All change for listed companies: two sets of amended rules come into force
July 30 2013
After almost two years, the Securities and Exchange Commission (SEC) has finally published the long-awaited Consolidated Rules of the Securities and Exchange Commission. The previous consolidated version of the rules was published in 2000, just after the enactment of the Investment and Securities Act 1999. Since then, the Investment and Securities Act 2007 has replaced the 1999 act and numerous amendments have been made to the base document containing the rules. In September 2011, in order to codify the various rules that existed, the SEC released draft consolidated rules for the purpose of market-wide consultation, observation and comments before final adoption. These rules were expected to be formalised and published quickly. However, it became apparent that the draft consolidated rules not only codified the existing rules, but also introduced some new rules that had never formally been exposed to the market.
To avoid any confusion in the market, the SEC then went through a prolonged review process during which it requested formal comments and feedback from the market on the draft consolidated rules. In June 2013, following feedback from stakeholders, the SEC finally adopted the consolidated rules. These rules are substantially different from the previous rules in format and, in some cases, content. The SEC has consolidated all of the rules that were introduced piecemeal over the past 10 years or so, including new rules that were introduced earlier this year such as those governing sukuk. Not all the proposed changes in the draft consolidated rules were retained in the consolidated rules. One of the areas of the draft consolidated rules that caused much concern was a proposed requirement for SEC approval in relation to an acquisition of 30% or more of the shares or equity interests or assets of a company, rather than the existing requirement of 50%. However, it appears from the final version of the consolidated rules that the threshold at which the SEC must approve an acquisition remains at 50%.
The consolidated rules introduce some interesting changes. One such change is the exception to the requirement for SEC approval for all acquisitions: the consolidated rules now exempt from SEC approval acquisitions of the shares of private/unquoted public companies with assets or turnover below N500 million. Also, and perhaps in response to the recent bail-out for stockbrokers, the permitted indebtedness for brokers has been slashed from 200% of net capital to just 10% of net capital. There have also been some minor changes to the definition of a 'company insider' and, in addition to directors, employees and holders of 5% or more of the shares of the company, the rules now include members of the company's audit committee.
The consolidated rules are not the only change in the market, as the Nigerian Stock Exchange (NSE) recently updated the Listing Rules and has proposed wholesale changes to the form of general undertaking that listed companies must provide. The general undertaking deals with the post-listing obligations of a listed entity, particularly in relation to the disclosure of information to the market. Ensuring equal access to information has been an important focus of the NSE and is one of the eight pillars that the NSE has identified as critical to moving the exchange forward. In furtherance of this objective, the NSE also recently introduced an issuers' portal known as X-Issuer, which allows the online submission of information by listed companies. The NSE believes that X-Issuer will reduce the leakage of price-sensitive information by speeding up the time between submission of financial and other information and the release of such information to the market.
In the draft form of the general undertaking, which was recently released to the market for comments, the NSE proposed for the first time a specific closed period during which insiders of the listed company cannot trade in the shares of the company. Although many listed entities had their own internal guidelines on this issue, this is the first time that a minimum standard has been set. The provisions of the draft general undertaking also place an obligation on listed companies to establish guidelines relating to trading in the shares of the company by employees and introduce specific provisions regarding the obligation of a company to respond to rumours in the market.
For further information on this topic please contact Ngozi Agboti at Udo Udoma & Belo-Osagie by telephone (+234 1 263 4831), fax (+234 1 263 4541) or email (ngozi.agboti@uubo.org). The Udo Udoma & Belo-Osagie website can be accessed at www.uubo.org.
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