Capital
market is a market for long term funds and securities whose tenure extends
beyond one year. It is a complex of institutions and mechanisms through which
intermediate and long term funds are polled and made available on business,
government and individuals. The institutions which traditionally plan one role
or the
market is a market for long term funds and securities whose tenure extends
beyond one year. It is a complex of institutions and mechanisms through which
intermediate and long term funds are polled and made available on business,
government and individuals. The institutions which traditionally plan one role
or the
other in the transfer of funds from savers to users in the capital
market includes: the issuing houses, underwriters the stock exchange, banks,
the securities and exchange commission etc
The
instrument traded in the market includes: bonds, debentures, share and stocks
long term bank loans, mortgage loans etc. The capital market is divided into
two segments these are: the primary and secondary segments
instrument traded in the market includes: bonds, debentures, share and stocks
long term bank loans, mortgage loans etc. The capital market is divided into
two segments these are: the primary and secondary segments
Functions
of the Capital Market
of the Capital Market
The
capital market performs several functions in an economy, they include:
capital market performs several functions in an economy, they include:
1.
Financing intermediation between funds surplus and funds deficit units
Financing intermediation between funds surplus and funds deficit units
2.
Offering enterprises new and wider opportunities of obtaining funds
Offering enterprises new and wider opportunities of obtaining funds
3.
Acting as an easily accessible means for efficient trading in securities
Acting as an easily accessible means for efficient trading in securities
4.
Acting as a means of ascertaining security prices
Acting as a means of ascertaining security prices
5.
Acting as a means of exchanging securities at mutually satisfactory
prices thereby creating liquidity through its pricing mechanism
Acting as a means of exchanging securities at mutually satisfactory
prices thereby creating liquidity through its pricing mechanism
Securities
and Exchange Commission (SEC)
and Exchange Commission (SEC)
The
apex regulatory body for the Nigerian capital market is the Securities and
Exchange Commission. It was set up under the Securities and Exchange Commission
degree of 1979 principally to protect the interest of investors and to oversee
the even and orderly development of the capital market. Its other functions
include:
apex regulatory body for the Nigerian capital market is the Securities and
Exchange Commission. It was set up under the Securities and Exchange Commission
degree of 1979 principally to protect the interest of investors and to oversee
the even and orderly development of the capital market. Its other functions
include:
1.
Determine the price, amount and timing of securities to be sold through
an offer for sale or an offer for subscription
Determine the price, amount and timing of securities to be sold through
an offer for sale or an offer for subscription
2.
Monitoring the activities of the Nigerian stock exchange trading floors
in order to ensure orderly, fair and equitable dealings in securities
Monitoring the activities of the Nigerian stock exchange trading floors
in order to ensure orderly, fair and equitable dealings in securities
3.
Registers stock exchange branches persons and institutions involved in
security dealings
Registers stock exchange branches persons and institutions involved in
security dealings
4.
To create the necessary atmosphere for the orderly growth and
development of the capital market through public enlightenment programmes such
as seminars, worships etc
To create the necessary atmosphere for the orderly growth and
development of the capital market through public enlightenment programmes such
as seminars, worships etc
5.
The corporate affairs department of SEC annually reviews the accounts of
companies in order to appraise the operational performance of the companies
The corporate affairs department of SEC annually reviews the accounts of
companies in order to appraise the operational performance of the companies
The
stock exchange
stock exchange
The
stock exchange acts as the secondary segment of the capital market. Members of
the public are not allowed into the exchange. All transactions are done through
authorized dealers who are registered members of the stock exchange
stock exchange acts as the secondary segment of the capital market. Members of
the public are not allowed into the exchange. All transactions are done through
authorized dealers who are registered members of the stock exchange
There
are two major dealers in the stock exchange: these are the stockbrokers and the
jobbers.
are two major dealers in the stock exchange: these are the stockbrokers and the
jobbers.
