WAREHOUSE RECEIPT SYSTEM AND INVESTOR PROTECTION UNDER THE INVESTMENT AND SECURITIES ACT 2025

INTRODUCTION

In the evolving landscape of trade and finance, warehousing and warehouse receipts have emerged as vital tools for facilitating commerce, enhancing credit access, and promoting market efficiency particularly in sectors like agriculture, commodity trading, and oil and gas. These instruments serve not only as storage solutions but also as financial securities that bridge the gap between physical goods and financial systems.

Traditionally, warehousing has played a logistical role, safeguarding imported or locally produced goods until they are ready for sale or distribution. However, in today’s economy, the concept has expanded into a security arrangement used by individuals and businesses. With the passage of the Investment and Securities Act (ISA) 2025, Nigeria has, for the first time, formally recognized and regulated the Warehouse Receipt System and its integration with commodities exchanges.

This article explores how warehousing and warehouse receipts function, the regulatory framework introduced by ISA 2025, their relationship with commodities exchanges, and the broader economic and financial benefits of embedding these systems into Nigeria’s formal legal and trading infrastructure.

UNDERSTANDING THE WAREHOUSE RECEIPTS SYSTEM

Warehousing as a security is a form of collaterising facility granted to individuals as well as corporate organisations who borrow money from banks to facilitate the clearance of their imported goods[1]. This arrangement operates by transferring possession of the imported goods to a warehouse agent, who holds the goods in trust within the warehouse premises, pending full satisfaction of the importer’s/borrower’s indebtedness to the bank. In these transactions, the goods in the possession of the warehouse can only be released with the prior written consent of the bank and not on the behest of the borrower. Such arrangements are commonly used in agriculture, oil and gas, commodity trading sectors etc.

As part of the transaction, a warehouse receipt is then issued to the borrower by the warehouse operator. A warehouse receipt is a document of title to commodities in whatever form issued by a warehouse operator, collateral manager, or other persons permitted by the Securities and Exchange Commission (SEC) to issue a warehouse receipt in respect of commodities deposited in a warehouse[2]. By virtue of Part XV of the ISA 2025, the SEC has licensing powers and oversight and supervisory powers over commodities exchange and warehousing systems in Nigeria. A warehouse receipt is a document which provides proof of ownership of a particular type, quantity and quality of commodities that are deposited in a warehouse or any storage facility for safekeeping. Besides ensuring that standards and grades are maintained, the warehouse receipts allows trading of commodities on a recognized commodities exchange[3]. It plays a crucial role primarily as a legal and financial instrument in the context of trade, storage, and financing. It serves as a representation of a lender’s legal interest in the borrower’s goods stored in the warehouse and gives the lender the exercisable right to seize said goods in the case where the borrower fails to liquidate its debt.

The issuance of a warehouse receipt is part of larger system called a warehouse receipt system which is a centralised electronic system maintained by a warehouse operator or collateral management company or any other entity approved by the Commission for the registration of possession, ownership and transfer of commodities stored in a registered warehouse and matters incidental to it[4].

RELATIONSHIP BETWEEN WAREHOUSE RECEIPTS AND COMMODITIES EXCHANGE

Warehouse receipts are deeply interconnected with commodities exchange as both are essential components of an efficient commodity trading system. A commodity exchange is an organized marketplace, whether in Nigeria or any other jurisdiction, registered or recognized by the SEC where commodities like grains, cocoa, livestock, gas, metals, energies, and others are traded at current or future dates. These trades can happen in either a physical or virtual space[5]. S.248 of the ISA makes clear the relationship between warehouse receipts and a commodity exchange. This provision elucidates that where a warehouse receipt is issued on commodities, it shall be traded on a commodities exchange where such commodities are listed on the exchange for trading[6] ensuring that warehouse receipts can only be traded on regulated exchanges where pricing is transparent, trades are supervised, and market integrity is preserved.

REGULATORY FRAMEWORK OF WAREHOUSE RECEIPTS SYSTEM

Warehousing in its basic form has existed for centuries, evolving from simple grain storage systems to today’s sophisticated warehouse receipts system this is particularly as a result of the growing importance of global trade. Considering the structure and technicality of warehousing in its modern form, an operative and robust piece of legislation is needed to regulate its operation and protect the rights of all parties involved. Warehouse receipts legislation creates a framework for the necessary enabling environment for the adoption and use of the warehouse receipts in carrying out transactions[7].

Prior to the ISA 2025, the regulatory landscape around warehouse receipts and commodity exchanges in Nigeria was fragmented and largely undeveloped. The ISA 2007 offered no clear legal structure for these systems, leaving participants exposed to significant risk. There have been a few attempts, however, to create an operational piece of legislation to formally incorporate the warehouse receipt system into statute and provide legal backing and recognition for such security transactions. An example of such attempts includes The Nigerian Independent Warehouse Regulatory Agency and Other Related Matters Bill 2022. This Bill amongst other things seeks to establish the Nigerian Independent Warehouse Regulatory Agency to regulate the operations of licensed warehouses in Nigeria, provide a regulatory framework for trading in warehouse receipts, institutionalize best practices in commercial warehousing in Nigeria etc. This Bill however is yet to become Law.

