AN ANALYSIS OF THE OPERATION OF THE NIGERIAN
CAPITAL MARKET
(A CASE STUDY OF THE NIGERIAN STOCK EXCHANGE KADUNA BRANCH
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The
capital market as a subsection of financial market, deals in long term and
short term, as well as operating stock.
It may not involve the issue of negotiation instrument but, cash flow
from operators and direct negotiation or re-capitalization. These are done through organization such as:
i.
Development Bank, NIDB, NBC
ii.
THE Nigerian Stock Exchange
iii.
The Issues Houses
iv.
The Unit Trust which are largely the government owned and therefore,
have their capital subscribed by government.
It also involves Insurance Company which also have their capital issued
subscribed direct also have owner i.e. government or private owned. They Rightly be called the market for direct
negotiation long term (NDLF) that is the arm of capital market.
The other
arm of capital market is the securities market that deal in the issue of sales
of long term securities like the money market.
Securities market involves the lending of money in one form or the other
unlike the money market however, the securities trade in long term debt are
bonds issue by the government on agency which when bought by individual or
institution grants loan to what ever organization that issued it.
It is thus
a promissory note or (100) whichever issue promissory to repay at certain date
in the future and pay by the buyer as a guaranteed rate of interest. Among such bonds available in Nigeria capital
market are:
i.
The federation of Nigerian First Development Stock 1964, 1969 and 1979.
ii.
Cooperate debenture stock: These
are issued by the government whose stock are normally, quested on the stock
exchange, are recent one being the CFAO often for subscription of N25 million
12% redeemed debenture stock.
The
equities on the other hand are purchase share or stock issued by company or
institutions by individual, group or financial intermediaries. The purchased of share or stock does not
become a creditors as the case of bond or under bond issue, rather he became an
owner of the company. The corporation
promises nothing in return except through good business management, it increase
its earning which allow the purchased (now an owner) to earn in dividends.
The
equities on the other hands are purchased shares and stock issued by a company
or institution by an individual. The
equity can be in form of shares (offer for subscription) as the case was first
issued in the Nigeria
in February 1959 when the Nigeria
Cement Company Limited. (Niger Cement)
made a public offer of N100.00 N2 per value share at April, 1960.
The
securities market can be newly issued securities board, or equities that
primary segment of the capital market or in securities that have already been
issued. That is the secondary market for
outstanding securities that has also been issued.
1.2HISTORICAL BACKGROUND NIGERIAN STOCK EXCHANGE
MARKET
The Nigerian Stock Exchange (NSE) was established in 1960, and
currently has some 283 listed companies with a total market capitalization as
at March 09, 2007 of about N5.819 trillion ($46.2 billion). All listed are included in the only index,
the Nigerian Stock Exchange, All shares
Index (website [1] (http.
In 1998, the NSE management protested to the government about a report
of a committee the government had established, headed by respected banker
Dennis Odife, on the form of Nigerian Capital Market. The NSE said that the report recommendation
for setting up what would be called the Lagos Stock Exchange (L.S.E) was bound
to be misunderstood by many Nigerian and Foreign Investors, who might questions
its down grading to local exchange. NSE
officials requested that the exchange retain its name and be allowed to operate
on level of playing field with proposed government exchange and argue that the
SEN should not be given undue advantage over the NSE and other
competitors. The Securities and Exchange
Commission (SEC), the apex government body which regulated the capital market
in Nigeria
favour the multiple exchange system, which is view at a better option for
attracting the investors to cities other than Lagos, when capital market activities
concentrated.
The Lagos
exchange is an affiliate member of the Federation Stock Exchange (FIBN) its
also an observer at the meeting of International Organization of Securities
(I.O.S.C.O) and the foundation member of African Stock Association (ASEA).
The exchange has an automated trading system. Data on his companies performance are
published daily, weekly, monthly, quarterly and annually. In order to encourage foreign investment in Nigeria, the
government has abolished legislation preventing the flow of foreign broken to
enlist a dealer registration. The
Nigerian Stock Exchange and Investors of any nationality are free to invest.
Nigerian
companies are also allowed multiple and cross burden listing on Foreign Markets
Trading days and times are on Monday to Friday 11.00 to 13.00 charges include
3% commission traded value shared and a 1% securities and exchange with holding
tax on dividend and invest remain at 10% Corporate Income Tax 35% per capital
gain tax 10% how is the all shares index calculated what is the value of listed
year 1994?
In the
1950s, there serious discussion in both business and academic circle about the
formation of an organization of an capital market in Nigeria. However, in May, 1958, the Federal Ministry of
Commerce and Industries appointed a committee to consider the desirability and
means of establishing the stock market. The committee recommendation that,
stock exchange market should be established and that part time broker to be
“licensed to market off” sellers and buyers of marketable securities. On 15th September, 1960, the then
Lagos Stock Exchange was incorporated as non profit organization purposely
encourage in low and out flow of securities for the purpose of investment.
