1 Legal and regulatory framework

1.1 Which laws and regulations govern the capital markets in your jurisdiction?

The main laws and regulations in Nigeria are:

  • the Investments and Securities Act (29/2007);
  • the Companies and Allied Matters Act (3/2020);
  • the Securities and Exchange Commission Rules, 2013, as amended;
  • the Federal Competition and Consumer Protection Act, 2018;
  • the Nigerian Exchange Rulebook, 2015, as amended;
  • the FMDQ Securities Exchange Rules and Regulations;
  • the NASD OTC Securities Exchange Rules and Regulations;
  • the Nigerian Code of Corporate Governance 2018;
  • the Securities and Exchange Commission Corporate Governance Guidelines; and
  • the Securities and Exchange Commission (Capital Market Operators Anti-Money Laundering, Combating Terrorism Financing and Proliferation Financing) Regulations, 2022.

Other relevant laws and regulations include:

  • the Constitution of the Federal Republic of Nigeria, 1999, as amended;
  • the Banks and Other Financial Institutions Act (5/2020);
  • the Central Bank of Nigeria Act (7/2007);
  • the Debt Management Office Establishment (Etc.) Act, 2003;
  • the Insurance Act (1/2003);
  • the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, 1995;
  • the Nigerian Investment Promotion Commission Act, 1995;
  • the Trustee Investments Act, 1957;
  • the Fiscal Responsibility Act (31/2007);
  • the Companies Income Tax Act, 1961, as amended;
  • the Finance Act, 2019 (1/2020);
  • the Finance Act, 2020 (1/2021);
  • the Finance Act, 2021 (3/2022);
  • the Finance Act, 2023 and the Finance Act (Effective Date Variation) Order, 2023;
  • the Pension Reform Act (4/2014);
  • the Chartered Institute of Stockbrokers Act, 1992;
  • the Financial Reporting Council of Nigeria Act (6/2011);
  • the Terrorism (Prevention and Prohibition) Act, 2022;
  • Central Bank of Nigeria (Anti-Money Laundering, Combating the Financing of Terrorism and Countering Proliferation Financing of Weapons of Mass Destruction in Financial Institutions) Regulations, 2022; and
  • Business Facilitation (Miscellaneous Provisions) Act, 2023.

1.2 Is your jurisdiction part of a supranational, transnational or multinational framework with relevance to capital markets? If yes, how does this work?

Yes. Nigeria is a member of the International Organisation of Securities Commissions (IOSCO), which is the international body that brings together the world's securities regulators and is recognised as the global standard setter for the securities sector. Nigeria is also a member of the Africa/Middle-East Regional Committee, a Committee constituted by IOSCO to focus on regional issues relating to securities regulation in Africa and the Middle East.

Members of the IOSCO and Signatories to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (IOSCO MMoU) collectively agree to the effective implementation of the IOSCO Principles and the IOSCO MMoU, thereby:

  • facilitating cross-border cooperation;
  • mitigating global systemic risk;
  • protecting investors; and
  • ensuring fair and efficient securities markets.

Nigeria is a Signatory to the IOSCO MMoU.

Nigeria is also a member of the West Africa Securities Regulators Association (WASRA), which was established to facilitate information sharing, cooperation and harmonisation of rules, regulations and policies governing cross-border transactions in the West Africa sub-region.

The Nigerian Exchange, NASD OTC Securities Exchange and the FMDQ Securities Exchange are members of the African Securities Exchanges Association (ASEA). Nigerian Exchange Group and FMDQ Group are members of the World Federation of Exchanges (WFE).

1.3 Which bodies are responsible for regulating the capital markets in your jurisdiction? What powers do they have?

The Securities and Exchange Commission (SEC) is primarily responsible for regulating the capital markets in Nigeria.

The powers of the SEC are as follows:

  • market regulation, including registration of securities and market intermediaries, inspection, surveillance, investigation, rulemaking and enforcement; and
  • market development.

The securities exchanges and other self-regulatory organizations registered by the SEC also regulate trading and participants on their platforms.

1.4 How does enforcement work and what kinds of sanctions may be applied?

Enforcement of the capital markets laws is primarily the responsibility of the SEC, which does so by:

  • inspecting and examining offices and books of operators;
  • enforcing information sharing to ensure compliance;
  • initiating enforcement action against errant capital market operators.
  • ensuring that registered operators comply with the requirement to file statutory returns/reports with it;
  • investigating reported and/or suspected infractions in the market; and
  • prosecuting crimes through the appropriate criminal prosecuting authority.

The following sanctions may be applied:

  • fines;
  • suspension of a market operator;
  • ban of a market operator; and
  • prosecution and conviction where offences are found to be criminal.

2 Capital markets infrastructure

2.1 What is the capital markets infrastructure in your jurisdiction (eg, trading venues, central counterparties, central securities depositaries (CSDs)?

  • Trading venues:
    • the Nigerian Exchange (NGX);
    • FMDQ Securities Exchange Limited (FMDQ Exchange);
    • NASD OTC Securities Exchange;
    • the Nigeria Commodity Exchange;
    • the Lagos Commodities and Futures Exchange; and
    • Africa Exchange (AFEX).
  • Central Counterparties (CCPs): There are two CCPs in Nigeria with the approval of the SEC:
    • NG Clearing Limited; and
    • FMDQ Clear Limited.
  • CSDs: There are two main CSDs in Nigeria:
    • Central Securities Clearing System Plc; and
    • FMDQ Depository Limited.

2.2 What are the main exchanges and other trading venues in your jurisdiction? What are the key differences between those various trading venues?

  • NGX: The NGX is a multi-asset exchange. It offers equities (shares), exchange-traded funds, derivatives, mutual funds and bonds (e.g., federal government bonds, supranational bonds, corporate bonds).
  • FMDQ Exchange: FMDQ was originally registered by the SEC as an OTC market for trading debt securities, but now also a multi-asset exchange. It is the host of the Nigerian Autonomous Foreign Exchange Market (NAFEM), the market trading segment for investors, exporters and end-users that allows for foreign exchange trades to be made at exchange rates determined based on prevailing market circumstances. It offers bonds, commercial papers, treasury bills, foreign exchange, derivatives and equities. However, it is yet to provide a platform for listing equity securities.
  • NASD OTC Securities Exchange: NASD is an over-the-counter platform for the sale and purchase of securities.
  • Commodity exchanges: The Nigeria Commodity Exchange, Lagos Commodities and Futures Exchange, and AFEX deal in commodities.

2.3 What kinds of securities does your jurisdiction provide for (eg, electronic securities)?

The securities provided for in the Nigerian capital market include:

  • debt instruments – sovereign bonds, state bonds, municipal bonds and corporate bonds;
  • equities (common stock);
  • preference shares;
  • exchange-traded funds and mortgage-backed securities; and
  • derivatives – futures, options, and swaps.

The securities are provided in both certificated and electronic forms.

2.4 Is it mandatory to deposit securities with a (local) CSD (eg, for listing)?

Yes. Public limited companies listed on the NGX must deposit their securities with a CSD.

2.5 Are there rules in place governing crypto-assets and crypto-infrastructure (eg, crypto-exchanges, local crypto-money)?

