Daily performance of major economic indicators and highlights from tradings sessions and key statistics such as Treasury Bills, bonds, FX rates, inflation, oil price.
Funding Rates Close Stable as FAAC Inflows Bolster System Liquidity
***FG plans to borrow N1.6tn in 2019*** — DMO
The FGN Bond market traded slightly bearish as selling interests persisted on the mid to long end of the curve. We however witnessed slight demand on the short end of the curve (2022s), with yields ending the session c.4bps higher on the day.
We expect the market to remain relatively quiet going into the new week, with market players speculating on the possibility for increased supply of bonds in the new quarter.
The T-bills market remained relatively flat despite the continued absence of an OMO auction by the CBN. Trades were mostly order driven and on the mid to long end of the curve, with yields marginally lower by c.3bps on the day.
Market players have maintained a cautions stance in anticipation of a renewed OMO auction by the CBN, given the inflows from FAAC payments which have bolstered system liquidty levels. We consequently expect the market to be relatively stable in the near term, baring a continued hold off on OMO which could taper rates slightly lower.
Rates in the money market remained relatively stable as the CBN held off on OMO, while inflows from FAAC payments (c.N300bn) helped moderate funding pressures from the retail FX provisioning by banks. The OBB and OVN rates consequently ended the session at 9.86% and 10.67%, with system liquidity estimated at c.N200bn closing the week.
We expect rates to remain relatively stable opening the new week, barring a significant OMO sale by the CBN.
At the Interbank, the Naira/USD rate remained unchanged at N306.95/$ (spot) and N355.78/$ (SMIS). The NAFEX closing rate in the I&E window appreciated by 0.03% to N360.68/$, as market turnover rose higher by 77% to $359m. At the parallel market, the cash rate appreciated markedly by 0.22% to N357.50/$ whilst the transfer rate remained unchanged at N364.00/$.
The NGERIA Sovereigns turned bullish in today’s session, with renewed interests witnessed mostly on the long end of the curve. Yields were consequently lower by c.13bps on the day
In the NGERIA Corps, Investors remained bullish on the ZENITH and FIDBAN 22s, while they turned slightly bearish on the ACCESS 21s sub and FBNNL 21s.
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SEC publishes new Crowd Funding Regulations limiting investment to 10% of income
SEC Nigeria recently published new rules intended to regulate crowdfunding.
The Securities and Exchange Commission, SEC, has issued updated guidelines and rules governing the operation of Crowd Funding activities in Nigeria.
This follows an exposure draft issued in May 2020 as reported by Nairametrics.
Key Highlights of the new SEC regulations
- SEC introduced Crowd Funding Intermediaries who will facilitate crowdfunding transactions such as offer for sale of securities or instruments through its portal.
- This means anyone seeking to raise money through a crowdfunding service will have to go through a Crowd Funding Intermediary (CFI).
- Thus, a fundraiser (the initiator of the fund) will need to go through a CFI web portal to raise capital
- The new rules also limit the amount retail investors can invest in a crowdfunding transaction to just 10% of their net annual income in a year.
- This means individuals cannot invest more than 10% of their net salaries in crowdfunding activities. But this excludes High Networth Individuals who do not have limits.
Information contained in the regulation highlights
In summary, this is SEC Nigeria’s attempt to provide a framework around who can participate in crowdfunding issuances, drive increased transparency around Crowdfunding issues AND create more accountability to investors.
Specifically, the new rules specify the following four (4) participants in a crowdfunding issuance.
- Fundraiser, Crowd-Funding Intermediary, Investors, and Custodians.
- There is also a provision for applications for a self-regulatory trade association to facilitate Crowdfunding supervision.
Definitions of the participants per the new rule
- Fundraiser: refers to the originator, maker, or obligor of the investment instrument to be issued pursuant to these Rules.
- Crowdfunding Intermediary (CFI): An entity organized and registered as a corporation to facilitate transactions involving the offer or sale of securities or investment instruments through a Crowdfunding Portal (CFP);
- Investors: As defined by the act; relates to end takers of the instruments and products from the crowdfunding issue. The SEC attempts to differentiate between High-net-worth individuals, Retail Investors, and Qualified Institutional Investors.
