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

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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.

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