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The Nigerian Capital Market - Introduction (Reviewed, 23rd Feb 2003) Tell your friends about this page! Email it to them.

All links immediately below are on this page. 

Introduction   The Capital Market   Mission Statement
Objective       Functions                Instruments Used at The Nigerian Capital Market
Structure of The Nigerian Capital Market 
How to Access The Nigerian Capital Market

Introduction

The Nigerian Capital Market (NCM) first came into existence in 1960 with the establishment of the Lagos Stock Exchange, but became operational in 1961. The Exchange was incorporated under the companies’ ordinance as an association limited by guarantee. The Lagos Stock Exchange was given initial financial backing by Central Bank of Nigeria (CBN) in the form of annual subvention. In 1977, following the recommendation of the Government Financial System Review Committee of 1976 the Lagos Stock Exchange was renamed and reconstituted into the Nigerian Stock Exchange. Additional trading floors were also opened in the same year in Port Harcourt and Kaduna. 

The Nigerian Stock Exchange (NSE) is the center point of the Nigerian Capital Market, while the Securities and Exchange Commission (SEC) serves as the apex regulatory body. The NSE provides a mechanism for mobilizing private and public savings, and makes such funds available for productive purposes. The Exchange also provides a means for trading existing securities. It also encourages large-scale enterprises to gain access to public listing. The NSE operates the main exchange for relatively large enterprises, the Second tier Securities Market (SSM) where listing requirement are less stringent for small and medium scale enterprises. 

The Capital Market

The Capital Market is the long-term end for financial market. It is made up of market and institutions, which facilitate the issuance and secondary trading of long-term financial instruments. Unlike the Money Market, which functions basically to provide short term funds, the Capital Market provides funds to industries and governments to meet their long-term capital requirements, such as financing for fixed investments - buildings, plants, bridges, etc. 

Mission Statement 

"Promoting the Nigerian Capital Market to respond to the socio-economic development need of the nation" 

Objective

The primary aim of the Nigerian Stock Exchange is to mobilize long-term funds for investment. 

Functions

  • Provide an additional channel for engaging and mobilizing domestic savings for productive investment and represent an alternative to bank deposits, real estate investment and the financing of consumption loans. 

  • Provides depositors with better protection against inflation and currency depreciation. 

  • Foster the growth of the domestic financial services sector and the various forms of institutional savings such as life insurance and pension funds. 

  • Improves the gearing of the domestic corporate sector and helps reduce dependence on borrowing. 

  • Another major function of Nigerian Capital Market is to improve the efficiency of capital by providing market measure of returns on capital and a market mechanism for management changes as compared with the administrative or political mechanism of public sector corporations. 

  • To facilitate the transfer of enterprises from the public sector to the private sector. 

  • To encourage privatisation by increasing the marketability of new issues. 

  • Provide access to finance for new and smaller companies and encourage institutional development in facilitating the setting up of Nigeria’s domestic funds, foreign funds and venture capital funds. 

  • The summary of the above functions is that the Nigerian Capital Market helps to stimulate industrial as well as economic growth and development of the Nigerian economy. 

Instruments Employed At The Capital Market

The major instrument used to raise fund at the Nigerian Capital Market includes: 

  • Equities - Ordinary Shares and Preference shares

  • Debt - Government Bonds (Federal, States, And Local Governments)

  • Industrial Loans/Debenture Stocks and Bonds 

The Structure Of The Nigerian Capital Market 

There are two markets within the Nigerian Capital Market, which can be broadly classified into: 

  • Primary market

  • Secondary market 

Primary Market 

This is a market where new securities are issued. The mode of offer for the securities traded in this market includes offer for subscription, right issues, offer for sales, private placement. 

Secondary Market 

This is the market for trading in existing securities. This consists of exchange and over the counter market where securities are bought and sold after their issuance in the Primary market. 

Major Participant In The Nigerian Capital Market 

  • The Securities and Exchange Commission (SEC), which is responsible for the overall regulation of the entire market. 

  • The Nigerian Stock Exchange (NSE), a self-regulatory organization in NCM that supervises the operations of the formal quoted market. 

  • Market Operators, this consists of the Issuing Houses (Merchant Banks and Stock broking firms), Stockbrokers, Trustees, Registrars, etc. 

  • Investors, Insurance Companies, Pension Fund, Unit Trusts (Institutional Investors) and Individuals. 

  • The Central Bank of Nigeria (CBN). 

  • The Federal Ministry of Finance 

Regulatory Bodies Of Nigerian Capital Market

  1. The Federal Ministry of Finance

  2. The Central Bank of Nigeria (CBN)

  3. The Securities and Exchange Commission and

  4. The Nigerian Stock Exchange. 

Constituencies Of Nigerian Capital Market

The constituencies in the Nigerian Capital Market can be broadly classified into four categories: 

Fund Providers

  • Individuals

  • Unit Trusts

  • Pension Funds

  • Insurance Companies, etc. 

Users Of Funds

  • Companies

  • Governments 

Intermediaries

  • Stock broking firms

  • Issuing Houses

  • Registrars

  • Audit Firms 

Regulators

  1. Securities and Exchange commission

  2. The Nigerian stock Exchange

  3. Central Bank of Nigeria

  4. Federal Ministry of Finance

How To Access The Nigerian Capital Market

When a company or government wants to use the Capital Market to raise long-term funds, it must consult an issuing house or stockbroker. These specialists provide the company/government with financial advisory services. It is their duty to study the company’s performance over the years in order to determine its financial needs. More so, they do not only advise on the best option, they undertake total financial restructuring of the company before introducing the facility to the company. 

The issuing house and the stockbroker liaise with the other parties – Registrars, Trustees, Auditors, Reporting Accountant, and Solicitors etc. to produce a marketing document known as the PROSPECTUS. The Prospectus is the document the public relies on for making investment decision. Necessary approval from SEC and other bodies are obtained. If the financial option involves listing on the Stock Exchange, the brokers to the issues ensures that all necessary approval with the Exchange are also obtained since only stockbrokers can introduce issues to the Exchange. 

On the completion of the offer, the proceeds of the issue are handed over to the company for executing the proposed business programme on long-term investment and the securities is listed on the Daily Official list of the Exchange. 

For individuals wishing to invest in the Capital Market in form of buying shares, what they need do is to consult a Stock broking firm and register with the broking firm. For more information on investing in the Nigerian Capital Market contact: [email protected] to give you the detailed list of leading Stockbrokers in the Nigeria Capital Market. 

See Also:

A List of 10 Reputable Stock Broking Firms of The Nigerian Stock Exchange 

Becoming A Dealing Member of The Nigerian Stock Exchange

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