- Custodians are the banks who will hold the funds contributed on behalf of the parties.
The four categories of participants specified in the rule are required to register with the SEC for purposes of taking part in Crowd Funding activities. Whereby the SEC will approve or reject registration requests depending on the eligibility criteria as outlined in the new rules on Crowdfunding.
The eligibility criteria vary by participant type. As an example,
- Fundraisers must be entities incorporated in Nigeria and have been in operation for at least two years. Or have technical partners who meet the 2-year operating track record requirement.
- Crowdfunding Intermediaries have a lot more onerous set of requirements for registration. This is because these intermediaries are the core participants saddled with creating and operating crowdfunding portals (i.e., Platforms/marketplace for the crowdfunding issue).
- Notably, both the Crowdfunding intermediaries and the actual Crowdfunding platforms need to be registered.
- Custodians: As the name implies will facilitate the aggregation of funds deposited and only release to the Fundraiser subject to the criteria of each issuance being met.
Workflow highlights for each Crowd Funding issuance
- The workflow highlights for each crowdfunding issue include
- Fundraisers need to engage a Crowdfunding Intermediary (CFIs) to facilitate the pooling of funds from investors via the approved Crowdfunding Portals (CFPs).
- These CFIs will ensure that there are sufficient disclosures by Fundraisers to Investors about the purpose and use of funds.
Notably the new rules prohibit misleading information to investors.
- The amounts being raised will be safe kept at a Custodian for the duration of the fund-raising window and released to the Fundraiser subject to meeting criteria.
- Crowdfunding Intermediaries and the Portals are required to provide a plethora of information to both SEC and Investors. The portals also help ensure compliance with approved guidelines (e.g. not exceeding target amounts approved for each issuance)
- The new rule on Crowdfunding is a welcome development. Specifically, the introduction of technology portals to enhance disclosures about funds should bring more transparency into the sector and facilitate investor due diligence.
- Furthermore, the introduction of eligibility criteria for the various participants should serve to increase accountability whereby Fundraisers will need to provide increased levels of assurance with regards to the use of funds whilst Crowdfunding intermediaries will be keen to facilitate investor due diligence as they seek to protect their reputation and prevent censure from the SEC.
- One observation however is that the new SEC rule is not explicit about the issue of recovering investor funds in the event of registered entities failing. This may explain why the SEC is keen to differentiate between classes of investors (i.e. High-net-worth, Institutional investor, and Retail investor) and then further require that retail investors, who are arguably the most vulnerable to financial shocks, do not invest more than 10% of their annual income in these schemes.
Download New SEC Nigeria Guidelines for Crowdfunding
$70 billion lost in Crypto market amid rising U.S dollar
Other leading crypto assets including Ethereum, Cardano, Litcoin, Chainlink, Polkadot, and Stellar lost more than 8% in value.
The crypto market just lost about $70 billion, as significant selling pressure from crypto sellers pushed the value of cryptocurrencies lower across the market spectrum amid the rising U.S dollar and some profit-taking.
- The global crypto market value is $930.47 billion, a 5.61% decrease over the last day.
- The U.S dollar was fired up as it recorded impressive gains at the Tuesday trading session in London taking into account some investors are fast becoming jittery on rising COVID-19 caseloads globally.
- At press time, the U.S. Dollar Index that tracks the greenback against a basket of major currencies ticked up by 0.20% to 90.555
At the time of drafting this report, about $70 billion in value was virtually wiped out, taking into account the flagship crypto, Bitcoin, the dominant player in the crypto market, lost as much as $2,000, according to data retrieved from Coin360.
- The total crypto market volume over the last 24 hours is $131.42 billion, which amounts to a 2.07% increase.
- The total volume in DeFi is currently $15.68 billion, 11.93% of the total crypto market 24-hour volume.
- The volume of all stable coins is now $105.17 Billion, which is 80.03% of the total crypto market 24-hour volume.
Bitcoin’s price is currently $31,398.04.