The Central Bank of Nigeria (CBN) in 2021 banned all entities regulated by it from dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges. However, by a Circular dated December 22, 2023, the CBN lifted this ban and issued the Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers (VASPs) to guide financial institutions under its regulatory purview in respect of their banking relationship with VASPs in Nigeria. Banks and other financial institutions are, however, still prohibited from holding, trading and/or transacting in virtual currencies on their own account.

On 11 May 2022, the SEC issued its Rules on Issuance, Offering Platforms and Custody of Digital Assets. In addition, the Finance Act of 2023 expanded the definition of chargeable assets in the Capital Gains Tax (CGT) Act to include digital assets including cryptocurrencies. Consequently, capital gains on the sale of cryptocurrencies are now subject to CGT at 10%.

2.6 Are special rules in place for crowdfunding products?

Yes. On 21 January 2021, the SEC released its Rules on Crowdfunding. The rules took effect on the same date. However, entities in the crowdfunding ecosystem were given until 21 April 2021 to comply with the requirements.

2.7 What kinds of databases are available on instruments issued and traded in your jurisdiction, and how can they be accessed?

The above databases can be accessed on the websites of exchanges and through stockbrokers and authorized data vendors.

3 Trading and post-trading infrastructure

3.1 What kind of market infrastructure does your jurisdiction provide for?

The market infrastructure in Nigeria is as follows:

  • Securities Exchanges
  • Central Securities Depositories
  • Central Counterparties

3.2 What are the rules governing liquidity flows across execution venues (eg, use of systematic internalisers, trading obligations)?

Market makers enhance liquidity in the market. The SEC and the self-regulatory organizations have market-making rules. The Market Making Rules of the NGX provides that the Exchange may, where it deems it necessary, agree with a dealing member to enhance the market liquidity of a particular security.

The SEC Rules on Market Makers provide that market makers shall:

  • promote continuous liquidity in the market at all times;
  • have the capacity for continuous two-way quotes in the relevant stocks throughout the trading session in a minimum quote size to be specified by the supervising self-regulatory organisation with the approval of the SEC;
  • have the capacity to deliver and settle transactions within the prescribed settlement cycle;
  • have the capacity to lend and borrow the designated securities at any time; and
  • have enough buffer funds at all times.

3.3 Are there rules on light and dark markets and how do these apply?

The Investments and Securities Act, 2007 - the principal statute that regulates trading in the capital markets, and the rules made pursuant thereto regulate light markets. An exchange must display its official list, containing information about securities quoted on such exchange, at least one hour before trading commences. Each exchange is required to keep a record of all daily transactions and activities on its floor.

We are not aware of the existence of ‘dark markets' in Nigeria.

3.4 Are market participants subject to best execution requirements?

Yes. The NGX Rules on Order Handling and Best Execution require capital market participants – particularly brokers – to seek the best execution reasonably necessary when acting for clients.

3.5 Does your jurisdiction apply a target market concept?

Yes, Nigeria applies a target market concept. The sale of securities may be targeted at specific investors or categories of investors, such as:

  • Qualified Institutional Investors
  • High Net-worth Investors
  • Retail Investors
  • Select individuals or groups of individuals

Under the SEC Rules, "qualified institutional investors" refers to investors such as banks, fund managers, pension fund administrators, insurance companies, investment trusts, private equity funds, staff schemes, market makers, trustees/custodians and stock brokering firms. "High net-worth investor" refers to an individual with a net worth of at least NGN100 million, excluding personal homes, automobiles and furniture. A retail investor is an individual, not otherwise classified as a high net-worth investor or as a qualified institutional investor, who invests with a registered capital market investor and has on aggregate, a net worth of less than NGN100 million, excluding personal homes, automobiles and furniture.

3.6 How does securities settlement work in your jurisdiction?

All trades concluded on the floor of an organised securities market are subject to clearing and settlement through a central securities depository (CSD). After the initiation of a security trade on a securities exchange, the exchange shares the data with the CSD to undertake the clearing and settlement. For securities traded on an exchange, the settlement cycle is Day T (transaction day) +3 for equities and Day T+2 for debt securities. The settlement cycle for OTC debt securities is generally Day T+2.

The SEC Rules on Direct Cash Settlement provide that the sell side of exchange-traded securities carried out on a securities exchange will be settled through direct payment into the client's account by the clearing and settlement entity, except where the client opts out in writing. The settlement must be done within the clearing and settlement entity's stipulated settlement cycle.

4 Listing and delisting of shares and bonds

4.1 What key requirements must be met to obtain a primary listing in your jurisdiction? What restrictions apply in this regard? Do any exemptions apply?

The key requirements for a primary listing on the NGX are as follows:

  • The company must be a public limited company with no restrictions on the transfer of its fully paid shares.
  • All securities for which listing is sought must first be registered with the SEC.
  • The securities must be fully paid-up at the time of allotment in compliance with applicable SEC rules.
  • Financial statements must be prepared and audited in accordance with International Financial Reporting Standards.
  • The company shall pay the prescribed listing fee.

In addition to the above, the company shall comply with such other requirements prescribed by the listing category chosen by it, i.e., the Growth Board – Entry and Standard, Main Board – Standards A, B and C, or Premium Board. Some of the other requirements are shown in the table below:

Growth Board Main Board Premium Board
Criteria Entry Standard Standard A Standard B Standard C
Pre-tax Profits No requirement NGN300 million over the last 3 years, with at least NGN100 million pre-tax profits in 2 of the years NGN600 million over the last 1 or 2 years No requirement Satisfy main board requirements
Market Capitalization not less than NGN50 million. not less than NGN500 million. No requirement not less than NGN4 billion. equal to or greater than NGN200 billion.
Shareholders' Equity No requirement No requirement NGN3 billion No requirement No requirement
Operating Track Record Has been in operation for at least 2 years OR; a new business that can provide evidence of investment in it by a core investor or a strong technical partner that has a minimum of two (2) years operating track record, or a majority shareholder who is either a high net-worth individual or is a director of a listed company Has been in operation for at least 2 years OR; a new business that can provide evidence of investment in it by a core investor or a strong technical partner who has a minimum of four (4) years operating track record, or a majority shareholder who is a high net-worth individual 3 years minimum operating track record 3 years minimum operating track record; or evidence of 3 years minimum operating track record of a core investor Score a minimum rating of 70% under the NGX's Corporate Governance Ratings System (CGRS)
Financials (date of last audited accounts must not be more than 9 months) 2 years financials or evidence of investment in it by a core investor or strong technical partner that has a minimum of 2 years operating track record or a majority shareholder who is either a high net-worth individual or is a director in a listed company 2 years financials or evidence of a core investor or strong technical partner who has a minimum of 4 years operating track record or a majority shareholder who is a high net-worth individual 3 years financial statements 3 years financial statements or evidence of a strong technical partner with substantial equity holding and involvement in the issuers' management, who has a minimum of 3 years' operating track record and financial statements Satisfy other main board requirements
Free Float 10% of the issuer's share capital made available to the public and held by not less than 25 shareholders 15% of the issuer's share capital made available to the public and held by not less than 51 shareholders 20% of the issuer's issued share capital made available to the public and held by not less than 300 shareholders. 20% of the issuer's issued share capital made available to the public and held by not less than 300 shareholders

A company may also list its securities on the Alternative Securities Market (ASeM) Board, which is for emerging businesses, and the Technology Board. A foreign issuer seeking a primary listing must comply with the additional requirements contained in the NGX Cross-Border Listing Rules.

