The Securities and Exchange Commission Nigeria (www.sec.gov.ng) is considering setting up an Investor Protection Trust Fund. This comes after news that no-one has ever claimed from a reported N500 million (US$3.2 million) fund for investor protection at the Nigerian Stock Exchange (www.nigerianstockexchange.com) set up after a 1996 white paper on capital market reform.
Each stock-broking firm initially paid N1 million to the NSE fund as a contribution and all stock-broking firms have contributed. The fund has grown over more than 14 years to over N500 million in a fixed deposit at a bank, which in turn is backed by Fidelity Guarantee Bond. The fund is to compensate investors whose monies are trapped in cases of insolvency, bankruptcy or negligence of a stock-broking firm. An investor is entitled to a maximum claim of N14 million, depending on the amount deposited or sales proceeds unpaid at the time of the demise of the stock-broking company. NSE Head, Corporate Communications, Wole Tokede, was recently quoted in local newspaper The Daily Independent as admitting the existence of the fund, but he said there has never been a withdrawal from the NSE fund, possibly because of lack of knowledge among investors.
Director General of the SEC Arunma Oteh commented that the NSE fund “has not been as active as it ought to be. We shall write to NSE to ensure that the fund is administered accordingly.”
Ms Oteh said in September 2011 that the SEC will set up another fund to protect investors in the market, as provided for in the Investment and Securities Act (ISA) 2007. She expects that part of the money could come from recoveries from 260 capital market operators and individuals referred to a special Investments and Securities Tribunal in 2010, as the SEC has asked the IST to make the operators disgorge the profits gained from the illegal market activities. w, as by its predecessor. The fund would compensate investors who are defrauded by market operators. Typically an investor protection fund makes investors more confident in a capital market, as they know their funds are safe if their stockbroker runs into problems. However these funds do not compensate investors for share price movements or when investee companies or world markets run into problems.