The Nigerian Stock Exchange (NSE) has issued a red alert on increasing cyber frauds and scam attempts specifically targeted at the stock market as the Exchange step up its surveillance to protect investors and operators.In a circular to market operators, the NSE stated that it has observed increasing trend of cyber fraud and scam mails being sent by fraudsters and impersonators to stockbroking firms.As part of the measures to checkmate the rising trend of cyber frauds, the NSE said that stockbrokers must ensure compliance with the market standards on identity fraud management and enhanced customer due diligence, otherwise known as Know Your Client (KYC).In the circular signed by NSEs Head, Broker Dealer Regulation, Mr. Olufemi Shobanjo, the Exchange underscored the importance of customer due diligence and immediate report of any suspicious transaction or message to the markets regulators and the law enforcement agencies.The Exchange has observed an increasing trend of cyber fraud and scam mail sent by fraudsters and impersonators to dealing member firms. Dealing members are advised to confirm all client orders or mandates made by fax, telephone (voice or text) or electronic email before execution, the circular stated.According to the NSE, stockbrokers and other operators must also ensure compliance with existing rules by conducting proper KYC on all clients and report suspicious transactions.The Exchange has mulled new policies to tighten the KYC framework in the stock market and stem investors-related frauds. These included the policies on biometric identification and direct payment of cash to investors.Under the biometric identification, individual and institutional investors would have to submit for biometric identification before they could buy or sell shares at the Nigerian stock market.A copy of amendments to rules governing operations and operators at the stock market showed that all stockbrokers will now be required to obtain the biometrics of all their clients in a new rule being proposed by the NSE.In what may have far-reaching implication at the market, NSE indicated biometric identifiers to be obtained shall include finger prints and iris recognition and the information collected shall be applied towards confirming clients identities.While individual investors will have to provide biometrics on every account, corporate entities will provide corporate information as well as biometrics of the authorized signatories to their share trading accounts.No Dealing Member shall open, accept and/or operate a share trading account or otherwise deal in any manner whatsoever, on behalf of any person or entity unless the biometrics of such person or authorised signatories of the entity have been collected by the firm, the new rules stated.According to the proposed rules, any stockbroker that fails to obtain the biometrics of its clients and obtain adequate know-your-client documentation from its clients shall be suspended from trading forthwith until regularisation is effected.Under the direct cash policy, net proceeds of stock market transactions would be sent directly to bank accounts of investors through the Central Securities and Clearing System (CSCS, the clearing and settlement gateway of the market.As against the general practice whereby the payments for investors transactions go into the accounts of the brokers for onward disbursement to their clients, the general practice under the direct cash settlement will be to send the net proceeds direct from the clearing and settlement system straight to the investors accounts while the existing practice of payment through brokers will become exceptional cases.The NSE has already advanced on the framework for the new direct cash payment system, with the rules setting out the framework currently undergoing review for final draft and approval by the Securities and Exchange Commission (SEC).According to the new rules, brokers are mandated to provide their clients bank account details to the CSCS, being the agent of the Exchange for the clearing and settlement of all securities traded on the Automated Trading System (ATS) of the NSE.Settlement of each trade carried out on the ATS shall then be done by direct payment into the clients account as provided to the CSCS.Under the proposed framework, brokers are mandated within three working days of receiving instructions from a client that settlement should be done by direct payment into such clients account to notify the CSCS of the clients instructions and provide the clients account details to the CSCS.Any broker-dealer that fails to notify and provide the account details within the three-day timeline will be liable to a fine of N250,000 in addition to any other penalty which the Exchange may impose, according to the new rules.However, a client that declines direct cash payment into its account provided to the CSCS shall notify the CSCS by completing a direct cash settlement notification form, specially made for that purpose.Also, settlement of transactions carried out on behalf of any client whose account details are not provided to the CSCS shall be done by payment into the account of the clients broker-dealer firm.]]>
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