A major innovation in ISA 2025 is the introduction of a comprehensive regulatory framework for Commodities Exchanges and Warehouse Receipt Systems. The Act provides regulation for commodities exchanges, the warehouses that store commodities connected to those exchanges, and the issuance of warehouse receipts that can be traded on a commodities exchange. Amongst other things, with respect to commodities exchange the Act makes provision for:

·       Mandatory registration of commodities exchanges with the SEC and penalties for violation

·       Conditions for registration of commodities exchanges

·       Responsibilities of a commodities exchange

·       Procedure a commodities exchange must follow to take disciplinary action against a license holder

·       The SEC’s power to issue directives to a commodities exchange

·       Revocation of registration of a commodities exchange

·       Offences relating to a commodities exchange

Likewise, regarding warehouse receipts, amongst other things, the Act makes provision for some areas such as:

·       Registration of warehouses

·       Revocation and suspension of warehouse registration

·       Insurance of warehouse and commodities

·       Inspection of warehouses by the SEC

·       Issuance of warehouse receipts

·       Warehouse receipt as evidence of proprietary rights

·       Obligation of a warehouse operator to deliver

BENEFITS OF COMMODITIES EXCHANGE AND WAREHOUSE RECEIPTS LEGISLATION

The Director-General of the SEC, Dr Emomotimi Agama disclosed that the formalisation of trading of commodities and warehouse receipts and transforming them into tradeable securities has the potential to unlock as much as $500 billion in dormant agricultural and mineral assets[8]. With many of the transactions happening outside the commodities exchange (on the spot market) due to Nigeria’s commodities market being highly unregulated, this new ISA provides an opportunity to bring those transactions within the regulated market and account for revenue accruing from them. Besides this avenue for greater economic growth, some benefits of this formal recognition in legislation include:

GREATER INVESTOR PROTECTION:

By giving warehouse receipts systems full legal recognition as documents of title, the law ensures that investors, lenders, and other market participants have enforceable rights over commodities stored in registered warehouses, especially in cases of loan default or disputes. Additionally, by requiring registration of warehouses and trading of receipts only on SEC-approved commodity exchanges, the law promotes transparency, reduces fraud, and ensures standardized storage and quality control. The SEC’s oversight powers add another layer of protection for investors, allowing for enforcement, dispute resolution, and penalties for non-compliance.

ACCESS TO FINANCE:

The Act enables warehouse receipts to become legally accepted financial instruments. Farmers or traders who deposit their commodities in a certified warehouse receive a warehouse receipt that can be used as collateral for loans from banks or other financial institutions. This gives producers immediate access to capital, allowing them to invest in inputs, transportation, or storage, and wait to sell their goods when market prices are favorable rather than selling at harvest-time lows.

ENHANCED INVESTMENT OPPORTUNITIES:

The formalization of commodity exchanges and warehouse systems opens up new avenues for private investment both domestic and foreign. Investors can now confidently participate in or build infrastructure like exchanges, warehouses and logistics platforms. This contributes to job creation, technological innovation around the commodity market, increasing capital inflow, and a more vibrant commodity trading ecosystem in Nigeria.

ECONOMIC DIVERSIFICATION:

Nigeria has long aimed to reduce its reliance on the oil and gas sector by developing other sectors, especially agriculture. By regulating commodity exchanges and warehouse receipts, the ISA 2025 provides the market infrastructure needed to unlock value from these sectors.
It supports national goals of diversifying exports, improving wealth creation, and building a more resilient economy with multiple sources of revenue.

BETTER DATA AND POLICY PLANNING:

A regulated commodity trading system generates data on prices, volumes, stock levels, warehouse locations, and trading behavior. These insights are valuable for the SEC, other affiliated government agencies, and financial institutions. This improves evidence-based policy making, helps in monitoring food security, guides infrastructure investment, and assists in designing targeted support programs like credit schemes or subsidies.

CONCLUSION

The formal inclusion of the Warehouse Receipt System in the ISA 2025 marks a significant turning point in Nigeria’s financial and commodity markets. By giving warehouse receipts full legal recognition and embedding them within a regulated framework under the oversight of the SEC, the Act not only strengthens investor confidence but also brings structure, transparency, and accountability to an area that was previously informal and under-regulated.

As Nigeria continues to push toward building a more robust, transparent, and efficient capital market, the regulation of warehouse receipts and commodity exchanges will play a critical role in driving sustainable growth, unlocking dormant value, and positioning Nigeria to benefit from enhanced price discovery, food security, and rural economic inclusion amongst other benefits.

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