LPC Solicitors

Nigerian Stock Exchange / Securities And Exchange Commission – Compliance Requirements For Listed Companies

Listing is a process by which public companies become members of a relevant stock exchange for the purpose of offering their shares to the investing public, Whilst the Securities and Exchange Commission (SEC) is the apex regulatory institution of the Nigerian Capital Market, the Nigerian Stock Exchange (NSE) provides the platform for issue of shares and other securities to the public, and stock trading, in addition to monitoring and controlling the capital market and ensuring compliance with post listing requirements.

WHAT IS THE RATIONALE FOR COMPLIANCE?

The following rationales may be put forward for ensuring compliance:

1. The Stock market thrives on information. As such, Information must reach the market for the purposes of allowing the market to react, to trade and to allow for an adjustment in the price of the shares on offer.
2. Investors need appropriate protection and guidance from regulators in the market as well as adequate and timely information from listed companies.  The protections offered by the various regulations also allow for orderly trading on the Stock Exchange, thus reducing the risk of price speculation, fraud, and instability in the Capital Market.
3. Trading in shares should be based mainly on market fundamentals which derive from information submitted by listed companies.

 

COMPLIANCE REQUIREMENTS OF THE NSE:

The key compliance requirements of the NSE are in the form of disclosure requirements, vetting and approval of documents, submission of periodic returns etc.

1. APPROVAL OF DOCUMENTS:Listed companies are required by law to deliver the following documents to the NSE for vetting and approval:

•  The printer’s proof of its annual report and accounts prior to publication.
• The notice of annual general meetings of the Company held in the financial period under review.
• All circulars and notices sent to shareholders together with accompanying documents, quarterly reports and forecasts, bi-annual and annual reports and accounts for the financial period under review.

 

1. NOTIFICATION/DISCLOSURE REQUIREMENTS: Listed companies are required² to notify the Director-General of the NSE without delay of the following:

•  Any announcement of dividend, changes in capital structure or any other decisions of the Company that could affect the price of the Company’s shares in the market;
• Any changes to the directors of the Company
• Any proposed change to the general character or nature of business of the Company or of the group or any change in the voting control or in beneficial ownership of the securities carrying voting control;
• Any proposed alteration in the Memorandum or Articles of Association;
• The date and time when the Board of a Company is to meet to discuss dividends, at least 14 days in advance;
• Any other information necessary to enable shareholders appraise the position of the Company and to avoid the establishment of a false market in the shares of the Company;
• Any decision of the Company or any of its subsidiaries to acquire shares in another Company which thereby becomes a subsidiary or to acquire another business or a section of another business and to furnish such information as the NSE may require with regard to such acquisition and if so required to issue to members of the Company a circular letter giving such information as the NSE may require.
• To notify the NSE within 48 hours after the relevant Board meeting has been held of any preliminary results of any year, any dividend or distributions to members recommended or declared to be paid or any proposed change in the capital structure of the Company

The following acts:

1. Publication of accounts, notices of annual general meetings, closure of register, payment dates, changes in directors,
2. changes in capital structure,
3. alteration of memorandum and articles of association,
4. changes in the general character of the Company,
5. all corporate information/development with potential to impact on the Company’s performance etc.;

if performed by the Company without the prior written approval of the NSE attracts a fine of 50% of the annual listing fee. Though the responsibility for compliance with disclosure requirements lies with the Board of the Company, the Board may mandate and rely on its Company Secretary³ to advice and to ensure compliance as and when due.

 

1. RETURNS:

Companies are further required:

•  To prepare and submit quarterly results not later than 6 weeks after the end of a quarter. Approval of the NSE must be obtained before publishing same in two leading newspapers. Going to the press or otherwise allowing a leak in the financial results without informing the NSE attracts a fine of equivalent to 50% of the annual listing fee and suspension from trading,
•  To submit quarterly forecasts not later than 20 days before the commencement of a quarter,
•  To submit the audited accounts of the Company for the year end not later than 3 months from the end of the financial year. Late submission of accounts attracts a penalty of N100,000 per week from the due date until the date of submission.