The following restrictions and exemptions apply:

  • The NGX may refuse an application for listing if this is in the interest of the investing public or if the securities are not suitable for listing.
  • Mineral companies (i.e., mining, oil and gas) that wish to be listed on the NGX main board are exempted from the three-year track record requirement. Such companies must produce a competent person report describing, among other things, the nature and extent of their rights of exploration.
  • With respect to foreign issuers, the SEC may – if it is in the public interest and where a reciprocal agreement exists between Nigeria and the issuer's country or where the issuer's country is a member of the International Organization of Securities Commissions – grant an exemption from compliance with any of the requirements for the registration of securities in Nigeria.

To list debt securities on the FMDQ Exchange, an issuer must comply with the following provisions of its Bond Listing and Quotation Rules of 2014:

  • Be a registered company.
  • Have a minimum of three (3) years' operating track record.
  • Have a pre-tax profit from continuing operations of not less than NGN300 million cumulatively for the last three fiscal years, and a minimum of NGN100 million in two of those years.
  • Have audited financial statements covering the last three fiscal years, provided that the most recent statement at the time of submission of the application is not more than nine (9) months old. Where the issuer does not have audited financial statements for the last three years, the issuer shall provide evidence of a strong technical partner who has a minimum of three (3) years operating track record, with substantial equity, involvement in management and the audited financial statements for the last three years of the technical partner.
  • Have the lower of shareholders' equity of not less than NGN3 billion, or a market capitalisation of not less than NGN4 billion, at the time of the listing/quotation.
  • Ensure that the securities are fully paid up at the time of allotment and registered in compliance with the applicable SEC rules.
  • Undertake to promptly pay listing/quotation fees.

The requirements for listing on the NASD OTC are provided in its Market Rules.

4.2 What key requirements must be met to obtain a secondary listing in your jurisdiction? What restrictions apply in this regard? Do any exemptions apply?

The key requirements for secondary listing on the NGX include the following:

  • The foreign issuer shall be duly incorporated and validly established according to the laws of its place of incorporation, with no restriction on the transfer of fully paid shares.
  • The jurisdiction of the issuer must be subject to company laws and other laws and regulations which have standards at least equivalent to those in Nigeria, particularly with respect to corporate governance.
  • The issuer shall have a primary listing on another exchange which is accredited by the NGX, which may be a member of the World Federation of Exchanges or such other exchange recognised by the NGX, and a market capitalisation of at least NGN28 billion, or its equivalent, at the time of the listing.
  • The issuer's financial statements shall be prepared and audited in accordance with the International Financial Reporting Standards, or any other standard as stipulated by the Financial Reporting Council of Nigeria.
  • The issuer shall supply copies of annual reports for three (3) consecutive years and any subsequent interim report. The most recent financial statement must not be more than nine months old at the time of application.
  • Ensure that the securities are fully paid-up at the time of allotment or registration in compliance with the applicable SEC rules.
  • An issuer of equity securities must have at least 300 shareholders and at least 10% of the entire class of equity securities that it is applying to list on the NGX must be held by the public.
  • The issuer shall pay listing fees in such sums and at such intervals as may be prescribed by the NGX.

With regard to restrictions and exemptions, please see question 4.1. In addition, the NGX may approve a lower free-float threshold if the issuer's market capitalisation at the time of its listing is up to NGN200 billion or such other amount as is stipulated by the NGX.

4.3 What are the most common listing structures? What are the advantages and disadvantages of these different types of structures? What other factors should companies consider when deciding on a listing structure?

The most common listing structures are as follows.

Initial public offer (IPO): This can be by way of an offer for sale or an offer for subscription.

  • Advantages:
    • It is a cost-effective way to raise capital – companies can raise capital for their business cost effectively and seamlessly through an offer for subscription. In an offer for sale, the selling shareholder cashes in on its investment.
    • Securities offered can be sold almost instantly, thus providing high liquidity.
    • It provides an avenue for diversification for investors, thus bringing down the quantum of risk. Investors can allocate their investments across asset classes in multiple financial instruments.
  • Disadvantages:
    • Shareholders lose the level of control that they had before the IPO.
    • The listing requirements are more stringent.
    • It is expensive due to the listing requirements and professional parties required.

Listing by introduction:

  • Advantages:
    • The existing shareholders maintain the same level of control of the company that they had before the listing, since the shares are not offered to the public.
    • The shares become tradable and liquid.
    • It is less expensive than an IPO, as there are fewer requirements for listing.
    • The issuer gets the benefit of the public scrutiny and standards that listing brings without diluting its shares to the public as in an IPO.
  • Disadvantages:
    • The issuer cannot raise capital from the public.
    • Public awareness of the issue is limited, as the marketing is not meant for the public. This may impact on its share liquidity for some time.

4.4 How does the listing of bonds differ from the listing of shares?

  • Requirements for listing: Bonds – being a debt issue – more often than not require a sinking fund to service the debt and trustees to manage them and protect the interests of bondholders. This also means that different documentation will be required, such as trust deeds, deeds of legal mortgage and deeds of guarantee where there is a guarantor(s).
  • Purpose of listing: Shares are listed by companies in order to raise equity, as the purchasers of such shares literally own part of the company. On the other hand, when bonds are listed by corporations, state governments or the federal government, they are issued as debt, such that investors are owed periodical interest payments over the life of the bonds plus principal reimbursement.
  • Duration/lifespan: Shares are listed in such a way that they possess an infinite life, while bonds have a finite life. Bonds always have a maturity date.

4.5 What advisers are typically involved in the listing process? What claims (if any) can be brought against advisers with regard to their role in the listing process? Is there any way to mitigate such liability?

Some of the advisers typically involved in a listing process are:

  • issuing houses;
  • underwriters;
  • broker/dealers;
  • sub-brokers;
  • receiving banks;
  • registrars;
  • trustees;
  • fund/portfolio managers;
  • rating agencies;
  • custodians;
  • reporting accountants;
  • solicitors; and
  • auditors.

The claims which can be brought against advisers with regard to their role in a listing process include:

  • misappropriation of clients' funds by a stockbroker;
  • non-remittance of issue proceeds by an issuing house to the issuer;
  • claims arising from the failure of an issuing house or a registrar to return surplus moneys and moneys for rejected applications;
  • disputes or claims arising from misrepresentations; and
  • claims arising from false statements in offer documents or in securities transactions.

Advisers involved in a listing process can mitigate their liability by:

  • limiting the timeframe within which representations, warranties and indemnities made by such advisers will remain in force and in effect (eg, for two years after completion of the transaction);
  • limiting the scope of liability in the contract documents;
  • placing a cap on the quantum of liability which can be claimed; and
  • taking out a professional indemnity insurance.