- Bitcoin’s dominance is currently 62.74%, a decrease of 0.01% over the day.
Other leading crypto assets including Ethereum, Cardano, Litcoin, Chainlink, Polkadot, and Stellar lost more than 8% in value.
Crypto experts interviewed by Nairametrics are saying that a market correction was long overdue after the overextended bullish move.
The bearish trend prevailing at the bitcoin market is largely attributed to a significant amount of profit-taking in play, coupled with the strong rebound in the U.S dollar
Understanding how Mutual Funds and ETFs work in Nigeria
This article sets to answer all your questions about Mutual Funds and Exchange Traded Funds.
Mutual Funds (MF) and Exchange Traded Funds (ETFs) are amongst the fastest growing asset classes in Nigeria. Broadly they are both classified as Collectives Schemes and are similar in many aspects yet are also different in operations.
Mutual Funds (MF) have been in existence for a long time. Mutual Funds are pools of funds created with the intent to pooling funds from various investors and buying assets. MF allows those investors to own the wide range of assets that the MF own, thus achieving diversification with a lower cost.
Dutch merchant, Adriaan van Ketwich is credited with the first investment trust in 1774 under the name “unity creates strength”. The first mutual fund to include bonds and shares was the Wellington Fund which was set up in 1929.
Nigeria’s oldest mutual fund, the Chapel Hill Denham Paramount Equity Fund has been in operation since 1991. The Security and Exchange Commission published the Nigerian Net Asset Valuation (NAV) Summary Report which found that there are 106 mutual funds in Nigeria with a total asset value of $3,714,013,444.
Exchange Traded Funds (ETFs) are a more recent asset class in Nigeria. (ETFs) are securities that track the performance of an index or basket of assets. There are about 12 listed ETFs on the Nigerian Stock Exchange
What are Mutual Funds and ETFs?
Think of mutual funds as a savings pot where you and your friends save excess cash and subsequently invest that entire savings in a specific way, maybe to buy a cow for Christmas. Imagine if your group of friends decided to allow everyone in your town to join your investing club and contribute to buying cows. The funds then become so larger that you employ an asset manager to oversee the administration of the cows, and you simply create a company that will also offer cows, goats, and lambs. Thus, contributors can join your club and receive goat, lamb, and cow meat without having to buy actual cows or goats.
This is exactly how mutual funds work. A company like Stanbic IBTC creates an investment fund just like those friends, but instead of cows, they invest in bonds, money markets, equity, and other financial instruments. By buying shares in just that StanbicIBTC fund, you own a part of whatever the fund owns. This is s cheaper way for you to participate in the broad market, without having to buy every single investment.
Are Mutual Funds similar to ETFs?
In similarities, both offer investors a low-cost way to diversify holdings by selecting specific sectors, geographical regions, or risk profiles. For example, both MF and ETFs allow investors to buy country-specific investments e.g., the Vertiva Griffin 30 EFT and the Global X MSCI Nigeria ETF that invests in only Nigerian equity.
How do they differ?
In terms of differences, MF cannot be traded during the trading, an investor must wait for the close of business to calculate the Net Asset Value of the mutual fund and then place an order to buy or sell. ETFs on the other hand allow trading during the day.
Why buy collective schemes, why not invest directly?
The collective investment schemes have been embraced by Nigerians because of their greater promise of yield and diversification. These funds have offered retail investors the ability to earn a higher return on mostly money market investment, much higher than placing funds in banks. This preference for collective schemes has also been highlighted by the fall in yields offered by the risk-free Federal Government binds.
About 69% percent of the total assets of mutual funds are invested in money market funds. 9% in Eurobond funds, 7% in bond funds. In simple terms, by investing with others in a fund, the individual investor can access investment management which increases his chances to gain superior returns.
The future for ETFs and Mutual Funds
These asset classes will continue to grow in AuM as investors become more sophisticated and price-conscious. ETFs, especially Index ETFs offer sales commissions at a fraction of the brokerage cost. Also, FinTech’s automation of the asset allocation process has allowed more fund options to match individual choices.