1. ­OTHER GENERAL REQUIREMENTS:   Listed companies are required to ensure that any service contract not determinable within 5 years by the Company without payment of compensation entered into by the Company or any subsidiary of the Company, with any director or any person who becomes a director within twelve months of entering into such a contract, shall be made subject to the approval of the Company in general meeting.

The Company is also required to comply with the NSE listing and post listing rules (please see the NSE Green Book), pay any listing fees which may become payable to the NSE and provide any other information that may be requested by the NSE from time to time.

With the introduction of the Issuers Portal by the NSE in 2012, all submissions and returns are submitted through the portal.

 

COMPLIANCE REQUIREMENTS OF THE SEC

1)     PERIODIC RETURNS: Companies are required to render the following periodic returns to SEC:

• Quarterly results: not later than 30 days from the end of the quarter.
• Forecasts: not later than 20 days before the commencement of a quarter.
• Half yearly returns: not later than 30 days from the end of the half year. The half yearly returns is a combination of corporate governance, and financial report submitted to SEC twice a year. The prescribed form is usually signed by the Chief Executive officer, Internal Auditor, Chief Financial Officer, Chairman of the Audit Committee, Company Secretary and the Chairman of the Company.
• Audited accounts and report: must be submitted not later than 3 months from the end of the financial year.
• In conjunction with the Company’s registrars, report must be given to SEC of the amount of unclaimed dividends and the investment to which it has been put on a half yearly basis

Failure by a Company to submit any of the above returns  and any other return prescribed by SEC from time to time within the stipulated time-frame makes the Company liable to a penalty of N1,000,000 and a further penalty of N25,000 per day for the period the violation continues.

 

2)     CORPORATE GOVERNANCE COMPLIANCE:  The SEC Code of Corporate Governance For Public Companies In Nigeria regulates listed companies. The responsibility for ensuring compliance with the provisions of the code lies primarily with the Board of Directors with the guidance of the Company Secretary. Some of the key provisions of the Code are as follows:

• Membership of the board should not be less than 5 persons. The majority of the board members should be non-executive directors with at least one independent director.
• Directors should not be members of the board of other companies in the same industry in order to avoid conflict of interest and breach of confidentiality.
• To safeguard the independence of the board, not more than 2 members of the same family should sit on the board of a public Company.
• The position of the Chairman of the Board and Chief Executive Officer should be separate and held by different individuals. This is to avoid over concentration of powers in one individual which may rob the Board of the required checks and balances required for the proper discharge of its duties.
• All directors should be submitted for re-election at intervals of at least once every 3 years. Non-executive directors should serve for reasonable periods on the Board. The Board should ensure the periodic appointment of new directors to replace existing non-executive directors.
• In order to safeguard the integrity of the external audit process and guarantee the independence of the external auditors, companies should rotate both the audit firms (every 10 years) and audit partners.
• Companies should have a whistle-blowing policy which should be known to employees, stakeholders and the general public.

Although the provisions of the SEC code is not legally binding, it nevertheless represents a code of best practice, in furtherance of which, the directors of public companies are now required by SEC to sign an undertaking to comply with the provisions of the SEC Code. This undertaking in effect makes it mandatory for the directors to ensure that their respective companies comply with the provisions.

CONCLUSION

This has been a brief precis of the requirements for listed Companies vis a vis the NSE and SEC rules, regulations and codes that allow them to ensure the good and orderly trading in the shares of companies that are listed on the Nigerian Stock Exchange.

ADAOBI ANIKWE (MRS)

Notes

1. Listing Requirements of the NSE (The Green Book)  
2. Appendix III of the Listing Requirements of the NSE
3. This is the Company’s officer that is traditionally responsible for ensuring compliance with  regulations and Laws relating to the Governance of the Company
4.  Rules 38 – 44, SEC Rules & Regulations, 2011, Also see Sections 60-65 of the Investments & Securities Act, 2007
5.  Rules 39(6), 41(4), & 42 (5) of the SEC Rules & Regulations, 2011