4.6 What other factors should companies consider when deciding on a listing strategy?

The factors to be considered when deciding on a listing strategy will vary from one company to the next. They include the following:

  • the company's end result or purpose for embarking on the listing – for example:
    • increased access to capital for business expansion;
    • increased participation (ownership) by the public by increasing the company's share capital and offering those shares for sale;
    • better visibility of the company; and
    • increased accountability;
  • an opportunity for the company to leverage on a succession plan and to separate management from ownership – for example, where the shareholder with the highest percentage of shareholding offers a portion of its shares for sale to the public; and
  • where listing is a requirement to carry on business under a certain structure.

4.7 What are the typical reasons for voluntary delisting? What are the grounds for compulsory delisting? What is the process for delisting?

The typical reasons for voluntary delisting are as follows:

  • There has been little or no trading activity on the shares held by the minority shareholders and a considerable fall in trading volumes over the last 12 months;
  • The shareholders and the company are not benefiting from the continued listing;
  • The delisting will afford the company the opportunity to carry out an imminent corporate restructuring to take advantage of emerging market opportunities; or
  • The company wants to reduce regulatory reporting complexities and overheads.

Under the NGX Rules, the grounds for compulsory delisting include the following:

  • persistent non-compliance with the listing rules of the exchange;
  • failure to meet the financial requirements of listing on the exchange;
  • insufficient securities in the hands of the public; and
  • where the company becomes a subsidiary of another company.

Under the FMDQ Bond Listing and Quotation Rules, the grounds for compulsory delisting include:

  • failure to comply with all relevant FMDQ Rules;
  • unsatisfactory level of operations or insufficient assets to warrant the continued listing of the issuer's securities;
  • failure to meet corporate governance standards as may be prescribed by FMDQ and other relevant regulatory authorities; and
  • a determination of the exchange that the issuer or its business is no longer suitable for listing.

NASD may delist an admitted company if it falls below the applicable minimum admission requirements.

The process for delisting depends on whether the delisting is voluntary or compulsory.

Voluntary delisting of equity securities from the Daily Official List of the NGX: The issuer shall:

  • convene a meeting of its Board of Directors, at which the Board shall consider a recommendation to the shareholders of the issuer that the issuer should be voluntarily delisted, and pass a board resolution in this regard;
  • notify the NGX of the Board's recommendation to delist and obtain its approval to hold a general meeting at which the shareholders shall consider the recommendation;
  • obtain the approval of its shareholders by way of a resolution passed by at least 75% of the members present and voting during the general meeting;
  • appoint professional advisers and obtain all relevant approvals;
  • where the delisting is the result of a merger or other reconstruction, apply for a court-ordered meeting of shareholders to consider and, if thought fit, approve any Scheme and other relevant matters;
  • notify the SEC five (5) days prior to filing its application to delist with the exchange; and
  • submit to the NGX, through its dealing member, an application to delist its shares and pay the delisting fee.

At least three years must have elapsed since the issuer's initial listing before the NGX shall consider its application for the delisting of its shares. The NGX will dispose of an application for delisting within ten (10) business days of receipt thereof and notify the SEC of its decision within two (2) days.

An issuer may voluntarily withdraw its listing or quotation on FMDQ if it gives the holders of the affected class, and the holders of any securities convertible into the affected class, of its listed/quoted securities and FMDQ at least ninety (90) days' advance written notice providing clear and adequate explanations of its decision and if (a) the issuer has or will have at the time of delisting an alternate listing/quotation on another securities exchange acceptable to FMDQ; or (b) the issuer has obtained the approval of the holders of the affected class, and the holders of any securities convertible into the affected class, of its listed/quoted securities by way of three quarters vote at duly convened meetings of such holders.

Compulsory delisting by the NGX: The process is as follows:

  • The issuer shall be notified of the impending enforcement action and given twelve (12) weeks to regularise its listing status.
  • If the issuer fails to regularise its position, it will be served with a notice of delisting.
  • The notice of delisting will be published in national daily newspapers and/or other media outlets.
  • The notice will provide the issuer with three (3) months to regularise its listing status.
  • At the end of this three-month period, a non-compliant issuer will be delisted and the market will be notified.
  • The NGX shall notify the SEC seven (7) days prior to the day of delisting the issuer and within twenty-four (24) hours thereafter.

4.8 What tax considerations should be borne in mind from the issuer's perspective?

The tax considerations from an issuer's perspective are as follows:

  • Following the expiration of the exemption granted under the Companies Income Tax (Exemption of Bonds and Short-Term Government Securities) Order, 2011 (which was gazetted in 2012 with a commencement date of 2 January 2012 and a validity period of 10 years), the following are no longer exempt from taxes imposed under the Companies Income Tax Act:
    • bonds issued by state and local governments, their agencies, or corporate bodies; and
    • interest earned from such short-term securities and bonds.
  • However, bonds issued by the federal government and interest earned therefrom remains exempt from companies' income tax. The expiration of the above-mentioned exemption is likely to increase the cost of borrowing for issuers.
  • The issuer should ensure that:
    • tax assets are not lost; and
    • the steps taken during reorganisation do not trigger transfer taxes, capital duty or stamp duty insofar as is possible.
  • Restructures to simplify or optimise the current corporate structure of an issuer must be carefully considered, as they can have a significant tax impact on the company or its shareholders.
  • Value added tax (VAT) is a consumption tax on all taxable goods and services payable by any consumer, including companies, firms and individuals. In the primary market, all intermediaries providing a service are obliged to register for and charge VAT at a rate of 7.5%. Thus, for example, issuing houses are entitled to deduct VAT from the proceeds of an offer before paying them over to the issuer.

5 Prospectus rules and marketing

5.1 What kinds of instruments are subject to prospectus requirements?

Any instrument that is offered to members of the public – including instruments such as bonds, debentures, shares and other securities offered to the public – must be accompanied by a prospectus.

5.2 What are the key exemptions from the prospectus requirements and what kinds of selling restrictions might apply?

By virtue of sections 71(3) and 74 of the Investments and Securities Act, 2007 (ISA), a prospectus is not required if:

  • it is shown that the form of application was issued in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the securities;
  • it is shown that the form of application was issued in relation to securities which were not offered to the public;
  • the securities are to be offered to the existing members of a company; or
  • the securities are to be, in all respects, uniform with securities previously issued and, for the time being, dealt in or quoted on a securities exchange or capital trade point.

The selling restrictions that may apply include the following:

  • Section 54(5) of the ISA prohibits the issue of securities or investments to the public without the prior registration of the securities or investment with the SEC.
  • The sale of securities may be restricted to qualified institutional investors and high-net-worth investors or select individuals. Where securities are offered by way of a book building process, the SEC Rules provide that for equities, a portion of the offer may be reserved for retail investors, while for fixed income securities, 100% must be offered to qualified institutional investors and high net-worth individuals.
  • Where debt securities are being issued by states, local governments and other government agencies, the SEC Rules require that investment in such issue shall be restricted to qualified institutional investors and high net-worth individuals where the issue is not backed by an irrevocable letter of authority authorizing the Accountant-General of the Federation to deduct the principal and interest amounts directly from the statutory allocation in the case of default;
  • The SEC Rules provide that the securities offered by public companies through private placement shall not be offered to more than 50 subscribers.
  • The method of sale or issuance of the securities may be restricted to private placement, book building, offer for sale or offer for subscription, among others; and
  • Restrictions may be imposed on the quantum of securities that may be purchased by any person. Citizens of any state in Nigeria collectively may be restricted in terms of the quantum of shares that they can buy. This will usually be done by allocating a percentage of shares to citizens of a state for purchase. This will usually apply to federal government-owned entities.

