Sec New Rules And Ammendments 23 December 2019

SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

NEW RULES AND AMENDMENTS TO THE RULES AND REGULATIONS OF THE COMMISSION

Pursuant to the Investments & Securities Act (ISA) 2007, the Commission has reviewed and approved the following new Rules and Amendments to its existing Rules and Regulations as follows:

New Rules

a. Rules on Regulation of Derivatives Trading b. Rules on Central Counter Party (CCP) c. New Rule on Registration of Fixed Income Existing Securities

Major Amendments

d. Amendment to Rules on Collective Investment Schemes

Sundry Amendments

e. Amendment to Rule 27- Fidelity Bond f. Amendment to Rule 42: Creation of sub-rule (6)- Minimum Disclosure Requirements by Public Companies on their websites

1 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

NEW RULE

A. RULES ON REGULATION OF DERIVATIVES TRADING

1. DEFINITION OF TERMS

Additional Margin means additional collateral required from participants or clients to protect against default by the participants or clients.

Call Option is a right but not an obligation to buy an underlying at a pre-agreed price, time, quality and quantity.

Call-Put Ratio is the ratio of traded call options to traded put options at a given time.

CCP means the Central Counterparty appointed by an exchange to clear its derivatives contracts.

Client or Clients means any person for whom a participant acts in relation to effecting trading, clearing and settlement of derivatives transactions.

Close out means the cancellation of a position in one direction with an equal and opposite position

Contract means Exchange Traded Derivatives Contract

Contract Code means a unique code assigned by an Exchange to Contracts traded on its platform

Contract Life/Tenor means the period between when a contract is issued and when it expires or reaches maturity.

Cost of Carry means the net financial cost of entering and holding a position in a Derivatives Contract until the expiration of that Derivatives Contract.

Default Fund is fund managed by the CCP, contributed to by Derivatives Clearing Members and the CCP to protect against exposures resulting from default.

Derivatives means any financial instrument or contract that creates rights and obligations and whose value depends on or is derived from the value of one or more underlying, or on a default event.

2 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

Derivatives Clearing Member means an entity authorized by a CCP to perform clearing services either on its own account or on behalf of Dealing Members or clients

Dealing Member for the purpose of these rules means an entity registered by the Commission and a registered member of an Exchange, which has obtained a dealing license to execute trades for proprietary accounts or on behalf of its clients but is not authorized to clear trades through a CCP unless it is also a Derivatives Clearing Member.

Exchange Traded Derivatives Contract means standardised derivatives contracts traded on a recognized exchange and cleared through a CСР.

Expiry Date means the last day on which the contract expires and is no longer valid.

Expiry Month means the month in which the contract is expected to expire.

Initial Margin means collateral collected upon execution of an order to buy or sell a derivatives contract to cover potential changes in the value of each participant's position over the appropriate close-out period in the event the participant defaults.

Legal Entity Identifier is a 20-character, alpha-numeric code issued by accredited Issuing Organisations that are duly endorsed by the Global Legal Entity Identifier Foundation

Last Trading Date means the exact day and time when the contract will stop trading.

Leverage means total outstanding position of a participant in derivatives in relation to its initial outlay.

Listing Date means the date on which the contract is listed for trading.

Mark to Market means daily calculation of gains and losses of outstanding positions as a result of actual changes in the underlying or market prices of the underlying and market price of the derivatives contracts.

Mark to Market Model means the methodology used for marking to market outstanding positions of participants and clients.

Multiplier is the number of underlying contained in a single derivatives contract.

OTC Derivatives means derivatives contracts agreed between parties directly without going through an Exchange.

3 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

Option means a contract where a holder has a right but not an obligation to buy or sell an underlying at a pre-agreed price, time and quantity.

Participant refers to a Dealing Member of an Exchange and Derivatives Clearing Member.

Position means an obligation or right of a person arising from Derivatives trading.

Position Limit means level of ownership or control of derivative contracts that a participant, group of participants, client or group of clients shall not exceed.

