NASD advocates compliance with SEC rules on unlisted securities

NASD OTC Exchange has urged public limited companies (PLCs) to comply with the rule of the Securities and Exchange Commission (SEC) specifying that securities of unlisted companies be mandatorily traded on a SEC registered Over-the-Counter Exchange.

By the rule, the purchase, sale and transfer of unlisted securities are prohibited for dealing between bilateral parties outside a registered stock exchange to ensure transparency.
Such transactions are to be done on a SEC registered OTC Exchange because the securities of public companies are, by regulation, supposed to be registered with the SEC upon creation.

The Commission reserves the right to sanction erring companies in line with the provision of the Investment and Securities Act (ISA).

The rule stated that all securities of unlisted public companies shall be bought, sold or transferred only using a system approved by the commission and under such terms and conditions as the commission may prescribe from time to time.

“The rule also specified that no person shall buy, sell or otherwise transfer securities of an unlisted public company except through the platform of a registered securities exchange established to facilitate over-the-counter trading of securities.

“Any unlisted public company, director, company secretary, registrar, broker/dealer or such other persons who facilitate the buying, selling or transfers of the securities of an unlisted public company otherwise than through the platform of a duly registered securities exchange, shall be liable to a penalty of not less than N100, 000 in the first instance and not more than N5, 000, for every day of default,” it added.

A statement from NASD indicated that securities of many unlisted public companies are not traded on the SEC-registered OTC Exchange currently which prevents the SEC from monitoring the activities of these companies as part of its investor protection mechanism.

NASD noted that if the rule is enforced by the commission, it would make the securities of unlisted public companies more accessible to investors and other market participants on a trusted platform as well as enhance liquidity of shares for the issuers.

Also, transactions on such securities will no longer be among investors that have contact with the company’s management as they would help minimize underhand dealing in securities, curb fraudulent transactions and boost investors’ confidence.

“The SEC-registered OTC Exchange Platform provides an opportunity for price discovery through the interplay of market forces. The rule also enhances portfolio diversification with ease as equity investors can easily access securities from different sectors of the economy,” said the statement.