Warehousing and Collateral Management: SEC Nigeria Releases Rule

Monday, March 29, 2021 / 7:54AM / SEC
Nigeria / Header Image Credit: Ecographics

In a bid to ensure the nation has a
vibrant commodities trading ecosystem, the Securities and Exchange Commission
has released a new rule covering warehousing and collateral management among
others. According to the rule, every warehouse that stores commodities to be
traded on a registered Exchange shall apply to be registered by the
Commission, while the Commission shall maintain a Register of all
registered warehouses which shall be published on its website.

A warehouse applying for registration
going by the rule shall submit proof of ownership or registered-lease deed or
rent agreement, along with disclaimer from the owner of the Warehouse/property
providing a waiver of ownership regarding Commodities stored in such Warehouse,
in case of leased or rented Warehouse; present evidence of construction
in compliance with the National Building Code, Present evidence of compliance
with relevant Federal and State regulation relating to the operation of
warehouses, and have facility(ies) appropriate for storage of
commodities.

Other requirements are that the
warehouse should have appropriate security arrangements in place, have adequate
trained staff with expertise and knowledge of scientific storage of
commodities, have requisite equipment for weighing and quality measures of
commodities, as well as have comprehensive insurance cover for the building,
equipment, stock and other items as may be necessary.

The Rule also states that “The
warehouse should be located in a place with access to infrastructure to support
its operations and have sufficient space for parking and movement of large
vehicles, have an efficient system for loading/unloading of Commodity including
proper mechanism for segregation of different kinds/quality of Commodity”.

“They are to submit a Standard
Operating Procedure (SOP) which shall cover the following among others:
Procedures for acceptance of commodities to be deposited and delivery of
commodities; procedures for weighing, sampling of goods to be deposited in compliance
with industry standards, procedure for verification of commodities and
communication to depositors, and procedure for maintaining the quality of the
goods stored in line with relevant specifications.

“Others are procedure for Know your
depositor, security policy for ensuring the safety of the goods, procedure for
the use of modern techniques for storage of goods, procedure for determining
and addressing losses due to theft, fire, burglary, fraud, negligence and force
majeure events, procedure for internal verification of stock, procedure for
maintenance of warehouse and preservations of Stock, Organizational structure
and Job description for every staff”.

The rule states that for a Collateral
Management Company to be registered by the Commission, am application shall be
filed to the SEC accompanied by the relevant documents.

Some of the documents are two sets of
completed appropriate S.E.C Forms to be filed by the sponsored individuals; a
copy of the Certificate of Incorporation certified by the Corporate Affairs
Commission where a copy not certified is filed, the applicant shall present the
original for sighting by an authorized officer of the Commission; a copy of the
Memorandum and Articles of Association certified by the Corporate Affairs
Commission, which shall among others, include power to act as a Collateral
Manager, a copy of the appropriate CAC Form containing particulars of the
directors certified by the Corporate Affairs Commission; as well as a Copy of
latest audited accounts or audited statement of affairs for companies in
operation for less than one (1) year.

The rule further requires Fidelity
Bond representing 20% of paid-up capital; sworn undertaking to keep proper
records and render returns; evidence of minimum paid-up capital of N50 million.
As well as application for registration of a minimum of two sponsored
individuals one of whom shall be the chief executive officer.

“The two principal officers of the
Collateral Management Company who shall be registered as sponsored officers
must have a minimum of a university degree or its equivalent with not less than
ten (10) years relevant post-qualification experience; a list of key officers
and technical experts engaged and details of their qualifications, which should
capture evidence of financial, technical capabilities to carry out the
functions of a Collateral Manager, a list of relevant technology systems in
place as required by collateral management services; information relating to
the relevant Commodities Management Facilities including: Assaying facilities,
Warehousing, Aggregation, Computerization and Telephone systems and a well
finalized Business Plan; “Two copies of existing or proposed by-laws or rules,
Code of Conduct, Warehousing Guidelines etc., instruction and inspection
manuals of warehouse activities; detailed information about the promoters and
principal officers of the Collateral Management Company; two copies of
Warehouse Accreditation requirements of the Collateral Management Company;
detailed information about the Technology system to be adopted; and an
Undertaking by the CMC to always forward copies of amendments of its Guidelines
for approval by the Commission”.

On Management of the CMC, THE SEC rule
stipulates that Board of directors and the chief executive should be appointed
with prior approval of the Commission; key officers are to fulfil the fit
and proper criteria as provided in these regulations; the CMC is expected to
maintain the eligibility criteria provided by the Commission and notify the
Commission immediately if it ceases to fulfil any of the conditions
provided in these rules; maintain high standard of integrity and fairness
in discharging its functions and its dealing with other persons with whom it
has agreed in writing to render services as CMC; fulfil its obligations
in a fair, efficient, transparent and ethical manner; and act with due
skill, care and diligence in performing all its functions and discharging all
its obligations and responsibilities; Upon Registration, the CMC is expected to
display such license, in a conspicuous place, in the principal place of its
business; establish the procedure for pledging, in favor of a financial
institution, the Depositor’s commodities held with the Warehouse against which
Electronic Warehouse Receipt has been issued; and certify a Warehouse.