The
stock brokers acts as agents of the public by helping to buy and sell shares
for members of the public. For doing this, they collect a commission known as
brokerage.
stock brokers acts as agents of the public by helping to buy and sell shares
for members of the public. For doing this, they collect a commission known as
brokerage.
Another
dealer in the stock exchange is the jobber who deals on his own account. He
buys and sell share in his own name. The difference between his buying and
selling price is his profit and it is called the jobbers turn
dealer in the stock exchange is the jobber who deals on his own account. He
buys and sell share in his own name. The difference between his buying and
selling price is his profit and it is called the jobbers turn
Other
dealers cum speculators in the stock exchange are the Bull who buys shares in
anticipation of price increase so that they can resell at the increased price
an make profit. The Bear sell shares when price are high in anticipation of
price decrease so that he can re-purchase the shares at the reduced price
dealers cum speculators in the stock exchange are the Bull who buys shares in
anticipation of price increase so that they can resell at the increased price
an make profit. The Bear sell shares when price are high in anticipation of
price decrease so that he can re-purchase the shares at the reduced price
Most
bears sell short i.e. they sell share kept in their custody. The profit of the
BEAR is limited to the price he sold the share while his loss is unlimited.
bears sell short i.e. they sell share kept in their custody. The profit of the
BEAR is limited to the price he sold the share while his loss is unlimited.
The
last speculator is the Stag who deals in new issues. He buys new shares that
are under priced with the hope that the price will appreciate to its real valve
so that he can sell at the enhanced price and make profit
last speculator is the Stag who deals in new issues. He buys new shares that
are under priced with the hope that the price will appreciate to its real valve
so that he can sell at the enhanced price and make profit
Functions
of the stock Exchange
of the stock Exchange
1.
Listing and delisting of company in the capital market
Listing and delisting of company in the capital market
2.
It supports the capital raising process by providing the best quality,
the most efficient and the most cost effective market place for trading in
financial instrument
It supports the capital raising process by providing the best quality,
the most efficient and the most cost effective market place for trading in
financial instrument
3.
It serves as a forum of discussion of relevant national policy issues
It serves as a forum of discussion of relevant national policy issues
4.
It provides liquidity for corporate securities in the primary segment.
By doing this, it helps to build public confidence and participate in the
market thereby enhancing issuers ability to raise capital in the primary market
It provides liquidity for corporate securities in the primary segment.
By doing this, it helps to build public confidence and participate in the
market thereby enhancing issuers ability to raise capital in the primary market
Not
all company can raise funds or sell securities in the capital market vis-a-vis
the stock exchange. Only companies that are listed in the first tier or the 2nd
tier securities market can raise funds in the capital market. The listing
requirements for each of these markets are as follows:
all company can raise funds or sell securities in the capital market vis-a-vis
the stock exchange. Only companies that are listed in the first tier or the 2nd
tier securities market can raise funds in the capital market. The listing
requirements for each of these markets are as follows:
Listing
requirements for the First – tier market
requirements for the First – tier market
For
a company to be quoted or listed in the first tier market, it must meet the
following requirement
a company to be quoted or listed in the first tier market, it must meet the
following requirement
i.
Not less than $25 of the issued share capital, the said proportion
having a minimum value of N150, 000 must be made available to the public or be
in the hands of the public
Not less than $25 of the issued share capital, the said proportion
having a minimum value of N150, 000 must be made available to the public or be
in the hands of the public
ii.
The number of shares existing must not be less than N500, 000.00 unless
otherwise prescribed by the council on individual basis
The number of shares existing must not be less than N500, 000.00 unless
otherwise prescribed by the council on individual basis
iii.
A listed company in the first tier is required to pay a quotation fee
annually based on its share capital
A listed company in the first tier is required to pay a quotation fee
annually based on its share capital
iv.
A company seeking listing must have been in existence for at least five
years and must have five years trading records. Also, the date of its latest
audited financial statement must not be less than 9months from the date of the
seeking
A company seeking listing must have been in existence for at least five
years and must have five years trading records. Also, the date of its latest
audited financial statement must not be less than 9months from the date of the
seeking
v.
