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The Capital Market, The Legal Practitioner And The Investor: A Career As A Capital Market Solicitor By: Anthony I. Idigbe San
Definition of Capital Market A place (not physically limited) where people buy and sell securities. A long-term financial market where funds are mobilized and channeled into productive investments for medium and long-term development objectives.
Capital Market Institutions/mechanisms Securities and Exchange Commission (SEC) Central Securities Clearing System (CSCS) Nigerian Stock Exchange (NSE) International Organization of Securities Commission (IOSCO)
Capital Market Operators Issuer (Company) Registrar Stockbroker/Issuing House Reporting Accountant Investor Auditor
Capital Market Operators Cont’d Trustees Solicitor
Securities A bundle of intangible rights sold to the public by companies, authorities or institutions on which people then trade in the capital market.
Functions To provide a forum for companies and other authorities to raise long-term funds at lower costs than the money market for their operations.
Types of Securities or Bundles of Rights Shares Debentures Stocks/Bonds
Two Levels of the Market primary market - where those wishing to raise funds from the stock market sell their securities to the public secondary market - where those who bought the securities in the Initial Public offering (IPO) or in the capital market can sell them anytime they wish
Information Driven Market The purchaser (investor) in reaching his purchase (investment) decision relies on information about the company supplied by the directors or officers of the company and verified by professionals. Information includes projection of the future income flow. There is need for accuracy of the factors upon which these projections are made.
Regulation Both by the regulatory bodies and by the professionals themselves (Self Regulatory Organizations) e. g. CMSA Ensures discipline and good corporate governance Transparency Professionalism Reduction of systemic risks and Maintains market integrity This is in order to protect the interest of investors
The Legal Practitioner Acts in two capacities Solicitor to the Issuer in a public offering of securities, responsible to the company, or Solicitor to the Issue, responsible is to the investing public, or Solicitor to the trustee (where applicable) Conducts litigation before the Investment and Securities Tribunal (IST) These solicitors play different roles in a Public offering.
Functions ensure that issuer is in good legal and regulatory standing with regards to the issue ensure that the company’s MEMART and certificate of incorporation reflects its status as a public company draft the vending, underwriting and other agreements conduct due diligence on the claims and litigations of the issuer and give opinion on their materiality vet the trust deed to ensure conformity with regulatory requirements File all necessary documents
Investor an individual/a company with purchasing power or investible funds, which he wishes to invest in a productive company for either medium/long term development objectives Relies on information given by directors and verified by professionals
Interconnectivity Where a company decides to raise funds from the capital market, they sell their securities in the primary market. The investor with purchasing power but ignorant of the viability of the company relies on the information supplied by the directors of the company and verified by independent professionals before purchasing these securities.
Capital Market Solicitors Association A firm-based self-regulatory organization. Aim - to protect the general interest of solicitors involved in capital market operations/transactions. Creating a platform for Solicitors to effectively participate in the policy and regulation process within the capital market.
Code of Conduct Sets standards of behavior for Solicitors engaged in Capital Market Operations, in order to preserve the integrity of the profession and protect the interests of the investor, the client and the Solicitor. Imposes the obligation to report all cases of fraud and suspected fraud. The standard required of CMSA members is higher than that required of the ordinary solicitor.
Cont’d supplements and should be applied in conjunction with relevant laws, regulations and guidelines applicable to participants within the capital market. sets out requirements, guidelines and minimum standards in respect of the conduct
Becoming A Capital Market Solicitor become a lawyer with an indepth knowledge of company law register as a capital market operator with SEC membership of CMSA
Conclusion when a company wants to raise funds from the capital market, and when an investor wants to invest funds in companies, there is a reliance on the opinion given by professionals, as to the viability or otherwise of the finances of the company. The investor who has funds, which he wishes to invest, and who has no knowledge of the finances of the company, also relies on the verdict.
Cont’d The professionals thus, have a duty to show due professional care and skill, integrity and honesty when carrying out capital market transactions. Thus Issuers going to the market for funds always employ professionals. The professionals should also always carry their duties with due diligence, and the investors should always study this information, preferably with their solicitors before investing in this companies.