The stockbrokers are a major player in the activities leading to the public offer of securities in the primary market. The stock brokers is guided by the Companies and Allied Matters Act of 1990, Banks and other Financial Institutions Act of 1991, Insurance Act of 1997, Investments and Securities Act of 1999, Rules and Regulations pursuant to Investments and Securities Act of 1999 issued by SEC and Rules and Regulations governing listing of securities on the Nigerian Stock Exchange issued by the Nigerian Stock Exchange (NSE). They are also regulated under the Chartered Institute of Stockbrokers Act.
In a public issue, once a mandate has been won and the Issuing House and the Issuer have determined the turning of the offer, the broker must be appointed. He acts as the principal intermediary between the company, its advisers, and the Stock Exchange. He facilitates the listing of securities after the application and registration requirement of the SEC have been complied with.
The issuing house and the stockbroker meet with the issuer to ensure compliance with the requirement of the Companies and Allied Matters Act 1990 as amended. At the mandate giving stage, the stockbroker files an application to the Stock Exchange intimating her of the offer. He consequently vets all documents for presentation to regulatory authorities and authenticates all claims made therein.
At the approval stage, the stockbroker sponsors the application to the Stock Exchange along with the accompanying documents and information. He answers any queries and or question that may be asked by the Quotation department of the Nigerian Stock Exchange.
Furthermore, the stockbroker delivers to the Exchange proof print of the prospectus, the application form, posters and newspaper adverts after approval has been given by the Quotations Committee as well as collect the Certificate of Exemption issued in accordance with section 553 of Companies and Allied Matters Act and this authorises the Issuer to produce the abridged prospectus prior to the Completion Board Meeting.
Also, the stock broker with the other parties to the issue signs the verification questionnaire and offer documents at the Completion Board Meeting and files a complete set of the signed documents with the Stock Exchange immediately after the meeting and he acts as a receiving agent for the application and ensures wide distribution of the shares.
Apart from the primary market activities of the stockbroker, he also plays a major role in secondary market transactions. Indeed he takes to the floor of the Exchange the shares of an investor who wants to sell or buys or the floor the shares of investors offered for sale by other stockbrokers. This role places a hearing responsibility on the stockbroker. He or she must act in the interest of the investors and be fair efficient and transparent.
In addition, the Stockbroker is expected to exercise due diligence at the floor of the Stock Exchange by not engaging in sharp practices. The case of Bonkolans readily comes to mind, the SEC learnt of an alleged scam on the floor of the Nigerian Stock Exchange involving the sale of Nestle Foods Plc, Unilever Plc and other securities. The scam was alleged to have been perpetrated by a syndicate through the use of certain stockbroking houses. The APC found some stockbrokers and other capital market operators liable and were accordingly penalized. They were found to have operated the SEC Code for Capital Market Operations. The Investment and Securities Tribunal upheld the decision of the APC save on issues of cost.
There is therefore need to bring the Code within the ambit of the proposed amendments to the Investments and Securities Act 1999 through incorporation by reference. This is because it was the lower standard of negligence available in the Code that made some companies and individuals to be found liable.
There should be a specific statutory duty imposes on stockbrokers in the ISA 1999, apart from the general law of contract and tort. Also, there should be adequate provisions for regulation of conduct of stockbrokers particularly in the secondary market. Some of the provisions that should be considered under any amendment of the ISA is the proposition of duty due diligence that is know your customer. Also reporting duty should be directly statutory as should be duty of the organisation to put in place a structure that adequately supervises subordinates. In the event of breach of these statutory duties investors who suffer loss should be entitled to directly seek statutory remedy in addition to any other statutory powers of SEC.