5.3 What key information must be included in a prospectus? What other requirements and restrictions apply with regard to the content of the prospectus?

The Third Schedule of the ISA and the SEC Rules set out the mandatory contents of a prospectus. The key information to be contained in a prospectus includes:

  • general information relating to the issuer, including shareholding, management and subsidiaries and associated companies;
  • details relating to the offer;
  • purpose of the transaction or the use of the proceeds;
  • the names, descriptions and addresses of the directors and the other parties to the offer.
  • the issuer's audited financial information;
  • details of any related party transactions;
  • liabilities;
  • details of material contracts, and claims and litigation;
  • directors' interests;
  • description of the issuer's business and the risk factors peculiar to it; and
  • auditors and accountants' reports.

Other requirements and restrictions that apply to the contents of a prospectus include the following:

  • A prospectus should be dated on the front cover;
  • A prospectus should contain a caveat on risk factors;
  • A prospectus should not contain untrue or misleading statements; and
  • Where a prospectus contains a statement made by an expert, it should contain a statement that the expert has given and has not withdrawn his or her consent.

5.4 What is the process for preparation, approval, filing and publication of the prospectus? How long does each step take?

An application to the SEC to offer securities must be accompanied by a prospectus. The issuer and its professional advisers are responsible for the preparation of the prospectus. However, the issuing house is primarily responsible for its drafting and filing. The process for the preparation, approval, filing and publication of a prospectus, and the relevant timelines, are outlined below:

  • Prepare a draft of the prospectus and file the same with the SEC.
  • Obtain approval of the draft from the SEC (within 25 days of filing).
  • Update the prospectus accordingly and file the same with the SEC for approval.
  • Print the final copy of the prospectus as approved by the SEC.
  • Obtain the consent of experts whose reports or statements are contained in the prospectus (eg, accountants and auditors).
  • Have the printed prospectus duly signed by every person named therein as a director.
  • Submit the executed prospectus to the SEC within 48 hours of the Completion Board Meeting for registration.
  • Publish the prospectus inviting the public to purchase the securities.

5.5 What are the rules governing prospectus summaries/key information documents (KIDs) in your jurisdiction?

The ISA and the SEC Rules set out rules on

  • Prospectus
  • Abridged prospectus
  • Statement in lieu of prospectus
  • Information Memorandum

5.6 Who is liable for the content of a prospectus/KID in your jurisdiction? On what grounds can such claims be brought? Is there any way to mitigate such liability?

The following persons are liable for the content of a prospectus:

  • directors at the time of its issue;
  • anyone who is named therein (with his or her consent) as a director or as having agreed to become a director either immediately or after an interval of time;
  • employees of the company who participated in or facilitated its production; and
  • the issuing house and its principal officers.

A claim can be brought where a prospectus includes an untrue statement or misstatement.

The ISA provides for civil and criminal liabilities for untrue or misleading statements made in a prospectus. Such liability can be mitigated if a person can prove:

  • that the prospectus was issued without his or her knowledge or, before allotment, on becoming aware of any untrue statement or misstatement in it, he or she withdrew his or her consent in writing and gave reasonable public notice of the withdrawal and of the reason for such withdrawal;
  • that the untrue statement or misstatement was immaterial; and
  • as regards an untrue statement or misstatement:
    • that he or she had reasonable grounds to believe, and did believe up to the time of the allotment of the shares, that the statement was true;
    • of an expert, that he or she reasonably believed, and did believe up to the time of the issue of the prospectus, that the expert was competent, had given the requisite consent and had not withdrawn that consent before submission of the prospectus for registration; or
    • of an official or contained in a copy of an official public document, that it was a correct and fair representation of the statement or copy of the document.

Professional advisers may limit their liability to the issuer.

6 Financial services (marketing and distribution)

6.1 What kinds of services in financial instruments are subject to authorisation requirements? Is proprietary trading allowed per se?

The following service providers are subject to authorisation requirements:

  • issuing houses;
  • underwriters;
  • brokers/dealers;
  • sub-brokers;
  • receiving banks;
  • registrars;
  • trustees;
  • investment advisers;
  • fund/portfolio managers;
  • rating agencies;
  • market makers;
  • custodians;
  • crowdfunding intermediaries;
  • central counterparty clearing members; and
  • experts and professionals whose opinions impact directly on capital market transactions, including legal practitioners, accountants, auditors, engineers, estate valuers and property managers.

Proprietary trading is allowed.

6.2 Do special authorisation requirements apply to members of trading venues and/or issuers?

Yes, special authorisation requirements apply to members of trading venues and issuers.

6.3 How are financial instruments typically marketed in your jurisdiction? Are there special rules for initial public offerings?

Financial instruments are typically marketed through the following means:

  • book building;
  • marketing meetings with shareholders and prospective investors; and
  • the publication/issuance of prospectuses.

Yes, special rules apply to initial public offerings (IPOs). Rules 280–323 of the SEC Rules contain extensive provisions on IPOs.

6.4 Is book building commonly used in your jurisdiction? If so, what does this process typically involve and do the regulatory requirements apply to book building? What are the advantages and disadvantages of book building?

Yes, book building is commonly used in Nigeria and regulatory requirements apply. The SEC Rules provide that a public company, federal, state or local government may offer securities by way of book building with the prior approval of the SEC.

The process involves the following:

  • The issuer passes an ordinary resolution authorising the book-building process.
  • Issuing houses/book runners and other professional parties are appointed.
  • A red herring prospectus is filed with the SEC.
  • Upon approval of the prospectus by the SEC, the book runner shall commence the book building by circulating the prospectus to the qualified institutional investors/high-net-worth investors, within two business days, alongside an invitation letter which indicates the price range within which the securities will be offered.
  • Within two weeks of the date on which the book opens, the book runner(s) and issuer will determine the offer price of the securities based on the aggregate orders received.
  • The prospectus is then updated with the offer price and other terms, and filed with the SEC within 48 hours.
  • The updated offer documents shall be signed and submitted to the SEC within three working days from the date of approval, along with the basis of allotment.
  • Upon the filing of the updated prospectus and payment of the appropriate fees, the SEC shall approve the document.
  • Upon the allotment, the issue proceeds are remitted to the issuer within 24 hours, with evidence of the same filed with the SEC within 48 hours.

  • Advantages:
    • It is an efficient way to objectively determine the offer price in the market.
    • The offer price is determined by the demand for the security and not based on a fixed price.
  • Disadvantages:
    • It is time consuming.
    • There is a risk of under-pricing/under-valuation of the security.

6.5 What requirements and restrictions apply with regard to price stabilisation in your jurisdiction?

The NGX Rules on Price Stabilisation of Securities contains detailed provisions on the requirements and restrictions applicable to price stabilisation.