Put Option is a right but not an obligation to sell an underlying asset at a pre-agreed price, time and quantity.

Settlement Style/Method means medium of settlement e.g. cash settlement, physical delivery etc.

Strike Price means a price at which a call or a put option can be exercised.

The Commission means Securities and Exchange Commission.

The Exchange refers to Securities, Commodities or Futures Exchange where derivatives are listed and/or traded.

Trade Repository is an entity registered by the Commission to maintain a centralised electronic database of transaction data.

Trading Hours means the period of the business day during which the Derivative Contract is traded on an exchange.

Trading System means the infrastructure to be deployed by the Exchange to trade the contracts.

Underlying means the financial instrument, commodities, index, exchange rate, interest rate and other products or components on which a Derivative Contract is based.

Variation Margin means margin that is required from participants and clients with open positions to reflect current exposures resulting from actual changes in the market prices of the derivatives contracts or the underlying or collateral as the case may be.

4 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

2. APPLICABILITY

These Rules shall apply to:

1. Exchange Traded Derivatives and

2. OTC Derivatives where specifically mentioned

3. REGISTRATION REQUIREMENTS

(1) The Commission's approval shall be sought and obtained prior to the introduction of any contract.

(2) An application for registration of a contract shall be filed with the Commission by or on behalf of an Exchange with the following documents:

a. SEC Form AA5 b. Information Memorandum which shall provide the following: i. Contract specification – Any contract filed with the Commission shall where applicable, have the under listed specifications:

• Name of the Contract • Name and specification of the underlying • Type of Contract • Contract Code • CCP that will clear the contract • Trading Hours • Last Trading Date • Settlement Style/Method • Multiplier • Listing Date • Expiry Date • Expiry Month • Contract Life/Tenor • Mark to Market model • Actions to be taken on single stock derivatives where there are corporate actions • Any other specification applicable to the contract.

5 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

ii. The safeguards and the risk protection mechanisms adopted by the Exchange to ensure market integrity, protection of investors and smooth and orderly trading.

iii. The trading infrastructure and surveillance system to be deployed by the Exchange to effectively monitor trading.

iv. Target investors. v. Any other documents/information required by the Commission from time to time.

(3) Where an Exchange intends to amend the contract specifications, it shall notify the Commission within 24 hours of such amendments

(4) An application for the registration of a Derivatives Contract on any Underlying filed with the Commission shall provide information on the following:

a. General information on the Underlying of the Derivatives. b. Susceptibility to manipulation. c. Protection of market participants and investors d. Trading and pricing information e. And such other requirement as may be prescribed by the Commission from time to time

(5) The Exchange shall have a framework for the regulation of the derivatives segment separate from the framework governing the cash market.

(6) Once the Commission approves a contract, it shall become the intellectual property of the originating Exchange.

4. REGISTRATION REQUIREMENTS OF DERIVATIVES CLEARING MEMBER

Eligibility

Only commercial and merchant banks licensed by Central Bank of Nigeria are eligible to register as derivatives clearing members.

Registration Requirements

1. An application for registration as derivatives clearing member shall be filed on the appropriate SEC Form accompanied by:

a. A minimum of two sets of completed Form SEC ...... to be filed by sponsored individuals

6 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

b. A copy of certificate of incorporation certified by the Corporate Affairs Commission; where a copy not certified is filed, the applicant shall present the original copy for sighting by an authorized officer of the Commission

c. A Copy of Memorandum and Articles of Association certified by the Corporate Affairs Commission which among others shall include the power to act as a derivatives clearing member

d. A copy of CAC Form containing the particulars of directors certified by the Corporate Affairs Commission

e. Copy of latest audited accounts or audited statement of affairs for companies in operation for less than one year

f. Profile of the bank covering among others brief history of the company, organizational structure, shareholding structure and principal officers

g. Fidelity bond issued by the Nigerian Deposit Insurance Corporation h. Evidence of minimum paid up capital as stipulated by the Central Bank of Nigeria

i. Sworn undertaking to keep proper records and render returns as stipulated by the Commission

j. Sworn undertaking to abide by the Act and the rules and regulations of the Commission;

k. any other information or documents that may be required by the Commission from time to time.

