The Securities and Exchange Commission (SEC) has proposed new rules for online foreign exchange and contracts for difference (CFD) trading, with capital requirements ranging from N30 million to N5 billion and tighter oversight of both local and offshore operators targeting Nigerian investors.

Under the proposed Rules on Online Forex Trading and Contracts for Difference, operators offering online forex services to Nigerian residents will be required to register with SEC.

The framework covers forex brokers, introducing brokers, technology and platform providers, as well as offshore firms that market their services to Nigerians or allow residents to open trading accounts.

Market-making or principal-operator brokers will be required to maintain minimum paid-up capital of N3 billion, while brokers operating under the straight-through processing (STP) or electronic communication network (ECN) models will require N2 billion.

Technology and platform providers will face a N5 billion capital requirement, while individual and corporate introducing brokers will require N30 million and N150 million, respectively.

The proposed rules also require brokers to maintain minimum liquid capital of N2.4 billion or 10 per cent of total liabilities, whichever is higher, for market-making operators. STP and ECN brokers will be required to maintain N1.6 billion or 10 per cent of total liabilities, whichever is higher.

The SEC is also proposing stronger protection for clients’ funds, requiring brokers to keep customers’ money in segregated accounts separate from their own funds. The funds must be reconciled daily and cannot be used for brokers’ operating expenses, hedging or margining.

According to the commission, retail clients will be subject to leverage limits of 1:400 for major currency pairs and 1:300 for minor and exotic currency pairs, indices and commodities. Cryptocurrency products will have a maximum leverage of 1:2, while professional clients may receive leverage of up to 1:1000, subject to appropriate risk controls.

The rules will also introduce negative balance protection, ensuring that retail clients cannot lose more than the funds in their trading accounts. Brokers will be required to close positions when a retail client’s equity falls to 50 per cent or less of the margin required to maintain the positions.

Trading in currency pairs involving the naira will require prior written approval from the SEC, while binary options and contracts with maturities of less than one hour will be prohibited.

In addition, the proposed framework further tightens marketing practices, requiring advertisements to be fair, clear and not misleading. Profit claims must be accompanied by prominent risk warnings, while the use of celebrities and social media influencers will require SEC approval. Cold-calling retail clients who have not expressed interest will also be prohibited.

Operators will be required to disclose the percentage of retail accounts that lose money, update the information monthly and provide comprehensive risk disclosures before clients begin trading.

CFD brokers will also be required to submit daily price-spread reports to the SEC by 10:00 a.m. on the next business day, while technology and platform providers must maintain at least 99.5 per cent uptime during trading hours and report material cybersecurity breaches or system failures within 24 hours.

The proposed rules provide that any person offering or advertising online forex services to Nigerians without registration will be treated as an illegal operator. Failure by a licensed broker to comply with retail leverage limits or negative balance protection will attract a minimum penalty of N1 million per affected client.

Existing operators will have three months from the commencement of the rules to submit registration applications and six months to comply fully with the requirements.