12 Stock-Broking Firms Blacklisted, Sent Out of Stock Market

The Nigerian Exchange Limited, NGX has blacklisted 12 stock broking firms for non compliance with shareholders fund as required by regulation to operate in the Nigerian stock market.

The firms are: First Stockbrokers Limited, GMT Securities Limited, Standard Alliance Capital & Asset Management Limited, Enterprise Stockbrokers Limited, Adamawa Securities Limited, Gombe Securities Limited, CEB Securities Limited and Horizon Stockbrokers Limited.

Others include: ITIS Securities Limited, ML Securities Limited, and Supra Commercial Trust Company Limited.

The NGX stated that the companies have inadequate shareholders fund as at June 19, 2023.

The companies have been suspended from trading until they meet the requirement.

Confirming the development, a source in the Exchange confided in Vanguard that: “All of the firms listed in the schedule – Trading License Holders with inadequate shareholders funds – are inactive. They have been suspended for more than three months in accordance with the NGX rules on capital adequacy for trading license holders.

“The disciplinary procedure for these firms is currently being implemented, and some of them are working assiduously to recapitalize and return to active market operations.

“The impact on investors is minimal as all investors’ accounts are intact and can be transferred to other firms of the investor’s choice”.

The blacklisted firms are supposed to have minimum capital base of N200 million each.    For Dealer’s license N100 million, while broker-dealer license is N300 million.

Commenting on this development, Victor Chiazor, Head of Research and Investment at FSL Securities Limited, formerly known as Fidelity Securities Limited, said: “Where trading licence holders don’t meet the minimum required capital, this suggests that a firm with a broker’s license has a capital base below N200 million; a dealer’s licence has a capital base below N100 million, while a firm with a broker-dealer license has a capital base below N300 million.

“Such firms are required by law to raise their capital base to the required amount within a certain period to avoid sanctions from capital market regulators.

“However, the regulators have also put in place structures to protect investors against loss of funds by mandating that all new accounts are opened with the direct settlement option except when the client decides to opt out of the option. “The direct settlement ensures that any sale of securities on the trading floor is settled directly into your bank account by the Central Securities Clearing system (CSCS), as against your stockbroking account, giving only you access to the funds.

“For the market at large, dealers with lower capital base won’t have the financial muscle to trade large volumes in the market and if this inadequate capital becomes wide spread it would reduce stock market activities and weaken investors’ confidence”.

Commenting as well, Mallam Garba Kurfi, Managing Director, APT Securities& Funds Limited, said: “Any Trade Licence Holder that has inadequate capital indicates that the firm has to be withdrawn from trading or else being suspended by the regulators, otherwise they need to change status to either Broker or Sub-broker to meet the required capitalisation.”

Reacting also, David Adonri, Vice Executive Chairman, HIGHCAP Securities Limited, said: “Meeting the statutory minimum capital requirement is primary prerequisite for operating in the capital market.

“However, the shareholders fund of many firms declined in recent past due to the hostile economic environment. The erosion of investor’s disposable income due to galloping inflation adversely affected the income of firms.

“Although, adequate capital is essential for stockbroking business, its importance to investor protection and safety of investment is minimal.

“This is because Stockbrokers are agents to their clients who are the principals. They buy securities in name of clients and deliver to them.

“This is unlike the relationship between a depositor and his banker which is creditor / debtor relationship that requires commensurate capital to secure the deposit liabilities.

“Other risk mitigants in the Capital Market like Fidelity Guarantee Insurance and investors’ protection fund can address safety of investments better. “Therefore, investors have nothing to worry about even if firms are temporarily undercapitalized. Their investments are safe in the Capital Market due to the ring fencing of their portfolios.”