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SEC introduces custody rules for Mutual fund to protect investors

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The Securities and Exchange Commission (SEC) said on Sunday it has introduced custody rules for its N4 trillion Mutual fund industry to protect investors and further develop its capital markets,.

Before the rules, investment managers warehoused securities and cash, which meant that investors could lose in the event of a manager being declared bankrupt or insolvent.

Yuguda said although it is a natural operational requirement of CIS the SEC is having some new enforcement and insistence on the compliance that has been in the books but have not been implemented before now.

“All client assets managed under discretionary and non-discretionary mandates are to be held under independent custodial agreements and custodial banks,” SEC director general Lamido Yuguda told Reuters

Yuguda said a significant amount of domestic investors exited the capital market after a 2008 crash wiped more than 60 percent off stock prices.

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He said the commission was trying to lure offshore portfolio investors back to the country.

“The custody requirement covers all Funds and Portfolios being managed by registered Fund/Portfolio Managers. So all Client’s assets managed under discretionary and non discretionary mandates are to be held under independent custodial agreement and custodial Banks. This is in addition to Mutual Funds authorized for public offering

“For example, we have the collective business sector where you have the fund managers. We have a dichotomy between public funds, which are funds that are publicly traded, and you can see the unique values on the stock exchange and in newspapers daily.

“There are also private, which are investment agreements between fund managers and specific investors/”

“A lot of these funds in the privately held fund management mandates are in our custody. The investment manager before now did not only have the investment management responsibility for the fund, but also kept the securities and cash as whole shares in this investment.

“The risk is that if the investment manager should go bust, then the investor loses and that is not acceptable in financial markets around the world.

“I think with the introduction of total custody in that sector, we are likely to see a massive uptake of these kinds of products. We have released some regulations recently in this area for the different types of fund managers, and I think this is an area that is now becoming increasingly attractive to investors and is also receiving the attention of the commission.”

Nigeria has fewer than 500,000 individual accounts under different collective investment schemes, Yuguda said, adding that he was looking to widen the sector, split between public and private fund managers.

Nigerian stocks are down 3.4 percent this year after rising 50 percent in 2020 as the world’s best performing market.

But IPOs have yet to resume while a weak economic outlook and currency risk coupled with the COVID-19 pandemic have scared foreign investors.

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