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Unlisted Securities in Mutual Funds: Assessing Liquidity Prospects

Mutual funds have long been an investment vehicle for individuals seeking diversification in investments and professional management. Their objectives often revolve around capital appreciation, income, or a combination of both.

In the world of capital markets, choices abound. Typically, securities in Nigeria are traded after being listed on formal exchanges such as Nigerian Exchange Ltd (NGX) or FMDQ securities trading platform. However, there is an option in the form of unlisted security and this option is gaining traction among mutual fund managers. This article explores the implications of integrating unlisted securities in mutual fund portfolios, with a specific focus on their liquidity and the trading dynamics in the NASD OTC Market. It also addresses the legal and regulatory landscape on the trading of unlisted securities in Nigeria.

Understanding Unlisted Securities: Legal and Regulatory Aspects
The meaning of ‘Unlisted Securities’ lies in its name. According to NASDAQ, unlisted security is any security traded in the over-the-counter “OTC” market that is not listed on an organized exchange.[4] In simple terms, unlisted securities are securities such as shares, bonds, stocks, etc. that are sold in places which are not the official market or formal exchanges and away from the immediate regulation of the market regulators. Their appeal lies in reduced bureaucracy, attracting preference over formal stock markets.

Well, it may seem like unlisted securities are freelancers dancing on the edge of regulation, like the Wild West! Unlisted securities, unlike their listed counterparts on prominent exchanges like the Nigerian Exchange Ltd (NGX) or FMDQ securities trading platform, reside in a realm of lesser-known investments. Typically issued by smaller or newer companies that may not meet the stringent listing requirements of major exchanges, these securities offer a unique investment opportunity. Despite their lack of formal listing, unlisted securities can be traded through over-the-counter (OTC) markets, such as the NASD OTC Market in Nigeria, providing investors with access to this alternative asset class.

The National Association of Securities Dealers (NASD) Plc operates as the only licensed OTC operator in Nigeria. Registered by the Securities and Exchange Commission (“SEC”), NASD Plc provides a trading platform where securities instruments not listed on traditional exchanges can be traded through licensed stockbroking houses on the NASD platform…

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