Application for listing can only be entertained if sponsored by any of
the dealing member of the stock exchange through an offer for sale, offer for
subscription, private placement or introduction
Application for listing can only be entertained if sponsored by any of
the dealing member of the stock exchange through an offer for sale, offer for
subscription, private placement or introduction
Listing
requirements for the second- tier securities market
requirements for the second- tier securities market
Companies
that are not big enough to enter the first- tier market are allowed entry into
the 2nd –tier market after meeting the following requirements
that are not big enough to enter the first- tier market are allowed entry into
the 2nd –tier market after meeting the following requirements
i.
At least 10% (minimum of N50, 000) of the equity of the company must be
in the hands of the public
At least 10% (minimum of N50, 000) of the equity of the company must be
in the hands of the public
ii.
No shareholder can hold more than 755% of the issued share capital of
the company
No shareholder can hold more than 755% of the issued share capital of
the company
iii.
The company must be registered as a PLC. Under the provision of CAMD of
1990
The company must be registered as a PLC. Under the provision of CAMD of
1990
iv.
It must have operated for at least 3years financial statement prior to
its quotation
It must have operated for at least 3years financial statement prior to
its quotation
Factors
determining stock prices in the secondary segment
determining stock prices in the secondary segment
The
prices of share traded in the secondary market are determined by the forces of
demand and supply. Demand and supply on the other hand are functions of the
attractiveness of the shares in terms of the returns they offer investors and
the risk associated with earning the return. Returns and risk are however
influenced by a lot of factors which can be categorized into two
prices of share traded in the secondary market are determined by the forces of
demand and supply. Demand and supply on the other hand are functions of the
attractiveness of the shares in terms of the returns they offer investors and
the risk associated with earning the return. Returns and risk are however
influenced by a lot of factors which can be categorized into two
1.
The fundamental factors
The fundamental factors
2.
The technical factors
The technical factors
The
fundamental factors
fundamental factors
These
include:
include:
i.
Company related factors such as the quality of management, labour unrest
Company related factors such as the quality of management, labour unrest
ii.
The company, market conditions for raw materials. Growth potential of
the company, dividend stability and growth, earnings stability and growth etc
The company, market conditions for raw materials. Growth potential of
the company, dividend stability and growth, earnings stability and growth etc
iii.
Economic related factors such as the general economic outlook and
business performance, interest rates inflation and changes in money supply. The
strength of the domestic currency vis-a-vis other international currencies and
the investment and consumption level in the country
Economic related factors such as the general economic outlook and
business performance, interest rates inflation and changes in money supply. The
strength of the domestic currency vis-a-vis other international currencies and
the investment and consumption level in the country
iv.
Political related factors such as exchange in government policies and
exchange in governments, political instability e.g. June 12 etc
Political related factors such as exchange in government policies and
exchange in governments, political instability e.g. June 12 etc
Technical
factors
factors
Technical
factors centre on:
factors centre on:
1.
The effects of investors emotion or irrational behaviour on stock prices e.g. the price of a companies
share will fall if insiders such as corporate officers, directors, major share
holder or suppliers who are expected to have latest information about the company.
Even if the insiders sell for irrational reasons or to meet personal problems,
the tendency is that other close watchers will also sell their share in the
company. The mass sales would definitely have some negative effect on the price
of the company’s shares.
The effects of investors emotion or irrational behaviour on stock prices e.g. the price of a companies
share will fall if insiders such as corporate officers, directors, major share
holder or suppliers who are expected to have latest information about the company.
Even if the insiders sell for irrational reasons or to meet personal problems,
the tendency is that other close watchers will also sell their share in the
company. The mass sales would definitely have some negative effect on the price
of the company’s shares.
2.
The effects of past historical information or exchange in share price
pattern
The effects of past historical information or exchange in share price
pattern