LEGAL VIEWPOINT: Guidelines for investing in securities

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A frequent question that comes every now and then from many individuals or potential investors is, what do we mean when we say, investment in securities? We could say that any investment in any of the mentioned items could be categorized or defined as investment in securities. That is to say, buying or selling of shares in joint stock companies, dealings in debentures or other types of acknowledgments of debt with the exemption of purchase price credits, cheques, bank deposits, leases and insurances, dealings in warrants to subscribe for shares of debentures, dealings and handling depositing receipts offered by depositors in banks, in collective investment schemes, in options for investments, currency and metals, future contracts for investments excluding ordinary commercial contracts, dealings in contracts for differences such as index contracts, dealings in long-term insurance contracts (excluding death and incapacity insurance and reinsurance), dealings in rights and interests in investments, in derivatives including commodities.

Any transaction in any of above categories constitutes investment in securities (most cases apply to commodities also). In this connection, an investment business in securities includes, dealing in investments by buying, selling subscribing, under writing… whether as principal or agent (broker), arranging deals in investments excluding, inter alia, money lending, arranging finance for deals and deals by authorized businesses, managing investments on a discretionary basis, advising on the merits of particular investments excluding advice in the ordinary media but not designed investment tip-sheets, establishing, operating or winding-up collective investment schemes, including acting as a trustee.

No authorization is required to buy or sell securities for one’s own account unless the buyer or seller is a market maker or holds himself out as a dealer in securities and he regularly solicits members of the public who are not

investment professionals to buy or sell securities. Due to the fact that investment in securities requires certain experience, therefore potential investors are required to undertake this actively through authorized and licensed brokers (agents). Almost all jurisdictions have a system of licensing of dealers in securities and other providers of investment services and investment advising services (investment advisers). Licenses are given on certain basis including the financial record of the service provider, his financial integrity, good conduct, competence and, sometimes, business experience. All related statutes and regulations stipulate for certain guidelines to regulate investment businesses subject to various conduct of business rules that are designed to protect the investors through certain financial supervision. Based on this, no person or entity is allowed to carry on investment business on behalf of others unless he is authorized from the competent authority, or he is exempted by law to carry investments without such authorization (this applies in case of Ministry of Finance, or the Central Bank…).

Contravention of the law or acting without obtaining the necessary license or authority is a criminal offence and civil breach. Moreover, business done through an unauthorized person is unenforceable against other party. This means that potential investors should make sure that they are doing their investments through licensed authorized agents (carrying on an investment business from a permanent place of business) otherwise they many have weak legal grounds in case of any disputes against third parties. Moreover, persons acting as agents or brokers without obtaining the required license could subject them to penalties and facing criminal charges unless they are exempted by the law. The exempted persons could include appointed representatives i.e., persons appointed by authorized personnel to market the services of authorized persons. Also listed money market institutions are exempted. Be careful.

Source: Dr. AbdelGadir – Legal Counsel / AfricaNewsAnalysis