What is the Securities and Exchange Commission SEC?
Formerly called the Capital Issues Commission, SEC was established by SEC Act of 27th September, 1979 which was further strengthened by the SEC Decree No. 29 of 1998.
SEC is the apex regulatory organ of the capital market. The commission has under its preview all institutions and persons operating in the capital market such as the stock exchange, stock brokers, registrars, investment advisers, etc.
In this article, you’ll learn more about:
- The functions of the Securities and Exchange Commission
- Purpose of regulation by the SEC in the capital market
- Financial market regulatory methods
How about we start from the beginning.
If the Securities and Exchange Commission is a regulatory organ of the capital market, you may ask, what is the capital market?
Well, the capital market is the part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.
In other words, capital markets describe any exchange marketplace where financial securities and assets are bought and sold.
Now, what is the role of the Securities and Exchange Commission? That brings us to the functions of SEC.
Functions of Securities and Exchange Commissions
The following include the the functions of SEC
- The commission approves and regulates mergers and acquisition of publicly quoted companies.
- The commission also authorizes the establishment of unit trusts
- It also has the responsibility of maintaining surveillance over the capital market towards enhancing its efficiency.
- The Securities and Exchange Commission issues guidelines for the establishment of stock exchanges in different locations of the country due furtherance of the deregulation of the capital market.
- The commission releases guidelines on foreign investment in the country.
- The commission is mandated to determine the price of all securities issued in the country involving all public enterprises or private companies with alien ownership interest.
Location of SEC In Nigeria
Head Office – Abuja
SEC TOWERS, Plot 272, Samuel Adesujo Ademulegun Street, Central Business District
3, Idejo Street, Opposite ICON House,
Off Adeola Odeku Street, Victoria Island
African Alliance House (4th Floor), F1, Sani Abacha Way/Airport Road, Opposite KLM Airlines
31 Woji road, GRA phase 2
Purposes of Regulation By SEC in the Capital Market
Why regulate activities of the capital market? Here are the major purposes SEC aims to achieve in the capital market:
- To ensure orderly, fair and equitable dealings in securities
- To maintain proper standards of conduct and professionalism in the securities business
- To profit the integrity of the securities market against arising from the practice of insider trading.
- To protect the investing public and instill confidence in the market through price determination, timing of sale of securities to the public and registration of issues and institutions.
- To prevent the development of monopolies and other noncompetitive activities which may arise from the practice of mergers, acquisition and other forms of business combinations.
Financial Markets Regulatory Methods/Tools
Financial market regulators employ various methods to ensure compliance with their ennobling Acts and/or other pertinent Acts which they administer in the course of the operations.
Methods of regulation include:
- Enforcement operations
- Rule making
Now, let’s explain how each method comes into play
Regulation or Licencing
The regulation or licencing of institutions in financial markets are important means for safeguarding the interests of investors/depositors.
It entails timely disclosure of complete, factual and non-misleading information to the authorities in pursuit of public interest.
Through regulation and licencing, the regulatory authorities ascertain that those operating in the market are of impeccable character with slim probability of engaging in acts, which may be detrimental to the market.
The Banking Act makes it obligatory for banks to be licensed by the Honorable Minister of Finance while insurance companies/brokers are similarly expected to register under the insurance Act 1976 with the Directorate of insurance of the Federal Ministry of Finance.
Surveillance by the Securities and Exchange Commission implies having oversight on market activities and monitoring institutions and individuals operating in the market.
Most especially, trading practices are kept in check in other to ensure that all rules and regulations of the market are compiled with
Where violations exist, appropriate actions are taken to remedy the situation. It also cover on and off-floor observation of stock market operations.
The inspection operation involves random visits to the institutions for examination of their books and accounts of key operators in the market.
For instance, insurance companies, banks, stock brokers, etc. are by law required to maintain certain records with respect to their activities so as to give a proper perspective of the operational, financial and other conditions of the institutions.
Investigations is one of the key regulatory methods of the Securities and Exchanges Commission. It is the outcome of surveillance activities.
It could emanate through rumors, or written reports about frauds, manipulations or other malpractices within the markets.
It is a sine-qua non for optimizing investor protection as such it could take lengthy procedure in certain complex cases of insider trading.
Enforcement is another regulatory tool used by the Securities and Exchange commission to ensure strict compliance with rules and regulations formulated for health of the market.
It can take the form of internal actions such as written warnings, fine imposition or by legal action through courts against erring operators.
Securities and Exchange Commissions (Summary Notes)
There you have a brief overview of SEC. This regulatory body is supervised by the Federal Ministry of Finance.
The Nigerian Stock Exchange (NSE) is privately owned and self-regulating, but the SEC maintains surveillance over it with the mandate of ensuring orderly and equitable dealings in securities, and protecting the market against insider trading abuses.
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