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THE ROLES OF NIGERIA STOCK EXCHANGE IN NIGERIA ECONOMY (A CASE OF NIGERIA STOCK EXCHANGE IBADAN BRANCH OYO STATE)

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Abstract

The aim of this research works is to examine the different factors that play the important roles of the NIGERIA Stock exchange in the NIGERIA economy. The Prevailing Circumstance Spared the research to its roles in the NIGERIA economy. The materials in this research work have been arranged into five chapters. CHAPTER ONE Start with general background to the study, which gives the reader the objectives of the study Purpose and Scope of the study. CHAPTER TWO deals with the review of the relation Literature that relate to the role of the Nigeria stock Exchange to the Nigeria economy. CHAPTER THREE It deals with methodology used in the research work and further this insight into the effect of the Role of Nigeria Stock Exchange. CHAPTER FOUR described the conduct of field work and the Procedure adopted, the -date Through Personal Interview. CHAPTER FIVE which is the Final, reveals the summary of the Findings.

• BACKGROUND OF THE STUDY

One of the oldest institutions in the Nigeria Capital Market is the Nigeria Stock Exchange, trading in Lagos, Onitsha, Uyo, Ibadan and Port-Harcourt each floor or branch of the exchange has a Director and a Secretary. The national secretariat has a Director – General and consists of three departments. The quotations department, the Administration and the public Relation department.

The exchange is an institution where quoted investments (stocks and shares) are bought and sold. It provides a market in a wide range of traded securities generally a medium to long  term maturity  issued by companies,  government and public organizations both domestic and overseas.  The organization is categorized as both primary market  and secondary market. securities are in the first instance purchased by individuals and institutions who then resells them on  the trading floor provided these securities are listed securities in the secondary market. Each  branch of the exchanged has a council  (Branch council), consisting of some prominent individuals and also representatives of stock broking firms, as members of the branch council.

The structure of  the Nigeria stock  Exchange provides for representation of each branch council at the  national council. The national provides all overall direction for the exchange.

In addition to providing a market for the primary issuance of securities and for their subsequent exchange, the exchange performs the vital function of maintaining orderliness in the markets.

The development of the capital Markey in Nigeria dated back to 1946 before political independence when the first government securities were floated. There was a perceived need within the financial and business community for the development of a money and capital Markey in Nigeria. The capital market is the framework of institutions that arrange for long-term financials assets such as shares and mortgages. Since the world will never be made up solely of wealthy philanthropist and charitable organization, the demand for capital will always exceed the supply. Membership of the exchange  is open to limited companies partnership and in some cases individual of high repute and integrity who have made valuable contributions to the development of the  Nigeria Capital Market. Stockbrokers who are dealing members of the exchange function primary as agents on behalf of their client.

They are the only agents authorized to introduced companies, government corporations and individuals to the exchange. A registrar is a keeper of records in respect of quoted stock and shares.

The system of the Nigeria Stock Exchange is the caller Google system of stock and shares that operate on the floors of the exchange. The Nigeria stock Exchange maintains two registrars of listed companies or securities. The first is the companies and securities on the official on the official list while the second is for those listed on the second tier security market (SSM).

historical background of the NIGERIA stock exchangE

one of the oldest institutions in the Nigeria capital market is the Nigeria stock Exchange. The Nigeria Stock Exchange otherwise referred to as “The Exchange” has a history dating back to May 1958 when discussions were held in business and academic circles about the formation of an organized capital market in Nigeria. The discussion centered mainly on the following issues.

1. The need for government to finance the growing budget deficit as from 1958.
2. The deteriorating balance of payment deficit as from the late 50s.

• The need to mobilize finance to embark upon development projects.

At that time, the Federal Ministry of Commerce and Industry appointed a committee to consider the desirability and means of establishing a stock market in Nigeria. The chairman of the committee was Professor. R.H.Barbanh, then Director of Nigeria Institute of Social and Economic Research (NISER) and also serving in the committee where representatives of some of the commercial banks, commerce and finance ministry and some influence personalities in the business and financial community.

