Nigeria takes control of margin lending
14 June 2013 Abuja
Image: Shutterstock
The Nigerian Securities and Exchange Commission (SEC) and the country's central bank have introduced a set of rules to regulate margin lending.
The SEC in the country has released a statement that blames “excessive speculative activities and unsupervised use of margin loans to fund investment in listed equities”—among other activities—for causing the country’s stock market decline in 2008.
As a result, the SEC, and the Central Bank of Nigeria (CBN), have introduced a set of rules to regulate margin lending founded on the principles of risk-based supervision.
“The margin lending rules and guidelines provide for a Margin List,” said the release—adding that the list is not an investment recommendation but rather a guide to those who wish to engage in margin activities.
“The SEC cautions that only persons and entities who are knowledgeable about margin activities should engage in such transactions. Retail investors who do not have the requisite knowledge should consult a knowledgeable financial expert.”
The guidelines cover the type of securities that qualify as marginable securities as well as the profile of investors that may participate in margin trading.
They provide the criteria for determining marginable securities and a list of excluded securities. Also, the guidelines forbid bank stocks from being used as collateral for margin trading transactions.
The approved list of marginable securities is available on the SEC website, and include Trans National Corporation, UNILEVER Nigeria, and Dangote Sugar Refinery, which posted a 32 percent increase in its Q1 pre-tax profit year-on-year in May of 5.44 billion naira ($34.5 million), compared with 4.12 billion naira last year.
The SEC in the country has released a statement that blames “excessive speculative activities and unsupervised use of margin loans to fund investment in listed equities”—among other activities—for causing the country’s stock market decline in 2008.
As a result, the SEC, and the Central Bank of Nigeria (CBN), have introduced a set of rules to regulate margin lending founded on the principles of risk-based supervision.
“The margin lending rules and guidelines provide for a Margin List,” said the release—adding that the list is not an investment recommendation but rather a guide to those who wish to engage in margin activities.
“The SEC cautions that only persons and entities who are knowledgeable about margin activities should engage in such transactions. Retail investors who do not have the requisite knowledge should consult a knowledgeable financial expert.”
The guidelines cover the type of securities that qualify as marginable securities as well as the profile of investors that may participate in margin trading.
They provide the criteria for determining marginable securities and a list of excluded securities. Also, the guidelines forbid bank stocks from being used as collateral for margin trading transactions.
The approved list of marginable securities is available on the SEC website, and include Trans National Corporation, UNILEVER Nigeria, and Dangote Sugar Refinery, which posted a 32 percent increase in its Q1 pre-tax profit year-on-year in May of 5.44 billion naira ($34.5 million), compared with 4.12 billion naira last year.
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