, and remittance of approved allotment monies with accrued interest, among others[8]. The Receiving Bank acts on behalf of the Issuer. ??

e.????? Registrars – A Registrar is an entity licensed by the SEC to carry out the following functions:

1. maintaining the register of members of a company and unit holders of collective investment schemes, and effecting appropriate changes in the register;

2.?issuing share/debenture/bond certificates;

3.?returning surplus monies and monies for rejected applications;

4.?preparing and dispatching dividend/interest warrants;

5.?distributing rights circulars and public offer documents;

6.?dispatching annual reports, accounts and notices of meetings;

7.?printing and dispatching securities certificates to new investors in respect of the transfers of existing securities;

8.?verifying the genuineness of share certificate and authenticating signature on transfer instruments in respect of existing securities;

9.?collecting interests on debenture and loan stocks from the issuer for onward dispatch to debenture or stockholders where applicable;

10.?any other function ancillary to all the above. [9]

f.?Trustees – The Trustee is an SEC Licensed entity that acts in respect of a collective investment scheme or a debt issuance. The function of the Trustee in respect of a collective investment scheme or a debt issuance is to act in the interest of the unit holders/fund contributors or the lenders/investors respectively, flowing from which the Trustee has other duties including; holding and enforcing securities on behalf of lenders/investors, monitoring the register of bonds/unit holders, ensuring a custodian takes into custody the assets of a scheme, etc.

g.?Rating Agencies – A rating agency is a public or private limited company registered with the SEC to provide credit ratings to governments and other entities, debt and equity instruments, and collective investment schemes. The credit ratings are integral to assessing the credit worthiness of an issuer or an issue.[10]

h.?Custodians – A Custodian is a person who safekeeps and administers securities and other financial instruments on behalf of Investors. The SEC Rules provide that a custodian shall have the following functions:[11]

1.?maintaining accounts of securities of a client;

2. collecting the benefits, entitlement or rights accruing to the client in respect of securities;

3. keeping the client informed of the actions taken or to be taken by the issuer of securities, having a bearing on the benefits or rights accruing to the client;

4.?maintaining and reconciling records of the services referred to in sub-clauses (1) to (3) above;

5.?Settlement of investment obligations;

6. ensuring compliance with fund-specific and other contractual obligations with clients.

i. Solicitors – A solicitor is a legal practitioner registered with the SEC as a capital market professional to among other things; review statutory corporate documents of an issuer and other transaction parties, carry out due diligence to ensure the disclosure of material information, advise on the legal structure of the transaction, Advise on compliance with the requirements of the Corporate Affairs Commission, the Securities and Exchange Commission, the listing requirements of the Nigerian Stock Exchange and other relevant industry specific regulatory requirements, etc. [12]

The foregoing are professionals that typically act as advisers in the issuance of securities. Their functions are critical to the capital market as they ensure the success of transactions, protection of investors and compliance with the relevant rules.

[1] SEC Rules and Regulations 2013 as amended, Rule 84

[2] SEC Rules and Regulations 2013 as amended, Rule 85

[3] SEC Rules and Regulations 2013 as amended, Rule 87

[4] SEC Rules and Regulations 2013 as amended, Rule 87

[5] SEC Rules and Regulations 2013 as amended, Rule 89

[6] SEC Rules and Regulations 2013 as amended, Rule 56

[7] SEC Rules and Regulations 2013 as amended, Rule 111

[8] SEC Rules and Regulations 2013 as amended, Rule 113

[9] SEC Rules and Regulations 2013 as amended, Rule 99

[10] SEC Rules and Regulations 2013 as amended, Rule 114 & 115

[11] SEC Rules and Regulations 2013 as amended, Rule 120

[12] SEC Rules and Regulations 2013 as amended, Rule 180