The committee reported favourably on the prospect of such a market and recommended that a stock market be organized and that part time brokers be licensed to link sellers and buyers of market securities.

The report published in 1959 recommended in particular among others, the creation of faculty for dealing in shares, the establishment of rules regulating transfers, measures to encourage savings and issues of securities, government and other organizations.

On 15

th

 September, 1960, the NIGERIA Stock Exchange (formerly called Lagos Stock Exchange) was incorporated as a non –profit making organization and its existence was further strengthened by the Lagos Stock Exchange Act of 1961, section 383 of which gave the exchange the right to deal in marketable securities and grant it a worthwhile protection for its business. Non-members were prohibited by the provision for the Act from dealing in stocks and shares quoted on the exchange.

The Nigeria Enterprises Promotion Decree of 1972 and 1977 marked the first and second major steps taken by the federal government to transfer ownership of limited liability companies to Nigeria citizens. Thirteen companies utilized the exchange to comply with the 1972 Decree, while 78 companies sold over 300million shares worth over #210million in compliance with the 1977 Decree.

In 1985, in order to encourage indigenous companies on the NSE, the exchange introduced the Second–tier Securities Market (SSM), on which listing requirement are less stringent than for the official list. In the 1986 budget, the Federal Military Government as a practical step in attracting foreign investments in Nigeria announced the  approval of a 300million non-voting equity shares in convertible currencies by quoted companies. The exchange is making tremendous effect to encourage wholly-owned indigenous companies to seek public quotation. For instance, the pre-requisite capital base has been lowered from #1million to #500,000 or #0.5million. (when?)

Creation of awareness war aimed at educating and enlightening the members of the public on available investment avenues is paramount in the programme of activities of the exchange. This scheme being propagated through seminars, radio announcements, newspaper publications and television programmmes, is also aimed at changing the present investment of the average Nigerias.

ORGANIZATION S STRUCTURE OF THE STOCK EXCHANGE

Each branch of the exchange has a council (Branch Council) consisting of some prominent individuals and also representatives of stock broking firms, as dealing members.

The director of the branch exchange is a member of the branch council. The structure of the Nigeria Stock Exchange provides for representation of each branch council on the national council.

The national council provides overall direction for the exchange. The actual day-to-day operations of the exchange are varied out by the Director-General and his team of executives (Head of Department) . There are four main departments, the Heads of which report to the Director –General.

Administration and secretariat Department-: Handles personnel management financial and account and provides secretariat services to the national council of the exchange.

Research and Information System Department: The responsibility for the production and publication of the exchange daily official list popularly known as SEDOL and the stocks market price index is vested in this department.

It research, monitor and documents various transactions or deals struck on the exchange. The department is the liaison center between the exchange and the press, the public and other corporate bodies.

Second-tier Securities Market Department: Overseas all aspects of promotion, quotations and dealings in the securities of companies which are quoted on the second-tier securities market.

Quotations Department: Responsible for the analysis and security of application on the exchange. it also ensures that quoted companies comply with the disclosure requirements for the exchange and adhere to accepted accounting standard in the preparation of their annual accounts.

 

 

THE ORGANIZATION CHART OF THE NIGERIA STOCK EXCHANGE

BOARD OF DIRECTOR

 

 

 

 

 

 

 

 

 

 

 

 

FUNCTIONS OF THE STOCK EXCHANGE

The under listed points are the functions of the Nigeria Stock Exchange.

1. To provide a central meeting place for members to buy and sell existing stock and shares and for granting quotations to the new ones. This is the primary function.
2. To provide opportunities for raising new or fresh capital

• To provide machinery for mobilizing private and public savings and making these available for productive investment through stocks and shares.

