SEC Issues Warning to Investment Platforms Trading Foreign Securities

Nigeria’s Securities and Exchange Commission (SEC) has recently issued a circular addressing investment platforms that facilitate access to international securities.

The regulator indicates that these platforms may be operating in violation of established regulations.

Regulations Regarding Unregistered Securities

According to the newly publicized SEC regulations, platforms trading foreign securities that are not registered within Nigeria have been directed to cease such activities.

Capital market operators collaborating with these platforms have also received warnings against providing brokerage services for these unregistered foreign securities.

Rise of International Investment Platforms in Nigeria

Over the past three years, several platforms resembling Robinhood – including Bamboo, Trove, Chaka, and Rise – have emerged within Nigeria’s fintech sector.

These platforms extend access to Nigerians for investing in stocks, bonds, and other securities in both domestic and international markets.

They have gained considerable traction among the middle class, offering a means to safeguard earnings against the effects of naira devaluation.

Differences Between Nigerian Platforms and Robinhood

Despite similarities, significant operational differences exist between these Nigerian platforms and Robinhood.

Robinhood functions as both a trading application and an online brokerage, offering introducing and clearing services alongside zero-commission trading.

Nigerian investment platforms currently do not provide these brokerage services.

Obtaining a brokerage license in Nigeria presents substantial challenges, unlike in the U.S., leading to strategic partnerships between these platforms and capital market operators.

These partnerships enable Nigerians to access both local and fractional foreign securities.

SEC’s Previous Action Against Chaka

Following increased regulatory scrutiny of tech startups last year, the SEC issued a warning to Chaka in December.

The regulator accused Chaka of selling and advertising stocks without proper authorization.

Specifically, the SEC alleged that Chaka “engaged in investment activities…providing a platform for purchasing shares in foreign companies…outside the Commission’s regulatory purview and without requisite registration.”

Current SEC Directive and its Implications

Chaka’s CEO, Tosin Osibodu, refuted these claims.

Following this initial action, the SEC remained largely silent on the matter until the release of today’s circular.

The regulator is now directing all investment platforms, including brokerage firms, to refrain from selling, issuing, or offering foreign securities not listed on exchanges registered within Nigeria.

This directive will likely restrict investment platforms to offering access solely to local stocks and securities.

Consequently, the business models of these startups are potentially impacted, and their core value proposition – protecting Nigerians from naira devaluation – is threatened.

Chaka’s Response and Potential Path Forward

In response to the SEC’s concerns, Chaka announced last month that it is working with the regulator to secure a new license.

This license is designed to permit the offering of these services and potentially exempt the company from the new regulations.

Other investment platforms may need to pursue a similar path to bring their operations under the SEC’s regulatory oversight.

Information from the Regulator

The following information was released by the regulator on its official website:

This is an ongoing story, with further updates to follow…