2. The sponsored individuals shall pass a special examination on derivatives trading to be conducted by the Commission.

3. The Bank shall provide evidence of an agreement with a central counterparty to provide clearing services.

4. Where a bank, registered as a capital market operator intends to take up derivatives clearing as an additional function, an application shall be filed to the Commission for registration of that function.

5. EXCHANGE RULES ON DERIVATIVES TRADING

(1). Exchanges shall develop rules for the derivatives market which shall include:

a. General Requirements b. Membership Requirements c. Reporting Requirements d. Risk Management Requirements

7 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

e. Such other requirements as may be determined by the Commission

(2) Where an underlying is suspended from trading or delisted, contracts on such underlying shall cease to trade.

(3) Exchange Traded Derivatives can only be traded on Exchanges recognized by the Commission.

6. CLEARING AND SETTLEMENT

(1) All Exchange Traded Derivatives Contracts shall be cleared by a CCP registered/recognized by the Commission.

(2) All standardized OTC Derivatives Contracts shall be traded on an Exchange.

(3) The Commission shall issue guidelines on standardized OTC Derivatives Contracts from time to time.

(4) Clearing derivatives shall be in line with the the provisions of the Act, SEC Rules and Regulations, and the rules of the relevant CCP.

(5) Where physical delivery is required, the Exchange and/or the CCP shall make adequate arrangement for such delivery and ensure compliance with specification.

(6) The arrangements referred to in number 5 above shall include place, time, quantity and quality and any other specifications as contained in the contract.

7. PARTICIPANTS

(1) No person(s) shall trade on Exchange-Traded Derivatives either for proprietary accounts or on behalf of clients except entities registered with a recognized Exchange and/or CCP as Dealing Members and/or Derivatives Clearing Members.

(2) No person(s) shall clear Exchange Traded Derivatives or OTC Derivatives except entities registered as Derivatives Clearing Members.

(3) Participants shall promptly provide complete and accurate information on their trading and clearing activities to the Commission as the need arises in accordance with the Act and SEC Rules and Regulations.

(4) Participants shall comply with all relevant provisions of the Act and SEC Rules and Regulations, whether or not expressly stated in these regulations.

(5) Participants in Derivatives market shall have Legal Entity Identifier.

8 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

8. SURVEILLANCE

(1) The Exchange shall have the responsibility for market surveillance to ensure derivatives contract prices reflect demand and supply in order to deter market manipulations.

(2) The surveillance systems shall be designed to detect:

a. Open positions, cost of carry, volatility and closing prices of the underlying as well as the derivatives contract.

b. Activities in the derivatives market vis-à-vis the spot market. c. Timing of disclosure by issuer of the underlying, where applicable d. Strike prices with large open positions which shall be determined by the Commission from time to time.

e. Large trades, call-put ratios and exercise patterns.

(3) The surveillance systems shall be able to:

a. Capture and process client details. b. Develop databases of trading activity by participants and clients. c. Generate trading pattern in individual contracts or group of contracts by participants and clients over a period.

d. Generate the pattern of trading in a contract over a period giving such details as the purchases, sales, positions and open interest held by different participants and clients.

e. Detect any form of breach of the laid down rules and regulations.

(4) Where the underlying is traded in more than one exchange or the participants are members of more than one exchange, the relevant exchanges shall share relevant information particularly on exposures in linked markets and/or on supplies relative to these markets, for surveillance and monitoring purposes to identify breaches, erroneous activities, misconduct and avoid regulatory arbitrage

9. POSITION LIMITS

(1) Exchanges shall:

a. Set position limits to prevent participants and clients from holding positions large enough to control and/or manipulate the underlying.

b. Set stringent position limit on participants and clients related to issuers whose securities represent the underlying or determines price of underlying.