The requirements include the following:

  • The prospectus or other offering documents must clearly state, among other things:
    • that price stabilisation may be undertaken for the offer; but that there is no assurance that it will be undertaken, and that it may be stopped at any time within 30 days, being the earlier time between the exercise of the over-allotment option or the end of the stabilisation period;
    • the nature and effects of price stabilisation;
    • the identity of the stabilisation manager; and
    • the date of commencement and closing of the stabilisation period.
  • Price stabilisation must be effected in respect of an offer of eligible securities. The offer must be:
    • an offering or issue for cash, at a specified price;
    • for eligible securities which are already listed or are to be listed on the NGX; and
    • of sufficient size to satisfy the NGX that price stabilisation is warranted.
  • The stabilisation manager must inform the SEC and the NGX of its intent to undertake a price stabilising activity.

Price stabilisation must not be conducted:

  • at a price higher than the offer price; or
  • where:
    • as a result of market manipulation, the market price of the securities is falsely higher than the price which would otherwise prevail; or
    • the stabilisation manager knows that the falsity in the market price was attributable to a conduct by a person who was in breach of the market abuse provisions.

7 Derivatives

7.1 What trading and clearing obligations apply to derivatives?

The trading and clearing obligations applicable to derivatives are contained in rules and regulations issued by the SEC, CBN, NGX and FMDQ Exchange. However, the application of these rules and regulations would depend on whether the derivatives are exchange-traded or traded over the counter.

The SEC issued the Rules on Regulation of Derivatives Trading and the Rules on Central Counter-Parties (CCPs) in 2019. The trading and clearing obligations under the Rules on Regulation of Derivatives Trading include:

  • The approval of the SEC shall be obtained prior to the introduction of any exchange-traded derivatives contract.
  • Exchange-traded derivatives may only be traded on exchanges recognised by the SEC and must be cleared by a CCP registered by the SEC.
  • All standardized OTC derivatives contracts shall be traded on an exchange.
  • Only entities registered with a recognized exchange and/or CCP as dealing members and/or derivatives clearing members shall trade on exchange-traded derivatives.
  • No person(s) shall clear exchange-traded derivatives or OTC derivatives except entities registered as derivatives clearing members.
  • Exchanges shall:
    • set up market surveillance systems to ensure that derivatives contract prices reflect demand and supply;
    • set position limits to prevent dealing members and derivatives clearing members (together, ‘participants') and clients from holding positions large enough to control or manipulate the financial instrument or other product or component on which a derivative contract is based and notify the SEC of such limits; and
    • report to the SEC participants or clients that own 5% or more of the total open interest of a particular contract.
  • Participants shall promptly provide complete and accurate information on their trading and clearing activities to the SEC as the need arises.
  • Participants shall fully disclose to clients the contract specifications and accompanying risks before accepting orders.
  • A derivative clearing member shall segregate its resources from margins posted by clients and dealing members.
  • A CCP shall not create or permit to exist any lien or other encumbrance on margins posted by participants and clients.
  • On a monthly basis, participants shall inform existing clients of:
    • all trades carried out on their accounts within the reporting period;
    • their outstanding position and outstanding balance in the margin account as at the reporting date;
    • the profit made or loss incurred within the reporting period; and
    • any closed-out or liquidated positions within the reporting period.

7.2 Do mandatory risk mitigation techniques (eg, provision of collateral) apply?

Yes, mandatory risk mitigation techniques apply. A CCP must receive and maintain initial margin from participants before accepting to clear contracts from them. Participants may request additional margin from clients to protect themselves against default. Only highly liquid assets with low credit and market risks may be accepted as collateral.

7.3 Is a mandatory reporting system for derivatives transactions in place?

Yes. The Rules on Regulation of Derivatives Trading stipulate that:

  • Participants shall disclose their outstanding derivatives exposure to the SEC on a quarterly basis.
  • Participants shall disclose their outstanding exposures from proprietary positions in their quarterly and annual financial statements. The outstanding exposure must be determined in accordance with International Financial Reporting Standards.
  • All over-the-counter (OTC) derivatives transactions shall be reported by participants and other registered capital market operators to a trade repository or an exchange in accordance with guidelines issued by the SEC from time to time.
  • A CCP shall file with the SEC:
    • a daily transaction report on its clearing activities;
    • a monthly report within five working days of the end of each calendar month;
    • its quarterly financial statements and operational report separately within one month of the end of every quarter;
    • its annual report and audited financial statement within three months of the end of each financial year; and
    • a quarterly assessment of the risks arising from its operations.

7.4 What are the commonly used framework agreements in your jurisdictions for non-cleared and cleared derivatives?

In Nigeria, parties commonly use the International Swaps and Derivatives Association ("ISDA") Master Agreements to document their OTC derivatives transactions. For OTC foreign exchange transactions, the Nigerian Master Foreign Exchange Agreement is commonly used.

8 Corporate governance/continuing obligations

8.1 What corporate governance requirements apply to listed companies?

Listed companies must comply with the corporate governance requirements stipulated in:

  • the Companies and Allied Matters Act, 2020;
  • the Nigerian Code of Corporate Governance (NCCG) 2018 issued by the Financial Reporting Council of Nigeria (FRCN);
  • the SEC Corporate Governance Guidelines (SCGG) issued in 2020; and
  • any other relevant sectoral code of corporate governance.

8.2 Is there a mandatory or voluntary corporate governance index? If so, what does it contain?

The NGX has a corporate governance index which tracks the performance of companies listed on the exchange which have been rated under the Corporate Governance Rating System (CGRS) based on their corporate integrity, corporate compliance and the directors' understanding of their fiduciary duties. The Index is a capitalization-weighted and free float adjusted index.

8.3 What reporting obligations apply to listed companies? Do these vary if the issuer is a foreign company or between trading venues/segments?

In line with the SEC Rules, all listed companies must comply with the following financial reporting obligations:

  • No later than 30 days from the end of each quarter, file simultaneously with the SEC and the relevant exchange a quarterly report prepared in accordance with International Financial Reporting Standards; and
  • No later than 90 days after the financial year end, file simultaneously with the SEC and the relevant exchange their audited annual accounts. The annual report must state the level of compliance of the listed company with the applicable codes of corporate governance.

Companies listed on the NGX must publish their quarterly and annual accounts in at least two (2) national daily newspapers and post them on their websites.

The reporting obligations apply to foreign issuers with a primary listing on the NGX and to trading venues. A foreign issuer with a secondary listing on the NGX is required to, among other things, comply with the post-listing obligations of its primary listing exchange. Whenever it wishes to release any information that is to be made public on/through its primary exchange, it shall ensure that such information is also simultaneously provided to the NGX through the Exchange's Issuers' Portal.

8.4 What other continuing obligations apply to listed companies?

Other continuing obligations of listed companies include:

  • Notify the NGX of any transaction that results in the beneficial ownership of 5% or more of its shares no later than 10 business days after the transaction occurs.
  • Disclose in its annual report the details of shareholders holding 5% or more shares in the company.
  • Directors and other insiders of public companies shall notify the SEC of the sale of their shares in the company or any purchase of shares in the company not later than 48 hours after such activity.
  • Comply with rules relating to their board and general meetings.
  • Adhere to any corporate governance disclosure requirement by any regulatory authority.
  • Disclose information such as:
    • material circumstances likely to affect their financial condition;
    • price-sensitive information;
    • unusual movement in the prices or trading volume of its securities; and
    • information relating to its securities.
  • Maintain the confidentiality of price-sensitive information in dealings with third parties such as advisers.
  • File with the FRCN copies of financial statements and reports filed with any government department or authority within 30 days of such filing.

