View profile

Nigeria's SEC’s stance on foreign securities and investment apps

Nigeria's SEC’s stance on foreign securities and investment apps
By get.Africa Weekly • Issue #64 • View online
Utụtụ ọma,
That’s “good morning” in Igbo
2020 was a big year for retail investors. According to The Wall Street Journal, they made up an estimated 19.5% of U.S. equity trading volume. 
When compared to the previous year, this was a jump of over 4%. And considered over a 10 year period, that figure had doubled.
In the U.S., investment startup Robinhood played a major role in taking some of that access from the rich (read: institutional investors) and giving it to the poor (read: retail investors), but a fraction of those transactions came from countries like Nigeria, whose retail investors have also been given access to the U.S. equities market via investment apps of their own.
However, after a statement from Nigeria’s SEC made it clear that those companies were operating without the regulator’s blessings, there are now question marks over the future of that access.
Who’s affected?
SEC’s statement can be summarized as follows:
  1. A message to investment startups that they aren’t authorized to sell foreign securities to Nigerians
  2. A message to retail investors that the apps they’re using are unregulated by SEC 
  3. A message to local CMOs to stop partnering with the investment startups.
CMO stands for capital market operators, they are intermediaries that are registered to provide an interface between investors and the securities. 
Most investment startups aren’t registered as CMOs, rather, they partner with them. This is how the likes of Chaka, Bamboo, Trove and Risevest currently operate. 
For the U.S. end, they mostly partner with DriveWealth, a brokerage company that allows companies to offer US-based equities through API integrations, while in Nigeria, they partner with CMOs that are registered with Nigeria’s SEC.
But the commission is uncomfortable with this brokerage structure, this article goes into the SEC directive in greater detail. It also explains why, among the lot, Risevest should be fine, for now anyway. 
Another company that should be fine is Passfolio, due to its foreign corporate structure and the leeway it gives investors to use cryptocurrencies to fund their accounts. If SEC maintains its tough position, this combination might become a more attractive model for the others.
The way forward
The directive from the SEC has caused considerable concern. But the commission didn’t make any new regulation, rather what they did was to reference one that has been in existence since 2007.
And that in itself is a problem. A lot has changed since 2007, as evidenced by the rise of retail investors that dominated the discussion in 2020. 
Also last year, the Nigerian Stock Exchange (NSE) All Share Index ranked #1 among the world’s 93 major equity markets, with a 27% return. What this means is that, even without a geo-fence, investors may yet discover more value in the NSE than anywhere else.
The key is access. And Chaka co-founder Tosin Osibodu feels that his company is democratizing access and empowering retail investors to make that choice for themselves. It’s up to SEC to enable them to empower investors with more options, not less.

get.Africa is a weekly roundup of the most interesting stories in African tech. To support, follow us on Twitter, subscribe to our YouTube channel, share this issue or send us an email. You can also check our archives.
Credit: Steve Harvey
Credit: Steve Harvey
Message from Our Sponsors
Fieldbase is a value-driven provider of integrated maritime communications, navigation, surveillance sales and support services. Read more.
What's the Big Deal?
+ ZAR Naspers spin-off, technology investment company Prosus, plans to sell a 2% stake in China’s Tencent, worth about $14.9 billion at current prices, in an accelerated offering to institutional investors.
+ E£ Egyptian fintech startup, Paymob has closed an $18.5 million Series A to scale its solution across North Africa and the Middle East. The round was led by Dubai-based VC firm Global Ventures. Paymob’s raise is reportedly the largest Series A round in Egyptian history.
+ ₦ Nigeria’s ScholarX is among 9 winners of GSMA Innovation Fund’s £250,000 grant, launches LearnAM in partnership with Airtel.
A bizarre scam that evaded Paystack haunts Nigerian fintech startups
How South African businesses use bitcoin to evade tax
The South African founder who scammed investors out of millions
Playing leapfrog: How far can technology help Africa bypass its developmental backlogs?
The hidden costs of NCC’s suspension of SIM registration
Charts + Graphs
Credit: TC Insights
Credit: TC Insights
South Africa had 24% of the total number of equity rounds in 2020, but it also had the highest failure rate for funded startups out of the top 4 tech hubs in Africa. Full report.
+ Reads
+ By any means necessary: Uganda’s social media tax failed so now it wants to tax internet access. (Paywall)
+ RIP ICE3X: One of South Africa’s oldest cryptocurrency exchanges shuts down.
+ Women lie, men lie, numbers don’t? The unsaid bits behind the lofty transaction volumes of Nigerian fintechs (Paywall)
+ Record-setting NFT: Eliud Kipchoge, the Kenyan world record holder and greatest marathoner of all time, sells out career milestones NFTs for 17.98 ETH (or $38,000+)
+ CBN’s BVN verification ban: What it means for Nigerian fintechs and their customers.
Watch + Listen
How a South African Tech Journalist Cofounded QAnon
How a South African Tech Journalist Cofounded QAnon
Who will fund Akon's futuristic city in Uganda?
‎African agritech - early opportunities for technology to scale agriculture across Africa
Interview: Yoco co-founder, Carl Wazen
Overheard on Twitter
Kyane Kassiri
Founders in Tunisia don’t go after hard problems because everything is forbidden by the regulator.

Founders in Nigeria go after hard problems, once they solve it, everything gets forbidden by the regulator.

Different inputs, same output. 🇹🇳🇳🇬
Corporate Distancing
Corporate Distancing
+ Register a .ng domain name for your business today.
+ To make whiteboard animation videos like this for educational or marketing purposes, please send us an email.
Did you enjoy this issue?
get.Africa Weekly

African tech in a language you'll understand. The most important stories contextualized and delivered to your inbox every Monday. Curated by Chiagoziem O.

In order to unsubscribe, click here.
If you were forwarded this newsletter and you like it, you can subscribe here.
Powered by Revue
get.Africa Media, Nigeria