- 10 Marks
Question
The financial sector is one of the most highly regulated sectors of any country. Notably, each industry under the financial sector has a special regulatory framework consisting of statutes to shape the conduct of participants in the industry and a regulator to foresee compliance and promote fairness and efficiency.
Required: i) Describe THREE (3) functions the Securities and Exchange Commission of Ghana (SEC) is expected to perform towards achieving fairness and efficiency in the securities industry. (6 marks)
ii) Explain TWO (2) implications of the regulatory functions of the SEC for corporate investing and financing activities. (4 marks)
Answer
i) Functions of the SEC of Ghana The SEC of Ghana is expected to perform the following functions:
- to advise the Minister responsible for Finance on all matter relating to the securities industry
- to maintain surveillance over activities in securities to ensure orderly, fair and equitable dealings in securities;
- to register, licence, authorise or regulate stock exchanges, investment advisers, unit trust schemes, mutual funds, securities dealers, and their agents and to control and supervise their activities with a view to maintaining proper standards of conduct and acceptable practices in the securities business;
- to formulate principles for the guidance of the industry;
- to monitor the solvency of licence holders and take measures to protect the interest of customers where the solvency of any such licence holder is in doubt;
- to protect the integrity of the securities market against any abuses arising from the practice of insider trading;
- to adopt measures to minimize and supervise any conflict of interests that may arise for dealers;
- to review, approve and regulate takeovers, mergers, acquisitions and all forms of business combinations;
- to examine and approve of the new issue of securities on the stock exchange (i.e., IPO);
- to create the necessary atmosphere for the orderly growth and development of the capital market;
[3 functions @ 2 marks each = 6 marks]
ii) Implications of the regulatory functions of SEC for corporate financing decisions The regulatory functions of the SEC have the following implications for corporate financing:
- When making securities offers, companies must ensure that the offer is fair and equitable. For instance, all potential buyers must be treated equally, and communications relating to the offer should be true and fair.
- The company, its members, and directors cannot trade securities based on insider information.
- The company cannot engage in any form of business combination without the approval of the SEC.
- The company will need approval from the SEC when making an IPO.
[Marks allocation: 2 implications @ 2 marks each = 4 marks]
- Topic: Economic and regulatory environment
- Series: NOV 2019
- Uploader: Theophilus