SEC issues framework for trading efficiency, risks reduction

The Securities and Exchange Commission (SEC) has issued an interoperability/financial markets infrastructure link framework for Central Securities Depositories (CSDs) to enhance the efficiency of trading and settlement functions, as well as align the market with international best practices.

According to the SEC, the Nigerian capital market has witnessed remarkable growth in the last few years in terms of size, market participants and tradable instruments.

This has impacted the market structure in terms of composition and interconnectedness. In the secondary market particularly, there are currently multiple trading platforms and Financial Market Infrastructures (FMIs), which provide comparative services in depository, trading, clearing and settlement activities.

“Consequently, interoperability arrangement has become necessary to enhance the efficiency of trading and settlement functions as well as align the market with international best practices,” SEC added.

According to the Committee on Payments & Market Infrastructures and International Organization of Securities Commissions (CPMI-IOSCO) Principles on FMIs, FMI link is a set of contractual and operational arrangements between two or more FMIs that connect the FMIs directly or through an intermediary.

The regulatory authority said the Interoperability arrangement would potentially liberalize trading and settlement activities, enhance the efficient deployment of capital as well as cost effectiveness in the market.

The SEC stated that it is in this regard and the need to ensure the efficiency of the market and the protection of investors that the framework is being issued.

“In the interoperability arrangement, as recommended by the CPMI-IOSCO Principles for FMIs, relevant provisions have been made for identification, monitoring and management of interlink risks by the respective CSDs with the overall objective of reduction in systemic risks.

“This framework is being issued in line with the mandate of the commission to regulate the capital market with the objective of ensuring the protection of investors, maintaining fair and efficient market as well as reduction of potential systemic risks in trading, clearing and settlement ecosystem.

In this regard, the Commission states that all Securities Exchanges and Central Securities Depositories (CSDs) are required to take necessary steps to put in place requisite infrastructure and systems for implementation of the framework, including any amendments to the relevant rules and regulations.

In addition, they are expected to bring to the attention of their members and participants the provisions of this framework as well as publish the same on their websites; among others.

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