Nigeria’s Securities and Exchange Commission (SEC) has directed fund managers to adopt mark-to-market (MTM) valuation for bonds, replacing the long-standing practice of using historical cost accounting. The move, confirmed by the regulator on Monday, marks a pivotal shift toward greater transparency in the country’s fixed income market, aligning Nigerian asset pricing with global standards and enhancing comparability for domestic and international investors.
Known as SEC mark-to-market Nigeria, this new framework requires that bonds be valued based on current market prices rather than their original purchase cost, reflecting real-time fluctuations driven by interest rates, credit risk, and broader economic conditions. Analysts say the change will improve pricing accuracy and liquidity—key considerations for portfolio managers assessing Nigeria’s emerging market potential—but also introduces new volatility previously masked under the hold-to-maturity model.
“Fund prices could now fluctuate with the market, which means potential losses that weren’t visible before,” said Niyi Falade, Executive Director at Custodian Investment Plc. “Bond prices haven’t reflected actual market movements, but with this change, there will be ups and downs as interest rates shift. That introduces volatility.”
Under the new rules, fund managers have until September 2027 to fully transition to MTM accounting for fixed income securities. To ease the shift, the SEC has temporarily relaxed asset-allocation requirements, allowing a 50:50 split between MTM-valued assets and those measured at amortized cost—down from the previous 70:30 ratio. However, all new bond purchases must be immediately valued using the mark-to-market method, ensuring that fresh investments reflect prevailing market dynamics.
The commission has also required that every fund manager submit a detailed implementation plan by October 2, outlining how they intend to comply with the new valuation framework before the transition period ends. This structured approach aims to prevent systemic shocks while encouraging accountability and preparedness across the investment management sector.
The directive arrives amid broader macroeconomic reforms under President Bola Tinubu, including exchange rate liberalization and the removal of fuel subsidies—measures that have begun to restore investor confidence after years of capital outflows. By modernizing financial reporting standards, the SEC is laying the foundation for deeper capital markets and improved integration with global investment flows.
MTM accounting, widely used in advanced economies, enhances the reliability of net asset value (NAV) calculations, enabling investors to make more informed decisions. It also supports better risk assessment, particularly in volatile environments where interest rate shifts can significantly impact bond valuations.
While some market participants may face short-term challenges adjusting to increased price swings, regulators argue that the long-term benefits—transparency, efficiency, and trust—are essential for sustainable growth. As Nigeria seeks to attract institutional capital and deepen its financial ecosystem, moves like the SEC mark-to-market Nigeria policy signal a commitment to structural integrity over artificial stability.
With implementation underway, the next phase will test both technical readiness and investor education—ensuring that stakeholders understand not just the mechanics of the change, but its role in building a more resilient and credible capital market.
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