Nigeria’s Securities and Exchange Commission (SEC) has unveiled a sweeping reform that will fundamentally alter the way bonds are valued in the country’s capital markets. In a directive issued to fund managers, the regulator announced that all fixed-income securities must transition from the long-standing ‘hold-to-maturity’ accounting method to a ‘mark-to-market’ (MTM) approach by September 2027.
The change, which has been under discussion for several years, represents a significant step towards aligning Nigeria’s capital markets with global best practice. Under the new regime, bonds will no longer be carried at their original purchase cost until maturity. Instead, they must be valued at prevailing market prices, reflecting real-time fluctuations driven by interest rates, inflation, and credit conditions.
A break with the past
For decades, Nigerian fund managers have relied on the hold-to-maturity method, which values bonds at their amortised cost and largely insulates portfolios from the day-to-day swings of the secondary market. While this approach has provided stability on paper, it has also masked the true economic value of assets, making it harder for investors to assess risks or compare performance across funds.
By insisting on MTM valuation, the SEC is seeking to enhance transparency and credibility. Investors, particularly foreign institutions, will now be able to benchmark Nigerian fixed-income assets more accurately against global peers. This could help deepen the domestic debt market, improve liquidity, and ultimately attract more portfolio flows.
Transition rules and compliance requirements
Recognising the disruptive potential of the reform, the SEC has set out a phased transition. Fund managers may, until September 2027, adopt a hybrid model that allows a 50:50 split between MTM and amortised cost valuation. However, all new bond purchases from now on must be valued using MTM.
In addition, managers are required to submit compliance roadmaps to the SEC by 2 October 2025, detailing how they plan to achieve full implementation. This gradual approach is designed to give the industry time to adjust systems, retrain staff, and prepare investors for a more volatile reporting environment.
Risks of greater volatility
While the reform is widely seen as a step forward for transparency, it does not come without risks. MTM accounting can expose investors to greater volatility, as the market value of bonds fluctuates with movements in interest rates and broader macroeconomic conditions.
In an environment like Nigeria’s – where inflation remains stubbornly high, exchange rates volatile, and government borrowing significant – bond prices can swing sharply. This means fund holders could see more pronounced short-term fluctuations in the value of their investments, even if the underlying assets remain fundamentally sound.
Industry players caution that educating investors will be key. Without clear communication, sudden portfolio value changes may unsettle retail investors and undermine confidence in collective investment schemes.
Part of a broader reform agenda
The SEC’s directive dovetails with broader economic reforms under President Bola Tinubu’s administration, which has pursued a liberalisation agenda to restore credibility in Nigeria’s financial system. Fuel subsidy removal, the unification of multiple exchange rates, and reforms in the banking sector have all been aimed at boosting investor confidence and signalling that Nigeria is ready to operate by international standards.
The move to MTM is thus more than a technical accounting shift – it is part of a larger attempt to align Nigeria with global market norms, thereby attracting capital inflows and reducing reliance on debt financing from official sources.
Implications for the market
If successfully implemented, the reform could help deepen Nigeria’s fixed-income market by increasing transparency, encouraging secondary market trading, and improving price discovery. It may also strengthen the country’s case with international investors, who have long complained about opaque valuation practices.
But success will depend on how effectively the SEC enforces compliance and whether market infrastructure, including trading platforms, pricing agencies, and reporting systems, can support reliable MTM valuations.
For Nigeria’s fund managers, the message is clear: the era of sheltering portfolios under hold-to-maturity accounting is coming to an end. For investors, it means grappling with more visible volatility but also gaining a clearer picture of the true value of their assets.
As Nigeria strives to build a more credible, globally integrated financial system, the MTM reform represents both a challenge and an opportunity – one that will test the resilience of the country’s capital markets in the years ahead.