9 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

c. Notify the Commission on position limits prescribed, methodologies and rationale used for determining the limits.

d. Monitor compliance with position limits and sanction any defaulting participants.

e. Report to the Commission participants or clients that owns up to 5% or more of total open interest of a particular contract.

(2) Position limits shall be set for each contract based on the quantity of the underlying and trading volume.

10. LEVERAGE

The Exchange shall liaise with the CCP to determine the applicable leverage relevant to each type of Derivative contract which should be disclosed to the Commission within 24 hours.

11. DISCLOSURE

(1) Participants shall disclose their outstanding derivatives exposures to the Commission on a quarterly basis. The disclosure shall include but not be limited to the following information:

a. List and description of proprietary and clients' outstanding positions. b. Outstanding derivatives exposure from proprietary and clients' positions. c. Profit or loss resulting from proprietary positions. d. Proprietary and clients outstanding positions as a percentage of net liquid capital, where applicable.

e. Estimated maximum loss that could be incurred from proprietary outstanding positions and its effect on the financial position.

(2) Participants shall disclose their outstanding derivatives exposure from proprietary positions in their quarterly and annual financial statements.

(3) The outstanding exposure shall be determined in accordance with International Financial Reporting Standards (IFRS).

(4) Participants shall provide full disclosure of contract specifications and accompanying risks to clients before accepting orders from the clients.

(5) Participants shall provide statements with the following information to their existing clients on a monthly basis:

10 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

a. All trades carried out on the clients account within the reporting period b. Outstanding position of the clients as at the reporting date. c. Outstanding balance in the clients' margin account as at the reporting date. d. Profit made or loss incurred by clients within the reporting period. e. Closed out or liquidated positions of the client within the reporting period.

12. RISK MANAGEMENT

(1) Participants shall:

a. Have risk management units within their organizations. b. Have comprehensive risk management frameworks and investment policies for managing derivatives related risks. The framework shall include but not limited to the following:

i. The officer responsible for coordinating risk function ii. Reporting line iii. Risk appetite and risk tolerance for all classes of risks iv. Risk register v. Roles and responsibilities of every staff including board members on risk management

c. Include risk management report in their annual financial statements.

13. MARGIN AND COLLATERAL

(1) A CCP shall:

a. Receive and maintain initial margin from participants before accepting to clear contracts from them.

b. Pay to or receive from participants and clients, variation margins for gains or losses resulting from mark to market of positions.

c. Hold initial margin posted by participants and their clients d. Have adequate arrangements to segregate its own resources from collateral of participants and clients.

e. At least once every business day, mark to market outstanding positions and make margin calls if need arises.

f. Not create or permit to exist any lien or other encumbrance on initial margin posted by participants and clients.

(2) Participants may request for additional margin from clients to protect themselves against default.

(3) A Derivatives Clearing Member shall:

11 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

a. Not use margins posted by clients and Dealing Members to finance its own trade or operate its own business.

b. Segregate its resources from additional margin posted by clients and Dealing Members.

TRANSACTION FEE

(1) The Commission shall:

a. Charge fees for registration of contracts b. Issue guidelines on fees for trading and clearing of contracts in the secondary markets.

REPORTING OF OTC DERIVATIVES

(1) Participants and other registered capital market operators shall report all OTC Derivatives transactions to a Trade Repository or an Exchange as the case may be in accordance with guidelines issued by the Commission from time to time. The report shall include:

a. the entry into of an agreement or contract for the sale or purchase of a Derivatives contract or product, however concluded by the parties and however described;

b. a change in the beneficial ownership of Derivatives contracts between parties one of whom is a Participant;

c. the modification, assignment or termination of an agreement or contract for the sale or purchase of a derivatives contract or product, however described; d. Legal Entity Identifier code

(2) For the purposes of these Regulations and any guidelines issued by the Commission, a person that reports details of a derivatives transaction on behalf of a counterparty shall not be considered to be in breach of any restriction on disclosure of information imposed by any contract or by any legislative, regulatory or administrative provision. Where that person is a corporate entity, no liability resulting from that disclosure lies with it or its directors or employees.

