Nigerian SEC moves to ban Trove, Bamboo, Chaka and others from foreign stocks

Proliferation of Unregistered Online Investment and Trading Platforms Facilitating Access to Trading in Securities Listed in Foreign Markets

08/04/2021

The attention of the Securities and Exchange Commission (the 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 & 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.

Signed

Management

Securities and Exchange Commission

The above circular is as published on the Securities and Exchange Commission (SEC) website yesterday.

With this new policy, the main business model of investment platforms like Trove, Bamboo, Chaka, and others has taken a major hit. 

These platforms have over the past three or more years grown in acceptance by the young Nigerian middle class as a safe haven for shoring up their naira against constant devaluation. They have also, and most importantly, provided a much needed window for investing in most US stocks such as Google, Facebook, Amazon, Tesla, Johnson & Johnson, etc.

Through partnership with some Capital Market Operators (CMOs) within and outside Nigeria, these investment platforms have been able to provide direct access to both foreign stocks (through foreign CMOs) and local stocks (through local CMOs). And this arrangement has been working well. 

For instance, Trove partners with a US brokerage called Drivewealth LLC to provide direct access and custody of US stocks to users in Nigeria, and ARM Securities Limited, a Nigerian broker, for Nigerian stocks. 

Chaka also partners with Drivewealth LLC for US stocks, and Citi Investment Capital Limited for Nigerian stocks. 

But, this new SEC policy does two main things:

1.  Prevents these investment platforms from issuing, selling, offering for sale or subscription any foreign stock that is not registered with the Nigerian Stock Exchange or other exchanges within the country to the Nigerian public. 

2.  Prevents Capital Market Operators registered with SEC from partnering with these investment platforms to issue, sell or offer for sale/subscription, foreign stocks that are not registered in Nigeria.

Clearly, most of these platforms are currently not in violation of number 2, since they do not use local CMOs to provide access to foreign stocks not listed in Nigeria. 

But they all appear to be in violation of number 1, since they offer for sale/subscription foreign stocks that aren't listed in Nigerian exchanges. 

However, it remains to be seen to what extent this new policy will be enforced by the SEC, and what the response of affected investment platforms and CMOs will be.

But in the meantime, Nigerians who are currently invested in foreign stocks on these platforms are expected to contact them to get guidance on how to secure their funds. And also to follow up with SEC for further guidance on this policy. 

This is a developing story. 

Sources: SEC, Yahoo

Chukwubuikem Paul Anunaso is a civil/structural engineer based in Lagos, Nigeria. He is the editor of The Paul Anunaso Blog, and can be reached at anunaso.cp@gmail.com