Nigeria’s apex capital market regulator, the Securities and Exchange Commission (SEC), is considering reintroduction of individual sub-broker as a distinct function and operator in the Nigerian capital market as part of measures to increase capital market awareness at the grassroots.
SEC had in November 2017 cancelled individual sub-brokerage, a function that allows individuals with requisite capital market knowledge to engage in investment marketing and mediation.
SEC stated that the review and proposed reinstatement of individual sub-broker function were in response to requests from many capital market stakeholders who had argued that the removal of individual sub-brokerage could undermine the country’s process of capital formation.
According to SEC, the deletion of individual sub-broker function generated a lot of comments from the Nigerian Stock Exchange (NSE) and Association of Stock Broking Houses (ASHON), which thereafter requested for the reinstatement of the function.
SEC stated that it “agrees that reinstatement of individual sub – broker function will help in enhancing financial inclusion, deepening the market, and attracting more retail investors as well as enable the sub – brokers to have more presence at the grass root level”.
According to the draft amendment on the reinstatement of individual sub-broker, to qualify for registration as an individual sub-broker, a person must show evidence of a net worth of N500,000 and affirmations to comply with rules and regulations guiding the operations of the market. Where the individual sub-broker decides to register with a corporate name, he will be required to submit certified copy of certificate of registration of the business name.
Under the operating structure at the stock market, there are four categories or grades of stockbrokerage functions including broker-dealer, the highest level; broker, the second level; dealer, the intermediate level and sub-broker, the lowest level similar to investment agent to without any trading privileges.
A sub-broker functions under the broker primarily to market securities and solicit stockbroking business. In most jurisdictions, they have very minimal professional and regulatory requirements. They are not required to be a member of a stock exchange. They are not required to be an associate of the institute of stockbrokers, although some levels of capital market-focused studies are required to perform effectively.
Each stockbroker is expected to screen, train, record and account for sub-brokers under it. There is no limit to the number of sub-brokers that a stockbroking firm can engage to help as its agents-primarily to interface with investors. The sub-broker helps the broker to market securities, collect investor’s mandate and documents and foster the agent-principal relationship between the broker and investor by facilitating securities trading and rendering of returns to the investor.
The sub-broker makes his income from sharing in the stockbroking commission-the stockbroker’s fee, under a pre-arranged mutually exclusive contract between the broker and sub-broker. Besides the stockbroking commission, a sub-broker may share part of other incomes from other services relating to his clients including charges on share registration and management services such as dematerialisation and dividend collection and retrieval.