The Securities and Exchange Commission has set a minimum capital base of N50 million for any company seeking to operate as a collateral management company under the Nigerian commodities trading ecosystem.
The commission over the weekend released additional regulatory frameworks for the Nigerian commodities trading ecosystem.
It outlined specific rules and regulations guiding collateral management and warehousing, two important functions in the efficient trading of commodities.
According to the new framework, a collateral management firm is expected to provide a fidelity bond of up to 20 per cent of its minimum paid up capital of N50 million as well as sworn undertaking to keep proper records and render returns.
It must also provide evidence of the minimum paid-up capital of N50 million.
The rules stated that for a collateral management company to be registered by the commission, it must submit an application to SEC accompanied by the relevant documents.
It must also apply for registration of a minimum of two sponsored individuals one of whom shall be the chief executive officer.
Some of the required documents included two sets of completed appropriate SEC Forms to be filed by the sponsored individuals; a copy of the Certificate of Incorporation certified by the Corporate Affairs Commission, where a copy not certified is filed, the applicant shall present the original for sighting by an authorised officer of the Commission.
A copy of the Memorandum and Articles of Association certified by the Corporate Affairs Commission, which shall among others, include the power to act as a collateral manager, a copy of the appropriate CAC Form containing particulars of the directors certified by the Corporate Affairs Commission; as well as a copy of latest audited accounts or audited statement of affairs for companies in operation for less than one year.
According to the new rules, the two principal officers of the collateral management company who shall be registered as sponsored officers must have a minimum of a university degree or its equivalent with not less than 10 years relevant post-qualification experience.
A list of key officers and technical experts engaged and details of their qualifications, which should capture evidence of financial, technical capabilities to carry out the functions of a collateral manager, a list of relevant technology systems in place as required by collateral management services.
Others are; information relating to the relevant commodities management facilities including assaying facilities, warehousing, aggregation, computerization and telephone systems and a well-finalised business plan.
“Two copies of existing or proposed by-laws or rules, Code of Conduct, Warehousing Guidelines etc., instruction and inspection manuals of warehouse activities; detailed information about the promoters and principal officers of the Collateral Management Company.
Two copies of Warehouse Accreditation requirements of the Collateral Management Company; detailed information about the Technology system to be adopted; and an Undertaking by the CMC to always forward copies of amendments of its guidelines for approval by the commission,” the new framework stated.
On the management of collateral firms, SEC rules stipulate that board of directors and the chief executive should be appointed with prior approval of the commission; key officers are to meet the fit and proper criteria as provided in the regulations; while the collateral firm is expected to maintain the eligibility criteria provided by the commission and notify the commission immediately if it ceases to fulfil any of the conditions provided in the rules.
A collateral firm is also expected to maintain a high standard of integrity and fairness in discharging its functions and its dealing with other persons with whom it has agreed in writing to render services as collateral manager while it is also required to fulfil its obligations in a fair, efficient, transparent and ethical manner; and act with due skill, care and diligence in performing all its functions and discharging all its obligations and responsibilities.
Upon registration, the collateral firms expected to display such license, in a conspicuous place, in the principal place of its business; establish the procedure for pledging, in favour of a financial institution, the depositor’s commodities held with the warehouse against which electronic warehouse receipt has been issued and certified by a warehouse.
Also, the commission stipulates that every warehouse that stores commodities to be traded on a registered Exchange shall apply to be registered by the commission, while the commission shall maintain a register of all registered warehouses which shall be published on its website.
A warehouse applying for registration shall submit proof of ownership or registered-lease deed or rent agreement, along with a disclaimer from the owner of the warehouse and property providing a waiver of ownership regarding commodities stored in such warehouse, in case of leased or rented warehouse; present evidence of construction in compliance with the National Building Code, present evidence of compliance with relevant Federal and state regulation relating to the operation of warehouses, and have facilities appropriate for the storage of commodities.
Other requirements are that the warehouse should have appropriate security arrangements in place, have adequately trained staff with expertise and knowledge of scientific storage of commodities have requisite equipment for weighing and quality measures of commodities, as well as have comprehensive insurance cover for the building, equipment, stock and other items as may be necessary.
The rules also stated that the warehouse should be located in a place with access to infrastructure to support its operations and have sufficient space for parking and movement of large vehicles have an efficient system for loading and unloading of commodity including a proper mechanism for segregation of different kinds/quality of commodity.