EXPOSURE OF DRAFT FRAMEWORK FOR SHORT-TERM COMMODITY –

LINKED NOTES (STCLNs)

LEGEND: Justification in Italics

Name/Citation of the Rule:

Framework for Short-Term Commodity – Linked Notes (STCLNs)

DEFINITIONS
The following terms and expressions shall, unless the context otherwise requires,
have the following meanings:

“Accredited means a Qualified Institutional Investor or an Eligible

Investor” align with Individual Investor who is financially sophisticated as
SEC Rules (RC defined in the commission’s Rules and Regulation
secretariat)

“Compliance means a quarterly report prepared and submitted by

Report” the Issuer (defined below) through its Sponsor (defined
below), confirming compliance with the post-Listing
requirements as provided in this Rule and other
disclosure standards as may be prescribed from time to
time.

“Dealing Member” means a body corporate licensed by the Commodities

Exchanges to trade in securities through any of the
trading systems.

“ISIN” means International Securities Identification Number.

“Listing” means admission of publicly issued Short-Term

Commodity-Linked Notes to trade on a Commodity
Exchange.

“Market Maker means any specialist licensed by the Commodity

Exchange and permitted to act as a dealer, any dealer
acting in the capacity of block positioner, and any

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 dealer who with respect to a security, holds himself out
(by entering quotations in an inter-dealer
communications system or otherwise) as being willing
to buy and sell such security for his own account on a
regular or continuous basis.

“Member” means a duly-licensed member of a Commodity

Exchange.

“Offer Documents” means Prospectus (as defined in these Rules) for the
issue of the Short-Term Commodity-Linked Notes
(STCLNs) including any other documents containing
relevant information to help an investor make an
investment decision. Such documents may include
pricing supplement, programme memorandum or an
equivalent document.

“Platform” means a Commodity Exchange-organized market place

for registration, listing, order execution, trade
reporting, inter alia.

“Programme” means the method of issuance of STCLNs that allows

for multiple Issues covered by a standardized
documentation framework.

“Prospectus” means any written or electronic information, notice,

advertisement or other forms of invitation offering to
the public for subscription or purchase of this STCLNs

“Qualified as defined in the Commission’s Rules and Regulations

Institutional
Investor (QII)”

“Red Herring” means the preliminary Prospectus filed with a

Commodity Exchange for the issue of STCLNs to
Accredited Investors. A Red Herring does not constitute
an offer for sale or an invitation to treat.

“Registration means the process by which an Issuer files

documentation and other disclosure requirements with
a Commodity Exchange detailing the particulars of a

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 proposed issuance of STCLNs with the ultimate aim of
listing those STCLNs on the Commodity Exchange.

“Introducing means a commodity broker sponsoring an Issue of

Broker” Short-Term Commodity-Linked Notes for Listing on a
Commodity Exchange.

“Reverse Enquiry” means a process whereby the investor(s) approach(es)

the Issuer to sell STCLN on the basis of mutually
agreed terms and conditions.

“STCLN Rules” means these Short-Term Commodity-Linked Notes

Registration Process and Listing Rules.

“Short-Term Means commodity-linked Notes with maturities of zero

Commodity-Linked (0) to three (3) years.
Notes (STCLN) or
the Issue”

“Syndication” means a process involving the offer and sale of the

STCLN to a group of intermediaries (such as the lead
issuing house or Underwriter) for onward sale to
investors.

PART A: APPROVAL PROCESS FOR SHORT-TERM COMMODITY-LINKED

NOTES

1. GENERAL RULES

1.1 STCLN shall be reviewed by a Commodity Exchange, and approved by the

Commission, before they are issued and listed on a commodity exchange.
1.2 Applications for the approval of STCLNs shall only be entertained if
sponsored by a duly-SEC-registered Issuing House.
1.3 STCLN may be approved as a single Issue or through a Shelf Programme.
Where the STCLN is issued under a Programme, Issuers through their
Sponsors shall file with the Commodity Exchange, any updated or
supplementary Offer Documents, containing details of the new
series/tranche and material changes, if any

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 1.4 All applications shall be submitted along with the relevant fees as provided
in the SEC-approved fee structure for STCLN.
1.5 STCLN approved by the Commission shall be eligible for listing on a
Commodity Exchange in line with the provision of the SEC Rules and
Regulations.
1.6 A Commodity Exchange shall complete the review of an STCLN application
in not more than five (5) working days, and the Commission shall approve
the reviewed application in not more than two (2) working days based on
the attestation provided by the Commodity Exchange.

