In a Key Reform, SEC Nigeria Adopts ‘Mark-to-Market’ for Bonds

The Securities and Exchange Commission (SEC) of Nigeria has approved a two-year transition period, starting September 22, 2025, for fund managers to fully adopt mark-to-market valuation of fixed income securities.

This means that instead of valuing bonds at their purchase price (amortized cost), managers will gradually shift to valuing them at their current market price, which reflects the true and up-to-date value of the assets.

As part of the transition, the SEC Nigeria has also granted temporary forbearance on asset-allocation rules.

• Normally, funds must keep a 70:30 split between mark-to-market and amortized cost, but for the next two years, managers can work with a more flexible 50:50 balance to ease the adjustment process.
• While this hybrid method is permitted, all new fixed income purchases must immediately be valued on a mark-to-market basis.

To ensure accountability, every fund manager is required to submit an implementation plan to the SEC by October 2, 2025, showing how they intend to achieve full compliance before the grace period ends.

Explanation:

• Bonds are recorded on the balance sheet at their fair value based on the price they would fetch if sold in the market today.

• This value fluctuates over time due to changes in interest rates, credit risk, and market demand.

• MTM accounting provides a real-time snapshot of the bond’s worth, ensuring financial statements reflect current economic conditions.

• Gains or losses from changes in bond value are often recorded as unrealized gains or losses until the bonds are sold.

• This approach improves transparency but can introduce volatility in financial results during fluctuating markets.

Why It Matters:

• For investors firms holding bonds, MTM valuation captures the impact of market movements immediately, affecting reported earnings and capital.

• It aligns accounting values with market reality, aiding better risk management and investment decisions.

• However, MTM can create challenges during market stress, potentially lowering the reported value of bonds despite long-term holding intentions.

In essence, MTM for bonds means regularly updating their value on the books to the price you could sell them for right now in the market, rather than their original purchase price.

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