New rules: NSE in frenzy for January changeover
Capital market regulators, quoted companies and operators are making last-minute preparations for the January 1, 2017 changeover to new rules, regulations and compliance enforcement that seek to alter the operations of the capital market.
Three significant capital market rules and enforcement are expected to take effect on January 1. These include the redefinition of the standards for declaration of interim and final dividends, stronger sanction regime for delay or default in submission of corporate earnings and deregistration of undercapitalised capital market operators.
Regulatory sources said the schedules for the enforcement of the new rules remain unchanged, a direct reference to the January 1, 2017 take-off date. However, theie implementation is billed for Tuesday, January 3, 2017.
Capital market operators are said to be working round the clock to comply with the regulations.
Expectedly, the the Nigerian Stock Exchange (NSE) will on January 1, 2017, start the implementation of a sanction regime for any company that makes spurious interim dividend payment in contravention of the new rules.
According to the rules, any company that declares interim dividend during any financial year, and thereafter records accumulated losses at the end of that financial year, if it is discovered that the declaration of dividends was not justified by the availability of profit for distribution, shall be liable to pay a fine.
Also, no company shall declare final dividends without first preparing and filing audited accounts, which shall form the basis of such declaration or action. For any infraction under these rules, companies shall be liable to pay fines of up to 100 per cent of the nominal value of the dividends or bonuses declared.
The new rules seek to protect investors and forestall market manipulation through spurious dividend recommendation and false sense of strong earnings.
Bogus dividend declaration had been fingered as one of the reasons for the large unclaimed dividends in the Nigerian capital market as companies sought to manipulate dividend payment and distribution in the absence of the adequate earnings to meet the payment. Bogus dividend declaration also contributes to share price manipulation by giving investors wrong sense of strong earnings.
Also, the NSE will on the same date launch its new sanction regime for delay in submission of companies’ results. Under the new sanction regime, companies may pay fines that range from N100, 000 to more than N100 million as penalties for delay in the submission of their corporate earnings reports.
Companies that also delayed their financial statements and accounts face threats of suspension and delisting in addition to the monetary fines.
Under the existing sanction regime, sanctions for delay in filing of corporate earnings report for certain inveterate companies are within N5 million. Many companies have been known to delay the submission of their corporate earnings reports for upwards of six to 12 months and beyond. The new rules seek to strengthen existing rules on timely corporate earnings disclosure and set out clear processes for proper disclosure as well as stronger deterrence to non-compliance.
Under the new rules, quoted companies will be required to file their unaudited quarterly accounts with the NSE not later than 30 calendar days after the relevant quarter, and publish it within five business days after the date of filing, in at least two national daily newspapers, and post it on the company’s website, with the web address disclosed in the newspaper publication.
Also, an electronic copy of the publication shall be filed with the Exchange on the same day as the newspaper publication. Where the company chooses to audit its quarterly accounts, it shall be required to file such accounts not later than 60 calendar days after the relevant quarter.
Under the new rules, late submission under the first instance of 90 days could attract N9 million, the additional period of 90 days will attract N18 million while such delay beyond the first 180 days to the next 180 days could attract as much as N72 million, bringing fines payable by a defaulting company within a year to N99 million.
In a major weeding off of undercapitalised capital market operators, Securities and Exchange Commission (SEC) will on the first day of the New Year cancel the registration of undercapitalised capital market operators. The apex capital market regulator had given such period a deadline of December 31, 2016 to comply with requisite capital base for their operations.
A management source at SEC confirmed that deregistration of the undercapitalised operators will go on as scheduled.
SEC had in December 2013 announced major increases in minimum capital requirements for capital market functions under a new minimum capital structure that was initially scheduled to take off by January 1, 2015. It however extended the deadline to September 30, 2015.