2. ELIGIBILITY CRITERIA FOR THE ISSUER

2.1 To qualify for approval of its STCLN, the Issuer shall:

i. be a company duly incorporated under the laws of the Federal Republic
of Nigeria as a public limited company or;
ii. be a corporate entity as maybe determined or permitted by the
Commission;
iii. be in conformity with the contents of its Memorandum and Articles
of Association; and
iv. shareholders’ agreement or other constitutional documents where
applicable.
2.2 The Issuer shall present its latest audited accounts (not being later than
nine (9) months from the last financial year end), provided management
account can be filed under oath where the latest audited account is more
than nine months old.
2.3 The Issuer shall have a valid and subsisting credit rating of a minimum of
investment grade obtained from a credit rating agency registered or
recognized by the Commission.
2.4 The Issuer must have been in operation not less than three (3) years from
the date of application for Registration of the Issue.
2.5 The Issuer shall not exceed the borrowing limits as stipulated in its
MEMART, shareholders’ agreement or its constitutional documents.
2.6 Where the Issuer fails to meet the requirements stipulated in Rules 2.4 and
2.5 above, the Issuer may qualify under any of the following
circumstances:

i. Where the Issuer is an SPV and the sponsor or parent company of

the SPV meets the criteria stipulated in Rules 2.4 and 2.5 above.

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 ii. Where the Issuer provides a guarantee by a corporate entity which
meets the criteria stipulated in Rules 2.4 and 2.5 above, the
guarantor shall provide a full guarantee of all the obligations of the
Issuer under the Issue for the entire period the Issue remains
outstanding.
iii. Where the Issuer provides a guarantee by the Federal Government
of Nigeria or Federal Government agencies of all the obligations of
the Issuer for the entire period the Issue remains outstanding.

3. REQUIREMENTS FOR APPROVAL

The Issuer of an STCLN sought to be approved shall, through its Issuing

house, file an application with the Commodity Exchange. The application
shall be made on an appropriate SEC Form and shall be accompanied by
supporting documents.

The Issuer shall file the following documents with the Commission:

i. Prospectus- The issuer shall file prospectus containing all relevant

information in respect of the issue in line with the requirements of
the Commission’s Rules and Regulations.
ii. Certified true copy (CTC) of the Memorandum and Articles of
Association (including amendments).
iii. CTC of Certificate of Incorporation
iv. Form CAC 2 – (Statement of Share Capital and Return of Allotment)
(where applicable)
v. Form CAC 7 – (Particulars of Directors).
vi. Audited annual reports and accounts covering the last three (3)
years, the most recent not exceeding nine (9) months from the date
of the submission of the application for the Registration of the
Issue, or management account where the latest audited account of
the issuer is more than nine months old.
vii. Valid and subsisting credit rating report of the Issuer obtained from
a credit rating agency registered or recognized by the Commission.
viii. Schedule of all material contracts entered into by the Issuer.
ix. Details of any litigations/claims currently involving the
Issuer/sponsor.

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 x. Confirmation that the issuance of the STCLN does not exceed the
limit of the Issuer’s borrowing powers.
xi. Such other documentation/disclosure as may be required by the
Commission.
xii. Resolution of the board of directors and where applicable, the
resolution of the shareholders of the Issuer, authorizing the
Issue/Programme and the approved amount.
xiii. Draft vending agreement.
xiv. Draft Trust Deed.
xv. Draft Underwriting Agreement (where applicable).
xvi. Notarized letters of consent of all parties named in the Offer
Documents. Where the consent is given through a power of
attorney, the power of attorney shall be executed and stamped.
xvii. Details of any credit enhancement to support the Issue in the form
of Deed of Guarantee or other equivalent document. Provided that
where the Issue is guaranteed by a corporate entity, the following
supporting documentation shall be required by the Exchange:
xviii. Evidence of payment of all relevant SEC fees.
xix. Such other documentation/disclosure as may be required by the
Commission.

