Stock market unveils special insurance for investors


CAPITAL market authorities have launched a special insurance cover to mitigate risks that may arise from infractions by operators and their products and services.

The implementation of the special comprehensive insurance started on January 1, with this business year expected as a transition from the previous requirement of a limited-purpose fidelity bond to the more comprehensive special insurance cover.

As against the previous fidelity bond that covered only theft, stealing, fraud or dishonesty by an officer, employee and sponsored individual of a stockbroking firm, the new mandatory special insurance covers  fidelity guarantees, directors’ and officers’ liability, professional indemnity, legal liability or other third-party claim, other risks associated with a stockbroking firm’s products and services and compensation of aggrieved investors who have suffered pecuniary losses as stipulated in Section 198 of the Investment and Securities Act 2007 (ISA).

The special insurance is required to cover not less than 20 per cent of the minimum paid up capital of the stockbroking firm.

The new special insurance also supports stock exchange’s investors’ protection fund, a mandatory fund set up under the ISA. Part XIV of the ISA requires every Exchange to establish and maintain an investors’ protection fund to compensate investors with genuine claims of pecuniary loss against dealing member firms resulting from insolvency, bankruptcy or negligence of a dealing member firm of a securities exchange or capital trade points; and defalcation committed by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or received by the dealing member firm in its course of business as a capital market operator.

The special insurance cover was developed under a collaborative framework that included Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), stockbroking firms and other relevant professionals.

Under the new arrangement, stockbroking firms are expected to maintain insurance policy that covers all aspects of their businesses and the risks associated with their stockbroking operations in order to protect investors in the event of the occurrence of the risk or loss insured.

Also, such insurance policy must take into cognisance any multiple securities exchange memberships held by the firm.

The policy is required to name the securities exchange’s investors’protection fund as the co-insured, thus providing a second-level of protection for investors and additional source of funding for the investors’ protection fund. The NSE facilitated restitutions and recoveries of shares worth N1.44 billion to investors under its investors’ protection programme last year.

Under the rules, payments from the insurance policy shall be utilised by the securities exchange’s investors’ protection fund towards compensating investors who have suffered losses on their securities traded on a securities exchange from the occurrence of the risks covered by the insurance policy.

The policy shall include provision that payment under the insurance policy can be made directly to the exchange’s investors’ protection fund which shall compensate investors who have suffered losses or affected dealing member with the prior written consent of the exchange’s investors’ protection fund.

To further guarantee the sanctity of the insurance cover, the insurance policy shall include a provision that it shall not be cancelled, terminated or modified by the stockbroking firm without the prior written consent of the exchange’s investors’ protection fund and SEC.

Where the cancellation, termination or modification is at the instance of the insurance firm, such cancellation, termination or modification shall not be carried out except after written notice by the insurance firm to SEC and exchange’s investors’ protection fund, not less than 60 calendar days prior to the effective date of cancellation, termination or modification.

According to the framework, the insurance policy shall be provided in such reasonable form, terms and under such premium as the fiduciary duties of the officer, employee or sponsored individual require, but with due consideration to all relevant factors, including but not limited to the risks insured, products and services, clientele, the value of the aggregate assets of the stockbroking firm in relation to all its registered functions, to which any officer, employee or sponsored individual may have access, the type and terms of the arrangements made for the custody and safekeeping of assets and securities in the company’s portfolio.


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