The Securities and Exchange Commission (SEC) has approved a two-year transition period for fund managers to fully comply with the mark-to-market valuation methodology for fixed income securities.
Starting this week, fund managers are now required to adopt a hybrid valuation model, under which newly acquired fixed income securities will be valued at mark-to-market, while existing assets may be partially valued using amortised cost.
This is inline with directives outlined in Schedule VI of the SEC Rules on Collective Investment Schemes (December 2019).
For instance, this will allow fund managers value bonds based on current market prices rather than their original purchase cost.
The mark-to-market valuation is aimed at improving transparency and aligning asset values with real-time market conditions and will make Nigerian fixed income assets more easily comparable with global benchmarks.
According to the release signed by Mr Tarfa Makyur, the Head of the Monitoring Department, the commission approved a two-year transition period to enable Fund Managers to fully implement the mark-to-market valuation methodology for fixed income securities.
The regulator noted that during the transition period, Fund Managers are to adopt a hybrid valuation methodology in which part of the securities would be valued at mark to market and others at amortised cost.
It added that all new fixed-income securities must be valued at mark-to-market.
According to the SEC, the size of the assets valued at mark to market would be increased gradually and steadily until full compliance is achieved within the stipulated two-year period.
It also granted a temporary forbearance on the asset allocation threshold for Fixed Income Funds, moving from a 70 per cent :30 per cent ratio to a range of 50 per cent :50 per cent.
To effectively drive this, the commission, in collaboration with FMAN and all stakeholders, will immediately carry out an intense investor education and awareness campaign prior to the full implementation of the mark-to-market valuation methodology.
The SEC urged all affected fund managers to submit a comprehensive implementation plan to comply with the two-year transition period.
This plan, it said, must be submitted to the commission on or before October 2, 2025.