There are growing concerns that the proposed Securities and Exchange Commission’s (SEC) recapitalisation programme could weaken market depth, further starve the real sector of funding, strangle competition, and ultimately slow economic growth, thereby undermining the exercise’s intent.

The new capital rules represent the most sweeping overhaul of Nigeria’s securities industry in a decade, replacing the 2015 regime with a dramatic increase in all operator categories.

In the new scheme, fund managers and portfolio managers also face sharp jumps, with top-tier firms required to hold at least N5 billion and additional rules associating capital to assets under management (AuM) for huge firms.

Initially set at 10 per cent, the sharp correction of asset-backed capital to 0.1 per cent for large asset managers suggests regulators’ lack of thoroughness more than it shows their flexibility.

Specifically, while Tier 1 managers face a baseline N5 billion requirement, Section 4 includes a note with significant implications: “Any Fund and Portfolio Manager with NAV/AuM of more than N100 billion should have a minimum of 10% of the NAV/AuM as capital.” This provision had put asset managers under serious recapitalisation pressure until it was reduced to a regulatory capital equivalent of 0.1 per cent of their AuM.

The SEC justified the reforms as essential for strengthening market resilience, enhancing investor protection, and aligning capital buffers with the evolving risk profile of market activities, particularly in technologically complex ecosystems such as those involving digital assets and fintech services.

However, there is a growing anxiety about how possible market consolidation could reduce the creation and growth of marginal players, which are known for leading niche services, and leave different segments under the control of a few big players.

This, some stakeholders have warned, could stifle market growth, kill creativity and innovation and create cartels that could hurt the markets severely rather than growing them.

With different tiers of operators being judged by different rules, there are concerns about the competitiveness of mid-sized firms’ ability to compete with larger operators without having to substantially recapitalise.

Although section 6 of the circular provides vague terms on transitional arrangements, operators are worried about the uncertainty they are left to bear based on the regulator’s case-by-case discretion.

“The Commission may, upon application and on a case-by-case basis, consider transitional arrangements where justified. Detailed guidance on compliance modalities and capital verification processes shall be issued separately,” the SEC noted.

Coming at a time when banks have scooped up trillions from the market to meet their new capital requirements, while insurance firms are also seeking fresh capital, there are also fears that the SEC rules could further squeeze credit, heighten illiquidity, and increase real sector crowding-out to a significant scale.

Notwithstanding the growing unease, some financial experts have insisted that the policy is both necessary and timely to strengthen the market’s long-term stability and resilience.

The proposed increase in minimum capital requirements has triggered strong resistance from stockbrokers, fund managers and other market participants, who argue that the scale of the new thresholds could place severe strain on an already fragile ecosystem.

Concerns have also been raised about the likelihood of accelerated consolidation across the industry. Smaller and mid-sized firms, even those that are well-governed and compliant, may be forced out of the market if they are unable to raise the required capital.

Operators argue that this could reduce competition, limit investor choice and weaken innovation. In a fee-constrained environment, they warn, surviving firms may be compelled to increase fees or cut back on investment in technology, research and human capital, even as the attendant costs will ultimately be passed on to investors and issuers.

Operators at the weekend argued that the new requirements do not sufficiently reflect the realities of a developing market characterised by limited capital pools and shallow investor participation.

Industry players argue that the policy comes at a delicate moment, as multiple sectors compete for the same scarce long-term funds. They point to the insurance industry, which is also undergoing recapitalisation, and to banks that are only cautiously returning to capital market activities after years of regulatory tightening.

A stockbroker who craved anonymity told The Lawyer Daily that market operators are unsettled and struggling to rationalise the intentions of the rules.
“I am speechless; most market operators are confused,” the operator said.

Some operators argued that the directive would compel capital market firms to liquidate some investments to lock up billions of naira to meet the regulatory threshold. The firms are expected to recall capital invested in some structured businesses, the real sector, which supports long-term economic growth.

While the objections continue to mount, some experts maintain that the recapitalisation exercise is essential to safeguarding the integrity of the capital market.

They argue that stronger capital buffers would enhance the resilience of operators, improve their ability to absorb shocks and reduce systemic and failure risks.