8.5 What are the consequences of breach of any of these obligations?

An issuer that fails to comply with the reporting obligations, or any other obligations, will be subject to sanctions, including:

  • fines;
  • suspension from trading; and
  • delisting from the exchange.

8.6 Do mandatory auditing rules apply and is there a special review/enforcement process?

Yes, mandatory auditing rules apply. The Companies and Allied Matters Act, 2020 requires every company to, at each annual general meeting, appoint an auditor or auditors to audit the financial statements of the company. Also, every public company must establish an audit committee which shall review the company's financial statements prior to approval by the board of the company and present the report at the annual general meeting.

The ISA provides that an auditor of a public company shall be registered with the SEC. It also provides that an auditor of a public company shall, in his audit report, issue a statement as to the existence, adequacy and effectiveness or otherwise of the internal control system of the public company.

Every auditor, audit firm and audit committee member must be registered with the Financial Reporting Council of Nigeria (FRCN). The FRCN Audit Regulations 2020 provide that:

  • External auditors must be disengaged after 10 years of continuous service to the company, while a joint audit arrangement will be for a maximum of 15 years. 7 years must elapse before the audit firm may be considered for reappointment.
  • The audit engagement partner assigned to undertake the external audit of a company must be rotated every five years.

The relevant laws and regulations contain provisions for the enforcement of the auditing rules. The FRCN monitors all matters relating to auditing standards, the quality of services rendered by auditors and audit firms. For any purpose related to inspecting, monitoring or investigating statutory audit work, the FRCN may give notice to any auditor requesting information on the financial statements or the consolidated statements of any public interest entity.

9 Inside information and market manipulation

9.1 What qualifies as inside information?

‘Inside information' is any specific information about a company which is not generally available to the public and which, if disclosed, is likely to have a material effect on the value or price of the securities of that company.

9.2 What prohibitions apply to inside information? Is there a legitimate behaviour exemption?

Prohibitions: Sections 111 and 112 of the ISA provide for prohibitions which apply to inside information. They include:

  • A person connected with a company during the preceding six months and who, by reason of such connection, has information which he knows is unpublished price sensitive information in relation to the securities of the company shall not buy or sell, or otherwise deal in those securities.
  • A person who receives inside information from an individual who was connected with the company during the preceding six months before the disclosure shall not deal in the securities of the company to which the information relates or deal in the securities of any other company if the information relates to a transaction between the first company and the other company, or involves one of them and the securities of the other.
  • An individual who is or was involved in a takeover offer for a company must not deal in the securities of that company if the offer constitutes inside information. This also applies to any person who has obtained the inside information from him or her (directly or indirectly).
  • A public officer or former public officer who obtains inside information by virtue of his position must not:
    • use such information;
    • procure the use by another person of such information; or
    • communicate the information to any other person who may use the information.
  • Any person who is prohibited for the time being from dealing in any security shall not counsel or procure any other person to deal in those securities if he knows or has reasonable cause to believe that the other person would deal in those securities.

Exemptions: A person with inside information is not prohibited from:

  • taking an action otherwise than for the purpose of making a profit or avoiding a loss, for either himself or herself or another person;
  • entering into a transaction in good faith during the exercise of his or her duties as a liquidator, receiver or trustee in bankruptcy;
  • doing anything if the information was obtained in good faith during his or her business as a stockbroker; or
  • doing anything in relation to the relevant securities if the information was obtained in the ordinary course of a business and he or she acts in good faith.

9.3 What are the rules on mandatory disclosure of inside information?

The rules on mandatory disclosure of inside information are contained in the SEC Rules and the Rules of the self-regulatory organizations. They include the following:

  • Companies must promptly disclose to the SEC and the relevant exchange all material or price-sensitive information. The securities exchange must disclose such information on the trading floor immediately once it is made available.
  • An issuer must ensure that investors and the public are kept fully informed of all factors which might affect their interest and, in particular, that immediate disclosure is made of any information concerning their interest that reasonably is expected to have a material effect on market activity in, and the prices or value of, listed securities.
  • An invitation to the public to subscribe to or acquire the securities of a public company must be accompanied by a prospectus which contains all information that investors and their professional advisers would reasonably require to make an informed assessment of:
    • the financial position and prospects of the issuer; and
    • the merits of investing in the securities and the extent of the risk involved in doing so.
  • Directors and other insiders of public companies must notify the SEC of the sale of their shares in the company or the purchase of shares in the company within 48 hours of such transaction.

9.4 Are there special provisions on the operation of insider lists and Chinese walls?

The NGX Rules provide that:

  • Every issuer must maintain a list of:
    • all employees who have access to inside information; and
    • the contact details of any other relevant person who also has access to inside information regarding either the issuer or the financial instruments of the issuer.
  • The list must state the following, among other things:
    • the identity of each person with access to inside information;
    • the reason why that person has such access; and
    • the date on which he or she first had access to the information;
  • and must be updated whenever there are changes to the persons listed therein or the reason for such access.
  • An issuer must establish effective systems to deny access to insider information to persons other than those who require it for the exercise of their functions within the issuer's organisation.
  • Every dealing member or appointed market maker must:
    • establish and maintain appropriate internal policies, guidelines and procedures to deny access to inside information to persons other than those who require it for the exercise of their functions;
    • ensure that no improper trading occurs through the use of price-sensitive or material information available to persons within the firm; and
    • ensure that all market making activities shall be adequately separated from agency trading activities by information barriers through which no information shall be permitted to pass, to the detriment of clients.
  • A designated adviser of an issuer listed on the ASeM board of the NGX must implement a Chinese wall for a clear division of its stockbroking functions and designated advisory functions.

9.5 Do special rules apply to personal transactions?

Yes. The Code of Conduct for Capital Market Operators and Their Employees and the NGX Rules contain rules that apply to personal transactions. They include the following:

  • Once an issue is before an issuing house for sponsorship, an employee with unpublished price-sensitive information must not effect a transaction involving those securities for his or her own account.
  • An employee of a capital markets operator must disclose to his or her employer transactions in securities executed by himself or herself, his or her spouse, dependent children and relatives. Such employees must maintain their personal securities trading account with their employer, where possible, or disclose such accounts and all activities therein to their employer.
  • No director, person discharging managerial responsibility or adviser of an issuer or connected persons may trade in the issuer's securities in the period prior to the declaration of price-sensitive information. This is because these persons will often possess price-sensitive information during that period.
  • All insiders of the issuer and their connected persons must notify the issuer in writing of the occurrence of all transactions conducted on their own account in the shares of the issuer on the day on which such transactions occur. The issuer must maintain a record of such transactions, which must be provided to the NGX within two business days of it making a request in that regard.

9.6 What kinds of activities may amount to market manipulation?

Any activity by a person which is capable of raising, lowering, maintaining or stabilising the price of the securities of a body corporate on a securities exchange or capital trade point, with the intent to induce other persons to purchase, sell or subscribe to the securities of the body corporate or a related body corporate, may amount to market manipulation.

9.7 What are the consequences of breach of these requirements and restrictions, both for issuers and for their directors and officers?

