Foreign Stock Craze Prompts Nigeria Tighten Leash on Brokers

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Nigeria is taking another stab at trying to cool off demand for foreign stocks with tighter regulatory oversight of local brokers.

The Abuja-based Securities and Exchange Commission now plans to register brokers selling stocks of foreign companies as more Nigerians pile into the assets to hedge against inflation and currency weakness. An earlier effort last month met local resistance, backfiring after warnings alerting people to risks and threats to sanction local traders.

“The commission plans to actively monitor the local market in foreign stocks in furtherance of our mandate of ensuring investor protection and market transparency,” Dayo Obisan, executive commissioner for operations of the SEC, said in an interview.

The regulator wants to draw a curtain on a period that saw legions of young Nigerians turn to online platforms to invest in stocks and digital currencies. The need to protect savings took on more urgency after the central bank devalued the local currency three times within a year while inflation accelerated at the fastest pace in four years.

Before now, the online platforms could connect high net-worth individuals without an independent license. The SEC now wants to regulate them directly over concerns they’re targeting retail investors that require protection.

The All-Share Index, Nigeria’s benchmark equity gauge rose 0.2% to 39,198.75 at close of trading in Lagos on Friday. That pared its retreat this year to 2.6%, compared with a gain of 12% in the S&P 500 Index.

Buying Frenzy

At least 400,000 Nigerians poured funds into foreign stocks through online brokers in the past 18 months, Obisan said.

Nigerians actively trading or holding foreign equities now exceeds those investing in local collective investment schemes or mutual funds, according to the regulator. About 70% are between the ages of 18 and 40, a demographic that’s shunned the local stock market, whose total active investor base is less than a million.

“There is an increasing interest among the younger population and this is of concern to the commission primarily because it creates an avenue for exploitation,” Obisan said.

The SEC will license firms offering foreign stocks under so-called “digital sub-broker” regulations, which it says should provide a form of legitimacy for their activities.

The requirement will ensure “that regulatory responsibilities in on-boarding clients, custody of assets, and compliance with reporting requirements are met,” Obisan said.

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