In their assessment, higher capital bases would position firms to handle larger and more complex transactions, supporting both domestic and foreign investment flows at a time when Nigeria is seeking to deepen its capital market and attract long-term capital.

Chief Executive of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, argued that fears about negative impacts on lending to the real sector are largely misplaced. He maintained that there is no strong or direct relationship between the recapitalisation of market participants and the flow of credit to the real economy.

Yusuf stated that credit creation is primarily the responsibility of banks, not stockbrokers or insurance companies. According to him, many banks have already met the Central Bank of Nigeria (CBN) capital requirements and are thus not significantly constrained in their ability to lend.  He added that the key challenge facing lending to the real sector was not capital availability but the high risk associated with many real sector operators.

He pointed out that recapitalisation, where it applies to banks, actually enhanced their capacity to lend, as a stronger capital base supports a larger lending book.

He noted that the capital thresholds proposed for capital market operators are modest when compared with the minimum capital base of banks, with international banks expected to raise N500 billion.

Yusuf also pointed out that when adjusted for inflation and currency depreciation, the current capital requirements appear significantly weaker in real terms, underscoring the need for periodic reviews.

In his view, the real issue lies not in the recapitalisation itself but in irregular review, which has resulted in sharp percentage increases. He further argued that capital market operators do take meaningful risks during their activities, including settlement and transaction risks and therefore require strong capital buffers to protect investors in the event of failures or losses.

In his assessment, government intervention is needed to de-risk the sector through measures such as credit guarantees, improved infrastructure, a better business environment and more reliable power supply, which would make lending more attractive to financial institutions.

A former president of the Chartered Institute of Bankers of Nigeria (CIBN), Dr Uche Olowu, has also defended the recapitalisation policy, arguing that protecting the market requires ensuring that operators have sufficient capital to function effectively.

He believed regulators have recognised that, over time, additional capital is necessary for market participants to operate efficiently and respond to the growing scale and complexity of transactions.

Olowu dismissed concerns that the exercise would hamper lending to the real sector, noting that the strong performance of the capital market points to a healthy level of liquidity in the financial system. He argued that funds raised for recapitalisation do not disappear from the system but rather circulate within it.

According to him, money invested in capital market operators is typically deposited within the banking system and therefore remains available to support broader economic activity. He added that even where market participants are not custodians of client funds, they require adequate liquidity to manage settlement obligations and execute trades efficiently, making strong capital buffers essential for market confidence and stability.

The President of the New Dimension Shareholders Association of Nigeria, Patrick Ajudua, described the SEC’s decision as a welcome development, particularly for underwriting issuing houses, non-underwriting issuing houses and trustees. He linked the policy directly to the Federal Government’s ambition of building a $1 trillion economy, arguing that the recapitalisation of banks and other financial services institutions makes it imperative to reposition capital market intermediaries for more complex and higher-risk transactions.

According to Ajudua, as the economy expands, more companies are turning to the capital market to raise funds, increasing the scale and sophistication of transactions handled by issuing houses.

In this context, he said, issuing houses play a critical role as key drivers of capital formation and must therefore have adequate capital to absorb the systemic risks associated with underwriting large issues and to ensure the overall success of such transactions.

Without stronger capital buffers, he warned, the market could be exposed to failures that would undermine investor confidence and long-term growth. From an academic perspective, Prof. Sheriffdan Tella, acknowledged that the new capital requirements are substantial but argued that they are achievable over time. He noted that while the benchmarks align with international standards, the current structure and capacity of many Nigerian capital market operators mean they may require more time to mobilise the necessary funds.

Tella pointed out that prevailing conditions in the financial system, including heightened public investment in other financial institutions, could temporarily limit the availability of capital for market operators seeking to recapitalise.

In his view, while the timeline set by the regulator meets global norms, local realities justify a more accommodative approach. He suggested that extending the compliance period to between 24 and 30 months would provide operators with a more realistic window to raise capital without destabilising their operations or the broader market.

Tella also drew attention to the long-standing challenge of government domestic borrowing, which he said has historically crowded out lending to the private sector.

He warned that adding another layer of capital demand through recapitalisation could compound pressures on private sector funding unless it is offset by sustained inflows of foreign capital into the Nigerian market. He noted, however, that recent trends suggest the improving foreign investor interest, which could help ease some of the pressures, is maintained.