SEC Proposes New Rules to Regulate Derivatives Trading

By Dipo Olowookere

The Securities and Exchange Commission (SEC) has proposed new rules to guide the trading of derivatives in the local capital market.

To get all stakeholders involved in the draft of the guidelines, the apex regulatory agency has asked them to send in their inputs.

According to SEC, these proposed changes affect derivatives trading and registration requirements for commodity brokers.

It disclosed that the rules will apply to Exchange Traded Derivatives and OTC Derivatives, pointing out that an application for registration of a contract shall be filed with the commission by or on behalf of an exchange with some documents, including SEC Form, Name of the Contract, Type of Contract, Listing Day, Expiry Day and others.

SEC further proposed that the contract must pass an economic test that will be determined by the Commission from time to time.

Under the proposed new rules, no participant or any capital market operator shall trade in Exchange Traded Derivatives without the prior registration by the Commission.

“Funds shall only invest in derivatives if it is expressly stated in their Trust Deeds.

“Where an underlying security is suspended from trading or delisted, contracts on such underlying shall cease to trade.

“Exchange Traded Derivatives can only be traded on Exchanges recognized by the Commission,” the agency said.

It further disclosed that, “All Exchange Traded Derivatives Contracts shall be cleared by a recognized CCP.

“All standardized OTC Derivatives Contracts shall be cleared by a recognized CCP

“The Commission shall issue guidelines on standardized OTC Derivatives Contracts from time to time.

“Clearing derivatives shall be in line with the the provisions of the Act, SEC Rules and Regulations, and the rules of the relevant CCP.

“Where physical delivery is required, the Exchange and/or the CCP shall make adequate arrangement for such delivery and ensure compliance with specification.

“The arrangements referred to in number 5 above shall include place, time, quantity and quality and any other specifications as contained in the contract.”

SEC also said no persons shall trade on Exchange Traded Derivatives either for proprietary accounts or on behalf of clients except entities registered as Derivatives Trading Members and/or Derivatives Clearing Members.

In addition, “No persons shall clear Exchange Traded Derivatives or OTC Derivatives except entities registered as Derivatives Clearing Members.

“Participants shall promptly provide complete and accurate information about clients and their trading activities to the Commission as the need arises in accordance with the Act and SEC Rules and Regulations.

“Participants shall comply with all relevant provisions of the Act and SEC Rules and Regulations, whether or not expressly stated in these regulations.”

The agency said those who want to comment on the proposed new rules should forward them to the Secretariat, Rules Committee of the Commission via or through the Ag. DG, SEC, not later than two (2) weeks from the date of this post.

View the full draft below

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via

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