By Chukwuma Umeorah
The NASD OTC Exchange has called on public limited companies (PLCs) to adhere strictly to the Securities and Exchange Commission (SEC) regulation mandating that securities of unlisted public companies be traded exclusively on SEC-registered Over-the-Counter (OTC) Exchanges.
Under the SEC’s rules, the purchase, sale, and transfer of unlisted securities must not occur directly between parties but should only be conducted through a registered OTC Exchange to ensure transparency. This requirement, grounded in the Investment and Securities Act (ISA), obligates companies to register their securities with SEC immediately upon creation. Violators risk penalties, with fines starting at N100,000 for initial infractions and increasing by N5,000 daily for continued non-compliance.
The rule states: “All Securities of unlisted public companies shall be bought, sold or transferred only by means of a system approved by the Commission and under such terms and conditions as the Commission may prescribe from time to time.
“No person shall buy, sell or otherwise transfer securities of an unlisted public company except through the platform of a registered securities exchange established for the purpose of facilitating 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.”
A statement issued by NASD highlights that many unlisted public companies currently fail to comply with this rule, hindering the SEC’s ability to monitor their activities as part of its investor protection mandate.
“If the Rule is enforced by the Commission, it will make the securities of unlisted public companies more accessible to investors and other interested market participants on a trusted platform. This will enhance liquidity of shares for the issuers. Transactions on such securities will no longer be among investors that have contact with the company’s management, minimize underhand dealing in securities, curb fraudulent transactions and boost investor confidence in the capital market,” the statement reads.
Additionally, NASD emphasised the benefits of trading on SEC-registered platforms, noting that it provides an avenue for price discovery through market forces and simplifies portfolio diversification.
“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,” the statement concluded.