The
Nigerian Industrial Development Bank (NIDB), the Central Bank of Nigeria
(C.B.N) Federal Government with authorized share capital of N100.00 dividend
into 500 share of N2.00 each. However,
this has been increase to N20.00 it was further recognition to the existence or
strengthened by the Lagos Stock Exchange Act 1961 which gives recognition to
the existence to the stock exchange by granting protection to its business
(non-member where prohibited by its provision from electing in stock exchange
quested on the exchange). However, the
committee formed for the purpose of establishing stock exchange market, market
submitted to the following recommendation.
Ø
The Established of Rules of Transfer
Ø
The creation of facilities for dealing share
Ø
The reduction or elimination of tax deduction at source including
measure to encourage saving issue of securities of government and other organization.
On the 5th of June, 1961, prior to the
acceptance or otherwise of the recommendation, the Lagos Stock Exchange Act
1961 came into being as a result the exchange was transformed into Nigerian
Stock Exchange with branches Kaduna,
Lagos, Port
Harcourt. All mentioned branches are
operating primary as trading floor while the National Council remain over-all
responsibility for the quotation and enforcement of regulating capital
market. However, being a capital market
where flow objectives of the capital market include the following.
i.
Maintain the discipline in Capital market
ii.
Broadening the share ownership practice
iii.
The creation of appropriate mechanism or instrument for capital market
(investment) or formation of an efficient among competing project.
iv.
Maintain fair price for securities
v.
Provision of special financing strategic for project lending long term
periods.
1.2 OBJECTIVES
OF THE STUDY
The position of the capital market to the economic development of any
economy as very great and therefore, business managers are very conscious of
its operation its on this basis that this study is paramount in order to
understand the working of the Nigerian Stock Exchange and how its positively
engineering the growth of the Nigeria economy through the provision of capital
to individual and organization to either expand their business or capitalize.
This study would attempt to look at how the growth of business organization
positively or negatively and the way forward.
It would attempt to look at how the growth of business organization it
would also assess the difficulties organization faces in an attempt to their
expand or re-capitalized their business through the Nigerian Stock Exchange.
It is also hope to mute
solution on the way forward solving some of the problems organization faces in
order to acquire capital through the Nigerian Stock Exchange.
1.3 STATEMENT
OF GENERAL PROBLEMS
The position of the capital market to the following economic
development of any economy as very great and therefore, business managers are
very conscious of its operation. Its on
this basis that the study is paramount in order to understand the working of
the Nigerian Stock Exchange and how its positively engineering the growth of
the Nigeria
economy through the provision of capital to individual and organization to
either expand their business or capitalize.
This study would attempt to look at how the growth of business organization
positively or negatively and the way forward.
It would attempt to look at how the growth of business organization it
would also assess the difficulties organization faces in an attempt to their
expand or re-capitalized their business through the Nigerian Stock Exchange.
It is also hope to mute solution on the way forward solving some of the
problems organization faces in order to acquire capital through the Nigerian
Stock Exchange.
A new era in life of the Nigerian Capital Market began on Monday July, 31st 1978,
with the opening in Kaduna
a branch of Nigerian Stock Exchange. The
branch serve million of Nigerian Investors.
The idea of having the branch is to assist in spreading the benefits of
stock market operation to the northern part of the country.
The Kaduna Stock Exchange is located at Turaki Ali House behind NNDC on
the first floor of the building. The
formation and proper use of capital is pre-requisite for development of any
country. Although capital on its own cannot
bring development, it has not be combined with the other factors of production
like land and labour.
Capital is formed when people refused to spend their present income and
invest it somewhere like business for future use. Capital is formed i.e. surplus money not
spent now has to be channeled properly it is that role of capital market comes
in. Therefore, the Nigerian Stock
Exchange Kaduna branch is now located at the Magadishu layout opposite UnityBankBuilding, Kaduna.
1.5 RATIONALE
OF THE STUDY
This research project is of utmost important in the light of the fact
that brings an additional understanding of the Nigerian Capital Market in terms
of its operation as it affect organization.
It will also help to create awareness of the general public
particularly investors to appreciate the opportunities that exist in the
capital market.
This study will secure as reference to student studying financial
market to understand the operation of the capital market easily.
1.6 THE
SCOPE OF THE STUDY
Given the scope of the Nigerian Capital Market, the study will look
into the operation of the Nigerian Stock Exchange within the capital market
particularly Kaduna
branch.
The role of securities and exchange commission and to some extend the
activities of the issuing houses as market operators within the capital market
and also give some possible solution and recommendation.
1.7 STATEMENT OF HYPOTHESIS
Ho: The
operations of the Capital Market did not satisfy the demand of Nigerian’s
economy.
Hi: Operation of the Capital Market satisfy the
demand of Nigerian’s economy.
1.8 DEFINITION OF TERMS:
(1) N.S.E: Nigerian Stock Exchange
(2) S.E.C.: Security Exchange Commissions
(3) F.I.B.C.: Federal of Internal Stock Exchange
(4) C.S.C.S.: Capital
Securities Clearing System
(5) C.I.C.: Capital Issue Commission
(6) A.S.E.A.: African Stock Exchange Association
(7) L.S.E.: Lagos
Stock Exchange
(8) (J.S.E): Johanneseburg Stock Exchange
(9) F.S.E.: Federation Stock Exchange
(10) I.O.S.C.O.:
International Association Securities Commission
(11) F.A.C.O.M.E.X.:
First African Commodity and Future Exchange