Upon conviction, the consequences of breach of the requirements and restrictions discussed in this question 9 for issuers and their directors include:

  • avoidance of the relevant transaction;
  • fines, imprisonment or both;
  • payment of compensation to an aggrieved person who has suffered a loss; and
  • publication of a statement by the SEC to the effect that a person has engaged in market abuse or violation.

10 Short selling

10.1 What kinds of restrictions apply to short selling?

The NGX Rules prohibit naked short selling. A dealing member of the NGX may not accept a short sale order or effect a short sale in an equity security unless it has borrowed or entered into a bona fide arrangement to borrow the security which will be delivered on the date of delivery.

10.2 Is a mandatory disclosure requirement in place regarding short selling?

Yes. All orders for short sale must be marked ‘short sale'.

10.3 Is it permitted to write research reports while holding short positions?

There are no specific provisions in this regard under the relevant laws.

11 Sustainability

11.1 Is the term ‘sustainability' defined in your jurisdiction and, if so, how? Does it cover environmental as well as social objectives? How is compliance with sustainability assessed (eg, quantitatively or qualitatively)? Are there certain minimum requirements?

No, the term ‘sustainability' is not defined in relevant Nigerian laws. However, as stated in the NGX Sustainability Disclosure Guidelines, the concept encompasses the broad set of economic, environmental, social and governance considerations that can impact a company's ability to execute its business strategy and create or destroy value. Principle 26 of the Nigerian Code of Corporate Governance, 2018 provides that paying adequate attention to sustainability issues including environmental, social, occupational and community health and safety ensures successful long term business performance and projects the company as a responsible corporate citizen contributing to economic development.

Applicable sustainability rules in the capital market are principle based and, therefore, do not prescribe specific implementation requirements. The principles are to be applied by each regulated entity in a manner that fits its individual mandate, core values and enterprise risk management framework.

The SEC Guidelines on Sustainable Financial Principles for the Nigerian Capital Market mandate regulated entities to report to the SEC their progress in implementing ESG principles and require organisations that they supervise and/or finance to make appropriate disclosures on their ESG issues. According to the Guidelines, regulated entities include Capital Market Operators, Trade Groups, Self-Regulated Organizations and Capital Trade Points.

11.2 Are there special rules in place in your jurisdiction on the identification, management and disclosure of sustainability issues?

Yes. The following set out rules on the identification, management and disclosure of sustainability issues:

  • the Nigerian Code of Corporate Governance, 2018;
  • the SEC Guidelines on Sustainable Financial Principles for the Nigerian Capital Market issued in April 2021;
  • the Nigerian Sustainable Banking Principles, 2012;
  • and
  • the Nigerian Exchange Sustainability Disclosure Guidelines issued in 2018.

In June 2023, the Financial Reporting Council of Nigeria, the International Sustainability Standards Board (ISSB) and the NGX Regulation Limited launched in Nigeria, the first 2 International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

The NGX Sustainability Disclosure Guidelines require listed companies to file sustainability reports. An issuer may disclose its sustainability information and data in its annual report or in a separate sustainability report. The report should be submitted to the NGX within the period allowed for the submission of annual accounts.

11.3 Do applicable sustainability rules distinguish between sustainability risks (ie, financial risks resulting from sustainability issues) and the actual impact of corporate actions on, for example, the environment?

No. However, the rules make it clear that poor environmental and social performance do not only impose negative impacts on the environment and society, it also exposes the entity to financial risks.

11.4 Does your jurisdiction provide for a special green bond regime?

Yes. The SEC amended its Rules in 2018 to provide for the issuance of Green Bonds. Where the bonds are to be listed on a securities exchange, relevant rules of the exchange will apply to the Green Bonds.

11.5 Are there restrictions on the sale or distribution of instruments not considered sustainable?

We are not aware of any.

11.6 Is it necessary to comply with certain minimum standards (eg, on human rights) to qualify as a ‘green' issuer?

The SEC Rules on Green Bonds provide that to qualify as a green project, the monies shall be invested in one or more of the following - renewable and sustainable energy, clean transportation, sustainable water management, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation and green buildings.

11.7 How will sustainability rules affect the capital markets in your jurisdiction?

Sustainability rules have the potential to save costs, increase revenue, improve employment practices, enhance reputation and attract more investors who desire to give back to society. In short, they open up new opportunities because of the value they bring to society.

12 Product bans

12.1 What products are currently banned from sale or marketing to (certain kinds of) investors in your jurisdiction?

  • Foreign securities that are not registered with the SEC and listed on an exchange registered in Nigeria are banned from sale in Nigeria.

12.2 What is the process for imposing product bans and which regulators are in charge of this?

The relevant regulatory agency may, by virtue of its enabling law, impose product bans through the issue of regulations. The key regulators in charge of this are the SEC and the CBN.

13 Trends and predictions

13.1 How would you describe the current capital markets landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The capital market has rebounded after COVID 19 pandemic but, experiencing limited growth due to economic recession. Some companies have either delisted from the NGX or quit Nigeria altogether due to unfavourable economic climate or for other strategic reasons.

While the debt capital market is still relatively very active, notwithstanding the expiration of tax incentives for corporate bond issues, the markets for shares listings and other securities may be of concern. The good news is that returns especially capital appreciation on shares is one of the highest in the world in the past one year and it may continue as knowledgeable investors seek better returns that are not available in the money market due to galloping inflation.

There are moves to reform the tax structure of Nigeria. The impact of this will depend on the changes that are brought to bear on the tax regime. The forex market is already on the path to liberalisation as restrictions on access and transferability among others have been removed. These changes may if properly implemented enable the market trend towards growth.

The capital markets and their products should be marketed aggressively to enlighten potential investors – especially the young – that the capital markets can be a rewarding investment avenue. The demutualisation of the Nigerian Stock Exchange – now the Nigerian Exchange (NGX) – is a positive development. The NGX will be more attractive to international investors, which will likely attract significant capital inflow. In addition, crowdfunding rules were introduced in 2021 by the SEC and this sector of the market is expected to take off soon as a result.

The potential of the Nigerian economy, the largest in Africa and with so many opportunities means that there is significant room for growth. But it may not be in the next 12 months.

14 Tips and traps

14.1 What are your top tips for the smooth conclusion of offerings in your jurisdiction and what potential sticking points would you highlight?

Our top tips for the smooth conclusion of offerings are as follows:

  • Ensure that there is internal harmony across the company before embarking on an offering. It does not augur well if serious dissent emerges during the offer process.
  • Be certain that the offer is the best way to realise the company's objectives. Be clear of the costs involved – including the cost of meeting regulatory and strategic requirements – before embarking on the offering; otherwise, the offer might end up being abandoned.
  • Consult regularly with the regulators for guidance, even before any filings – especially if some exercise of discretion is required from the regulators. This helps to avoid delays and possible rejections by the regulators.
  • Engage qualified and registered professional advisers well before taking any major steps in the offer process. These advisers should lead the process and address any requirements of the issuer. The issuing house, financial advisers, solicitors and trustees are all key players in the process.
  • Ensure that the internal workings of the company are in order, including its management, shareholding structure and so on.
  • Ensure the timely disclosure of material information about the company which may subsequently be discovered.
  • Understand the major market segments that the offer is targeting and conduct adequate marketing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.