Dear Dr. Emomotimi Agama,
I wish to state, by way of caveat, that I do not consider the 2015 minimum capital requirements for capital market operators in Nigeria to remain adequate for the business environment of 2026. Economic, financial, and market indices have evolved significantly over the past decade, even if this reality has yet to receive public acknowledgment. What has now become the elephant in the room is not the need for reform itself, but the staggering scale of the increase, running as high as 3,340 percent, combined with certain areas that need more clarification in the newly announced capital requirements by the Securities and Exchange Commission (SEC), scheduled to take effect in June next year. Key concerns include the crowding-out impact on broker-dealers and the undue risk imposed on asset management firms and portfolio managers who, by regulation, do not hold clients’ funds directly, as these must remain with designated custodians.
As Director General of the SEC, it is evident that regulation is seldom comfortable, particularly amid heightened expectations and intense scrutiny. It is therefore understandable that the Commission faces considerable pressure to deepen Nigeria’s market globalisation credentials, strengthen investor protection, and enhance trust in the capital market. In your recent interview on Arise Television, you succinctly articulated the Commission’s rationale: “We are not looking to punish operators; we are looking to protect investors. A weak intermediary is a threat to the entire ecosystem.” While this assertion is broadly factual, it is not definitive.
Unlike banking and insurance sectors, characterised by balance-sheet risk, leverage, and maturity mismatches, capital market intermediation is largely agency-based and anchored on intangible assets, especially integrity. Brokers and dealers primarily execute transactions; they do not warehouse risk in the manner of banks. While it may be argued that, in Dollar terms, the new capital requirements are not excessive, recapitalisation in this context nonetheless demands a delicate balance. Clearly, the risks borne by market operators are relative rather than absolute. The polemic question therefore remains: what level of capital is truly sufficient for intermediaries whose principal function is execution and settlement, as opposed to risk transformation?
This question is especially critical for retail brokers. Fewer than 10 percent of dealing member firms on the Nigerian Exchange Limited (NGX), the fat cats, consistently account for over 60 percent of total market value traded. These firms possess deep financial muscle, service high-net-worth individuals and foreign portfolio investors and operate comfortably at the premium end of the market. But who serves the retail investor in the hinterland? Who markets the capital market to first-time investors with modest entry capital? Who explains equities to teachers, civil servants, artisans, and young graduates opening their first brokerage accounts? The answer is the foot soldiers: retail stockbrokers.
History underscores their importance. In 1999, during our administration at the defunct Nigerian Stock Exchange, we introduced the Annual National Essay Competition for secondary schools and tertiary institutions, starting in Lagos before going national the following year. The objective was simple but strategic: to inculcate a culture of saving and investing early, in the belief that some participants could become the Warren Buffetts of tomorrow. Parents were encouraged to buy shares as gifts to catch them young. That vision continues through NGX programmes today. Yet one must ask: can the fat cats service this demographic? How many of the super-rich even trade their own shares regularly?
The reality is that daily transactions by minority investors sustain the market, enhance price discovery, and support liquidity. Retail stockbrokers’ aggregate trades from millions of individuals, ensuring continuous buy-and-sell activity across market cycles. Regulatory frameworks prevent them from having direct access to clients’ shares, while the T+2 settlement cycle and direct cash settlement system fully protect investors against unauthorised sales or misappropriation of funds. Retail investors contribute diversity in motivation and investment horizons, which helps to dampen herding behaviour and provide natural counterflows during periods of market stress. Within the capital market value chain, retail stockbrokers therefore serve as essential conduits for this stabilising activity.
Excessive capital requirements risk undermining this ecosystem. While prudential regulation is necessary, applying bank-like standards to low-risk, agency-based retail brokers raises costs without commensurate systemic benefits. The unintended consequence is market concentration, as smaller and mid-sized brokers may exit or consolidate, reducing competition, innovation, and access. Fewer brokers mean fewer entry points for retail investors, higher transaction costs, and, paradoxically, more fragile liquidity.
Mergers are often presented as a solution, but their limitations must be acknowledged. Consolidation is complex and time-consuming, and when driven primarily by regulatory pressure rather than strategic fit, it can destroy value. Differences in culture, client base, systems, and legacy liabilities may weaken service delivery and reduce competition, particularly in the retail segment, without necessarily improving market stability.
Global best practice points in the opposite direction. Leading exchanges such as the New York Stock Exchange (NYSE), Nasdaq, the London Stock Exchange, Japan Exchange Group (JPX), and Hong Kong Exchanges and Clearing Limited (HKEX) explicitly recognise retail brokers as essential to market depth and resilience. Their market structures, pricing models, and regulatory frameworks are designed to encourage retail-focused intermediaries rather than marginalise them. Vibrant markets require broad participation; liquidity is not generated solely by institutional giants.
While the Commission’s objective is to enhance market competitiveness, it should not disregard stakeholder feedback. There remains ample time to fine-tune the framework and provide necessary clarifications ahead of the June 2027 rollout. Regulation must be risk-sensitive and proportionate. Investor protection is best achieved by strengthening intermediaries in ways that preserve inclusion, competition, and liquidity. Anything less risks addressing one problem while quietly creating several others.
•Oni, an Integrated Communications Strategist, Chartered Stockbroker, Commodities Broker, and Capital Market Registrar, is the Chief Executive Officer of Sofunix Investment and Communications.