4. METHOD OF ISSUANCE

4.1 To qualify for Approval, the STCLN shall be issued through any of the
following methods:

i. Offer for subscription

ii. Auction.
iii. Private Placement.
iv. Syndication.
v. Reverse Enquiry.
vi. Such other method as may be permitted by the Commission.

4.2 Features and Mode of Issue

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 i. The STCLN shall be issued and held in dematerialized form with a
CSD registered/recognized by the Commission.
ii. The Issue shall be tradable in the secondary market and there shall
be no restriction on its transferability.
iii. The Issue shall qualify as an eligible investment for collective
investment schemes such as mutual funds or Exchange Traded
Funds.

4.3 Shelf Programme

i. Where the STCLN is issued under a Shelf Programme, the Issuer

shall have the discretion to issue several tranches of STCLN with
separate maturity dates or re-issue existing STCLN Issues (where
there is no change in the maturity date).
ii. Where the STCLN is issued under a Shelf Programme, the Issuer
shall be required to file subsequent supplementary shelf
prospectus/pricing supplement which shall also be reviewed by the
Exchange, and approved by the Commission.
iii. A Shelf Programme by an issuer shall be effective for a period of
three (3) years from the date it is approved by the Commission and
shall be subject to renewal as may be prescribed by the Rules and
Regulations of the Commission.

4.4 Minimum Size of an Issue

i. The minimum size of an Issue shall be N100,000,000.00 (One

hundred million naira).
ii. However, where the STCLN is issued under a Programme through a
Shelf Programme, the minimum size of the programme shall not be
less than N5,000,000,000.00 (five billion naira).
iii. The aggregate amount of the Issue shall at all times be within the
limit as approved by the Issuer’s board of directors or shareholders.

4.5 Credit Enhancement of an Issue

i. An Issue may be guaranteed (fully or partially) by any of the

following entities:

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 a) Federal Government of Nigeria or Federal Government
agencies
b) CBN-licensed banks
c) Such other category of guarantor as may be recognized by
the Commission.
ii. Where an Issue is guaranteed by a corporate entity, such entity
shall have a valid and subsisting credit rating of a minimum of
investment grade obtained from a credit rating agency registered or
recognized by the Commission.

4.6 Prohibition of Sale of STCLN

i. The Offer of an STCLN at any time before the Commission’s

approval is prohibited.
ii. Failure to comply with the provisions of Rule 4.6 (i) above shall
attract appropriate sanctions including but not limited to
disqualification of the STCLN sought to be registered.

4.7 Guidelines for advertisement of Offers

i. The Issuer or Issuing House shall not publish any advertisement relating
to an STCLN intended to be issued by way of a public offering without
the review of the Exchange and approval of the Commission.
ii. The Issuer shall sign an undertaking not to directly or indirectly release,
during any conference or at any other media, any material or
information which is not contained in the approved Offer Documents.
iii. The information in the advertisement shall be restricted to the
information in the approved Offer Documents.
iv. The information in the advertisement shall be clear, concise, devoid of
any ambiguity and presented in a manner which is easily
understandable to an investor with limited knowledge of
financial/legal parlance.
v. The advertisement shall not include any information which is in violation
of the provisions of the Act and the SEC Rules and Regulations.

4.8 Book Building

i. Where the Issuer opts to undertake a Book Building process for the
purpose of demand and price discovery, the Issuer shall file a Red

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 Herring with the Commodity Exchange along with other relevant
documentation requirements as stated in Rule 3 above for review.
ii. Upon approval of the Offer documents by the Commission, the
Issuer shall commence a Book Building process by circulating the
prospectus to prospective investors along with a letter of invitation
which shall indicate the price range at which the Issue is to be
offered for subscription.
iii. Upon receipt of the orders, the Issuing House and other book
runner(s) – where applicable – shall maintain a record of the
number of the units of the STCLN ordered and the price at which
the investor is willing to subscribe to the STCLN.
iv. The Book Building process shall not exceed one (1) week and the
STCLN shall be offered on the basis of the aggregation of orders
received.
v. Upon the determination of the Issue size, price and coupon rate,
the relevant Offer Documents shall be updated, filed with the
Commodity Exchange for approval by the Commission and
subsequently executed by the parties to the Issue.
vi. Executed Offer Documents shall be filed with the Exchange within
twenty-four (24) hours of the execution of the updated Offer
Documents.