(3) Participants shall keep records that demonstrate compliance with the requirements of these Rules.

12 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

1. SANCTIONS

Any person who violates any provision of these rules and regulations shall be liable to a penalty of not less than N1,000,000 and a further sum of not more than N25,000 for every day of default.

13 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

B. RULES ON CENTRAL COUNTERPARTY (CCP)

1. DEFINITIONS

Central Counterparty (CCP) means an entity registered by the Commission that interposes itself between counterparties to a securities transaction traded on one or more financial markets, becoming the buyer to every seller and seller to every buyer.

CCP Rules means the constitution, Articles of Incorporation, by-laws, or rules of a CCP.

Clearing means the process of establishing positions, including the calculation of net obligation and ensuring that collateral is available to secure the exposures arising from those positions.

Clearing Member means an entity authorized by a CCP to perform clearing services either on its own account or on behalf of other Dealing Members or Clients, or for both on its own account and on behalf of other Dealing Members or Clients.

Clearing Services means services offered and activities performed by a Clearing Member in terms of the CCP Rules, to facilitate clearing of securities and such other product transaction.

Client means any person or entity to which a regulated person provides securities services, and includes a person that acts as an agent for another person in relation to those services in which case it will include the agent or exclude the other person if the contractual arrangement between the parties indicates this to be the intention.

Close Link means a situation in which two or more entities that are linked in any of the following ways: (a) participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of an undertaking; (b) control; or (c) the fact that both or all are permanently linked to one and the same third person by a control relationship.

Close-out Period means the period which a CCP is reasonably expected to close out or transfer open positions of a defaulting Clearing Member.

Collateral means cash and other highly liquid, low risk securities collected by a CCP to protect itself and other Clearing Members from potential exposures that could arise as a result of default of a Clearing Member.

14 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

Current Exposure means the market value of a position(s) with a counterparty that would be lost upon default of the counterparty, assuming no recovery on the value of the position(s).

Dealing Member for the purpose of these rules means an entity registered by the Commission and a registered member of an Exchange, which has obtained a dealing license to execute trades for proprietary accounts or on behalf of its Clients but is not authorized to clear trades through a CCP unless it is also a Derivatives Clearing Member

Defaulting Clearing Member means a Clearing Member who has defaulted in the performance of its open contracts.

Default Fund is fund established and administered by the CCP to protect against exposure resulting from default of a Clearing Member.

Default Waterfall refers to the financial safeguards available to a CCP to cover losses arising from a Clearing Member ("CM") default (“Default Losses”), and the order in which they would be expended.

Derivatives means any financial instrument or contract that creates rights and obligations and whose value depends on or is derived from the value of one or more underlying, rate or index, on a measure of economic value or on a default event.

Exchange Traded Derivatives means standardised derivatives contracts traded on a recognised exchange and cleared through a CCP.

Extreme but Plausible Market Conditions include the most volatile periods that have been experienced by the markets for which the CCP provides its services and a range of potential future scenarios. They shall take into account sudden sales of financial resources and rapid reductions in market liquidity.

Financial Market Infrastructure (FMI) includes central securities depositories, central counterparties, securities settlement systems, payment systems and trade repositories.

Futures Contract means an agreement to buy or sell securities on an exchange at a pre- agreed price, quantity, quality and time.

Haircut is a risk control measure applied to underlying assets whereby the value of those underlying assets is calculated as the market value of the assets reduced by a certain percentage. Haircuts are applied by a collateral taker in order to protect itself from losses

15 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

resulting from declines in the market value of a security in the event that it needs to liquidate that collateral.

