The Central Bank of Nigeria and Securities and Exchange Commission partner to change rules on margin lending

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Nigeria’s Securities and Exchange Commission (SEC) in collaboration with the Central Bank of Nigeria (CBN), will  change the guidelines on margin lending.

The two regulators said they intend to start issuing margin loans in accordance with the new rules they would set.

Speaking during the first quarter of the post-Capital Market Committee (CMC) media briefing, the Acting Director of SEC, Ms Mary Uduk, said the regulators intend to re-include banking shares in the margin list. She explained that the rules guiding margin lending had to change, especially after zero activity was recorded in the sector since the rules were created in 2010.

According to Uduk, “after the meltdown, in 2010, the SEC and CBN came together to come up with rules on margin loan, but after the issuance of the rules, we found out that there was zero activity in respect of margin loan and that is why the market suggested that it appears the rules on margin loan is very stringent”.

She said “in coming up with that rule, probably due to the experience of the past, we excluded banking shares from margin list. We found our from other jurisdictions that you can be given loans to buy banking shares, so because of that we started engaging CBN”.

Margin loan is a type of loan that allows you to borrow money to invest, by using your existing shares, managed funds or cash as security.

A margin loan uses existing shares, managed funds and cash as security. The assets are used to calculate your Loan to Value Ratio (LVR), which determines how much you can borrow.

Once your borrowing limit is established, you can use available funds to purchase further approved investments (shares, managed funds etc), and your new and existing investments are combined to form your total portfolio. Interest on a margin loan is calculated daily, but how it is paid will depend on the loan. Some margin loans allow interest to be paid in advance.

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