4.9 Allotment

i. Where the STCLN is to be issued through a public offering, upon

conclusion of the Issue, the issuing house shall be required to
provide an allotment proposal which contains list of allottees, bank
statement and consent letter of both the issuer and issuing house
for approval of the Commission, through the exchange. The
Commission shall approve the allotment within two working days
based on the attestation provided by the exchange.

4.10 Parties to an Issue

i. All parties to an Issue shall give their written consent to be named

in the Offer Documents. The written consent letters filed with the
Offer Documents shall be dated, signed and sealed by the parties to
the Issue and filed by the Exchange.

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PART B: LISTING OF SHORT-TERM NOTES

5. LISTING AND POST-LISTING REQUIREMENTS

5.1 Approved Issues are eligible for Listing in accordance with the approved
Listing requirements.

5.2 The Issuer shall execute a written undertaking to comply with the post-
Listing requirements of the Commodity Exchange in the form set out in
Appendix V of these Rules.

5.3 The Commodity Exchange may defer any of the requirements of this part of
the Rules where the Issuer or Issuing House undertakes to regularize its
application within three (3) months of the approval of the STCLN for Listing
on the Exchange or waive the provisions of these Rules where the
Issuer/Issuing House provides concrete justification to satisfy the Commodity
Exchange that such provisions are not applicable or should be exempt.

5.4 STCLN issued in two (2) or more series under a Programme shall be
regarded as separate issuances for the purposes of this part of the Rules.

5.5 Upon the approval of the Listing of the Issue, the Issue shall be registered
and lodged with a CSD recognized by the Commodity Exchange and the
Commission. Upon registration, an ISIN code will be assigned by the CSD in
respect of the STCLN.

5.6 Issuers may be required to appoint one (1) or more Commodity-Linked Bond
Specialists to support the liquidity of its Issue in the secondary market
(where necessary).

5.7 Failure of the Issuer to comply with the provisions of these Rules shall
attract a penalty of not less than N1,000,000 (One million naira) and may
lead to delisting of such STCLN.

5.8 Rating reports in respect of the Issuer and the Issue shall be provided by the
Issuer on an annual basis. For an Issue to remain listed on the Commodity
Exchange, the credit ratings of both the Issuer and the Issue shall not be
lower than investment grade for the entire life of the STCLN.

5.9 The Issuer shall be required to execute a Declaration of Compliance in the

form set out in Appendix VI of these Rules.

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 5.10 The Issuer shall also provide a Letter of Indemnity in the form set out in
Appendix VII of these Rules.

5.11 The Issuing House shall be required to execute a Declaration in respect of

the Issue in the form set out in Appendix VIII of these Rules.

PART C: DUTIES, OBLIGATIONS AND ENFORCEMENT OF THE RULES

6. DUTIES AND OBLIGATIONS OF THE ISSUER

6.1 The Issuer shall be bound by the terms and conditions contained in the
approved Offer Documents

6.2 The Issuer shall provide all investors in the STCLN with relevant information
which shall be disclosed in the Offer Documents.

6.3 The Issuer shall take necessary steps to ensure that it does not default on
payment of principal and interest on the STCLN as and when due to
investors.

6.4 The Issuer shall treat the investors in the STCLN fairly and in accordance
with established terms and conditions of its Offer Documents Rules and
guidelines as may be prescribed by the Commission and the Commodity
Exchange.

6.5 The Issuer shall guarantee that the amount raised from the issue are used
exclusively for the purposes outlined in the approved offer documents.

6.6 The Issuer shall ensure that it obtains and submits to the Commodity
Exchange and the Commission, the annual rating reports for the tenor of the
STCLN

6.7 The Issuer, upon the approval of the Listing by the Commission, shall pay all
applicable fees as provided in the SEC and Exchange - approved fee
structure.

7. DUTIES AND OBLIGATIONS OF THE ISSUING HOUSE

7.1 The Issuing House shall

(i) Verify the accuracy and fairness of the issuer’s disclosures

(ii) Ensure compliance with the specified Rules and Regulations

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(iii) Confirm adherence to any additional guidelines set by the commodity
exchange and the commission.