Individual Client Segregation means a form of accounts segregation where individual Client's funds are deposited in different accounts as opposed to a single omnibus account.

Initial Margin means collateral deposited by Clearing Members on open positions, typically representing a deposit against short term price movement. It also covers potential future exposure for the expected time between the last variation margin exchange and the liquidation of positions on the default of counterparty.

Interoperability means an arrangement between two or more CCPs whereby each CCP has a link with another CCP to enable two counterparties use different CCPs to clear the same securities.

Interoperable CCP means a CCP that has interoperability arrangement with another CCP.

Intraday Variation Margin Calls means requesting for replenishment of margin accounts by Clearing Members before the end of a business day.

Margin Calls means requesting for replenishment of margin accounts by Clearing Members at the end of a business day.

Netting means offsetting the value of multiple positions or payments due to be exchanged between two or more parties.

Novation means the act of replacing one party in securities or such other product transactions with another.

Omnibus Client Segregation means a form of account segregation where Clients' funds are deposited in a single omnibus account in order to separate the funds from Clearing Members' fund.

OTC Derivatives means derivatives contracts agreed between parties directly without going through an exchange. The parties may agree to clear the contracts through a CCP.

Portability means transferring a Client's accounts and funds from a defaulting member to non-defaulting member.

16 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

Potential Future Exposure means losses that a central counterparty could potentially face between the period a Clearing Member defaults and the time it would be reasonably expected to close out or transfer a defaulting member's open positions.

Principal Officer means the chief executive officer or a member of the executive management team of a CCP.

Recovery means the actions of a CCP, consistent with its rules, procedures and other ex ante contractual arrangements, to address any uncovered loss, liquidity shortfall or capital inadequacy, whether arising from Clearing Members' default or other causes (such as business, operational or other structural weaknesses), including actions to replenish any depleted pre-funded financial resources and liquidity arrangements, as necessary to maintain the FMI's viability as a going concern and the continued provision of critical services.

Reserves means appropriation of retained earnings for a designated purpose which is not available for dividends to the shareholder and is of a permanent nature and able to absorb losses in going concern situations.

Resolution refers to processes and procedures that allow for orderly winding down of a CCP to ensure minimum disruption to the financial system.

Securities are as defined in the Investments and Securities Act.

Settlement means the process of moving cash and/or the physical underlying (where applicable) between Clearing Members resulting from derivatives or other contracts

Stress Market Scenario in Relation to a CCP that Operates in a Single Jurisdiction refers to a market condition that results in default of a Clearing Member to which it has the largest exposure to in extreme but plausible market conditions.

Stress Market Scenario in Relation to a CCP that Operates in a Multiple Jurisdiction refers to a market condition that results in default of at least two Clearing Members to which it has the largest exposure to in extreme but plausible market conditions.

Third-Party means a service provider whom a clearing service has been outsourced to.

Third-Party Pricing Services means entities/institutions that provide prices which are not readily available from exchanges.

17 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

Value Date means the day on which the payment, transfer instruction, or other obligation is due and the associated funds and securities are typically available to the receiving Clearing Member.

Variation Margin means margin that is transferred between Clearing Members to reflect current exposures resulting from changes in daily valuation of the position in the securities or such other product transactions set out by the exchange.

2. APPLICABILITY

These rules shall apply to entities registered by the Commission as CCPs.

3. REGISTRATION REQUIREMENTS

4. An application for registration of a CCP shall be made in Form S.E.C. 5C contained in Schedule III to these Rules and Regulations and accompanied by:

a) copy of certificate of incorporation certified by the company secretary;

b) two copies of the Memorandum and Articles of Association certified by the Corporate Affairs Commission;

c) latest copy of audited accounts or statement of affairs signed by its auditors and management accounts that are not more than thirty (30) days old as at the time of filing with the Commission;

d) two copies of existing or proposed rules and regulations, and code of conduct;

e) sworn undertaking to promptly furnish the Commission with copies of any amendment to the rules of the CCP;

f) information relating to clearing facilities, including settlement procedure;

g) fidelity bond representing 25% of minimum required capital;

h) sworn undertaking to keep such records and render such returns as may be specified by the Commission from time to time;

i) sworn undertaking to comply with and enforce compliance by its Clearing Members with the provisions of the Act and the Commission's rules and regulations;