1. By facilitating the purchase and sales of securities to help reduce the risk of liquidity, ideally, this should encourage more investments in stocks and shares some investors are sure that in case of need, they could realize their investment easily and with minimum of loss and in many cases at a profit in the exchange.
2. Through its rules, regulations and operational codes and practices to protect the public from shady dealings and practices in quoted securities with the objective of ensuring fair dealings. In this way, the exchange supplements the protection and regulations offered in the Company’s Act.
3. To act as a channel for implementing the indigenization Decree by providing facilities to foreign business to offer their shares to the Nigeria public officer subscription.

• to facilitate dealings in government securities to the extent that this provides the government with founds to participate with foreign investors in establishing industrial projects, the exchange was expected indirectly to facilitate foreign investment in Nigeria manufacturing.

The dealer members of the exchange in addition to the purchase and sales of securities serve as investment advisers to institutional investors. They sometimes underwrite new issues and introduce new companies to the stock exchange.

In performing its function in mobilizing funds and resources needed for the development, the Nigeria Stock Exchange offers the government the institutional forum for implementing its policies relation to stabilization, monetary controls and regulation of the banking system. Again by marshaling savings and making them available to companies and public authorities that the need them, the exchange play   an important supportive role in capital formation.

 

• OBJECTIVES OF THE STUDY

1. The broad objectives of the study is to have knowledge about the Stock Exchange Market in Nigeria economy
2. The study would also try to find not the relevance of the market to the economy of Nigeria.

• Finally, effort would be made to find out the process of operation in the market and the system of purchasing and selling of securities in the market. So therefore, the specific objectives of the study as follows:

1. To find out how to be a member of the market.
2. To examine how the operation of the market impact on the economy.

• To find out the criteria to be a met before becoming member of the market.

1. To determine the effect of the operation of the market on the economy.
2. To make recommendations based on the findings of the study.
   • SIGNIFICANCE OF THE STUDY

The study will be of benefit to the following:

Individual: Individuals who wants to invest their money, in shares or stock will have knowledge on how to pursue it.

Foreign Investors: Foreign investors that wants to invest in any company that wants to sell their shares on the capital market.

Insurance Companies- : They invest the premium pay to them in stocks and buy shares in other companies.

DEFINITION OF TERMS

N.S.E-: Nigeria Stock Exchange

C.B.N-: Central Bank of Nigeria

SEC-: Securities and Exchange Commission

NPC-: Nigeria Pension Commission

NIC-: Nigeria Insurance Commission

O.M.O-: Open Market Operation

EDC-: Eligible Development Stocks

NDIC-: Nigeria Deposit Insurance Corporate

CSCS-: Central Securities Clearing System

SEMS-: Stock Exchange Management System.

Stockbroker-: is a firm or person who buys and sells securities on behalf of investors for a commission called brokerage.

Churning-: Is a term used in the investment world top describe a situation where the adviser/stock broker persuades his client to sell a share unnecessary in order to buy another share so that he (the stock broken) can earn more commission.

Central Securities Clearing System (CSCS)-: limited is a subsidiary of the Nigeria Stock Exchange as well as the clearing house of the Nigeria Stock Market.

Securities and Exchange Commission (SEC) is the apex regulatory institution of the Nigeria capital market. It is a federal government agency establishment by the securities and exchange commission act 71 of 1979 which was  re-enacted as Decree number 29 of 1988.

Money Market-: This is the market, which creates opportunities for raising/investing short-term funds.

Capital Market-: This is the market for raising /investing long-term-funds. Financial instruments traced on this market, e.g. Equities and loan stocks, have maturity periods of 3years or longer.

Financial intermediate-: is the process by which financial intermediaries provide a linkage between surplus units and deficit units in the economy.

Surplus Units-: are firms/individuals who need fund for immediate investment programmes.

NIGERIA Stock Exchange (NSE)-: Is a primary market in which companies and other institutions can raise funds by issuing shares or loan stocks. It is also a secondary market for buying and selling existing securities (shares and loan stocks).