7.2 The Issuing House shall notify the Commodity Exchange of any
circumstances resulting from omission of a material fact or rendering the
statement of a material fact untrue.

7.3 The Issuing House shall use all reasonable effort to obtain and provide
revised or additional documentation that corrects any false or misleading
information or includes any previously omitted essential facts mentioned in
rule 7.2 above.

7.4 The Issuing House shall file all updated or additional Offer Documents with
respect to each series/tranche, containing details of the material changes, if
any

7.5 The Issuer shall meet all the Listing and post-Listing compliance
requirements as is provided in these

7.6 The Issuing House and the Issuer shall file with the Commission and the
Commodity Exchange their quarterly compliance report not later than 30
days after each quarter

7.7 The Issuing House shall conduct adequate due diligence on the assignments
they undertake related to the offer and distribution of the STCLN to
investors.

7.8 The Issuing house shall submit the necessary information and allotment
report within 48 hours after the book building process is complete, to the
Exchange and the Commission providing a summary of the various groups of
investors in the STCLN.

7.9 The Issuing House shall provide such other information as may be required
by the Commodity Exchange throughout the tenor of the Issue.

7.10 The Issuing House shall be bound by these Rules and all other relevant Rules
and Regulations of the Commission.

8. ENFORCEMENT OF THE RULES

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8.1 The Commodity Exchange shall impose sanctions where it determines that
an Issuer or other relevant party to the Issue has breached listing or trading
rules and shall

(a) File a report with the Commission regarding breaches on registration of

the securities

8.2 A violation of the provisions of these Rules may also result in criminal or civil
liability in accordance with all relevant Nigerian laws and regulation.

8.3 Power to suspend or delist an Issue:

a) Where the Commodity Exchange considers it necessary for the

protection of investors or the maintenance of an orderly market, it may
at any time suspend or delist any Issue in such circumstances and
subject to such conditions as it deems fit. Such conditions include but
not limited to circumstances where:
i. The Issuer fails to comply with the Rules of the Commodity
Exchange and/ or SEC.
ii. The Commodity Exchange considers that the Issuer does not have
satisfactory level of operations or sufficient assets to warrant the
continued Listing of its STCLN.
iii. The Issuer fails to meet corporate governance standards as may be
prescribed by the Rules and Regulations of the Commission, SEC
Corporate Governance Guideline and the Nigerian Code of
Corporate Governance.
iv. The Commodity Exchange considers that the Issue is no longer
suitable for Listing
v. Such other circumstances as the Commodity Exchange may deem
fit to suspend or delist the Issue, subject to the approval of the
Commission.

b) Where an Issuer seeks to suspend its listed security, the request for
suspension must be made by the Issuer and be confirmed in writing
by the Exchange.
c) In all circumstances, the request for suspension must include detailed
justification, specifying;
(i) The reasons for the request
(ii) The desired duration of the suspension
(iii) The nature of the event impacting the issuer’s activities

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 (iv) The current status of the issuer’s activities.
d) Where the issuer fails to take necessary steps to restore listing during
an extended suspension period, the commodity exchange shall delist
the security.
Where the Commodity Exchange considers the Issue no longer
suitable for Listing, the Issuer/Issuing House shall be informed in
writing of the decision. In certain circumstances, the Issuer may be
given an opportunity to take remedial action and resolve any issues
raised by the Commodity Exchange within a stipulated timeframe.
Where the issuer/issuing house fails to take such remedial action
within the stipulated timeframe, the issue shall be delisted.

FEE STRUCTURE

The proposed fee structure is provided in the table below:

FEE TO BE PAID TO

Application/Filing N50, 000 SEC

Fee

Commodities 30%
Exchange
Processing Fee 0.3% of offer size
SEC 70%

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Justification
These Short-Term Commodity-Linked Notes (STCLN) approval process and listing
rules are developed to guide the Issuers, their Sponsors and the investing public on
the requirements and process for the approval of STCLNs. These Rules shall be read
in conjunction with all relevant and applicable laws and regulation relating to the
issuance and listing of commodity-linked bonds in Nigeria. All STCLNs which are
reviewed by Commodities Exchanges and approved by the Commission shall be listed
on the Commodity Exchange.

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