18 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

j) an application for registration of all principal officers and compliance officers on Forms SEC 2 and 2D;

k) Bank Verification Number and Credit Bureau Report of the directors of the company

I) information memorandum on the company, including the organizational and shareholding structure, profile of promoters, Clearing Members of the board and principal officers;

m) evidence of minimum capitalization of N5 billion, which shall be in the ratio of 90% cash and 10% fixed and other assets. The 90% cash should be escrowed in an interest-yielding account with the CBN until approval is granted

n) filing fee of N50,000;

o) processing fee of N200,000;

p) registration fee of N1,000,000;

q) registration fee of N10,000 for each of the sponsored individuals and the compliance officer;

r) any other documents required by the Commission from time to time.

4. ADDITIONAL REQUIREMENTS

A registered CCP shall have:

1. Sufficient assets and resources, which include financial, management and human resources with appropriate experience, to perform its functions as set out in these Rules;

2. An effective and reliable infrastructure to facilitate its clearing operations or services;

3. A comprehensive risk management process;

4. Appropriate systems, controls and procedures that are reliable and secure and have adequate scalable capacity;

5. Adequate mechanisms for the purpose of reviewing, monitoring and evaluating its internal controls;

6. Proper arrangements for security and back-up procedures to ensure the integrity of the records of transactions cleared through its facilities;

19 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

7. Arrangements for the efficient and effective supervision of Clearing Members to ensure compliance with its rules and directives.

8. Consistent communication procedures and standards relating to securities, futures contracts and member identification.

9. A complaint management framework in line with the Commission's rules on complaint management

10. PROHIBITED ACTIVITIES

A CCP shall not carry out any business, activity or function that is not related or incidental to clearing

6. FUNCTIONS

The functions of a registered CCP shall be to:

1. Interpose itself between counterparties to contracts traded in one or more financial markets through the process of novation, legally binding agreement or open offer system;

2. Facilitate post trade management functions;

3. Implement a margin system that establishes margin levels commensurate with the risks and particular attributes of each product, portfolio and the market;

4. Collect and manage collateral held for the due performance of the obligations of Clearing Members;

5. Establish and maintain a Default Fund to mitigate the risk of default by a Clearing Member and to ensure, where possible, that the obligations of that Clearing Member continue to be fulfilled;

6. Have a clearly defined default management system and waterfall where the obligations of the defaulting Clearing Member, other Clearing Members and the CCP are legally and clearly managed;

7. Provide for portability in the case of default of a Clearing Member;

20 SEC NIGERIA SECURITIES AND EXCHANGE COMMISSION, NIGERIA

8. Perform any other function as may be determined by the Commission from time to time.

9. GOVERNANCE

10. A CCP shall have:

a) Rules and procedures that support financial stability, safety and efficiency of its clearing activities;

b) A charter for the Board and Management that clearly stipulates responsibility and accountability which should be made publicly available;

c) Standard operating procedures that stipulate its entire business processes and operations and must be duly approved by the board;

d) Processes to identify, assess, and manage potential conflicts of interest of members of the Board, principal officers, employees or any person directly or indirectly linked to the Board.

2. The Board and Management of a CCP shall have the required mix of skills and competence to discharge their duties in line with the explanatory guidelines issued by the Commission from time to time;

3. The Board of a CCP shall consider the interest of relevant stakeholders before making critical decisions.

4. COMPOSITION OF THE BOARD

5. A CCP shall have a Board, which should be independent of Management;

6. Appointment of Board members shall be subject to approval of the Commission;

7. The Board shall comprise of:

a) A Chairman;

b) A Chief Executive Officer