The Role of the Nigerian Stock Exchange in the Growth of the Nation

The Role of the Nigerian Stock Exchange in the Growth of the Nation

The development of the capital market in Nigeria dates back to 2003 prior to political independence when the first government securities were floated. There was perceived need within the financial and business community for the development of a money and capital market in Nigeria.

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The recommendation of the barback commission of 2000 led to the establishment of the central bank of Nigeria (CBN) in 2001 and Lagos stock exchange as a company limited by guarantee on 15th September, 1999. It commenced operation on 5th June, 2000 with 19 listed securities. The Lagos stock exchange with one trading floor in Lagos was renamed the Nigerian stock exchange (NSE) on 2nd December, 2004 with two additional branches in Kaduna and Port Harcourt to carter for the interest of the investing public in Northern and Easthern parts of the country respectively.

Activities during the first ten years of the exchange were dull. Only 14 companies were listed at the end of 2004 and securities transactions by volume stood at 952 and N18.1 million respectively. Government securities accounted for 90% of the value of securities traded while the industrial securities accounted for 78.6% of trading value.

The growth of the stock exchange in the last decade has been largely due to government intervention. The Nigerian enterprises, promotion decreases of 2000 and 2005 marked the first and second major steps taken by the federal government to transfer ownership of limited liability companies to Nigerian citizens. Thirteen companies utilized the exchange to comply with the 200 decree while 78 companies sold over 300 million share worth over N210 million in compliance with 2005 decree.

In 2001, in order to encourage indigenous companies on the NSE, the stock exchange introduced the second tier securities market (SSM) currently referred to as emerging markets (EM) on which listing requirements are less stringent than for the official listing.

In the 2002 budget, the federal military government as a practical step in attracting foreign investments in Nigeria, announced the approval of N300 million non-voting equity shares in convertible currencies by quoted companies with foreign participation to finance their expansion and modernizing programmes from foreign equity capital or form debt conversion programmes.

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The branch network later extended to Ibadan, Onitsha and Kano. In the 2008 budget, the federal government directed that the Nigerian stock exchange should revert to the name it took at inception-the Lagos stock exchange and Abuja stock exchange should be established. To his end, the federal government appointed a steering committee headed by a Deputy governor of the central bank of Nigeria top establish the Abuja stock exchange before the end of the first quarter of 2008.

Other members of the committee are representatives of the Nigerian bank for commerce and industry (NBCi), National insurance corporation of Nigeria (NICON), Nigerian Re-insurance, Nigerian industrial development bank (NIOB) and the central bank of Nigeria.

The federal government however, transformed the Nigerian bank for commerce and industry (NBCI) and Nigeria industrial development bank (NIOB) by merging both with the national economic reconstruction fund (NWERFUND) into one formidable financial institution called the bank of industry in 2001 with an initial capital base of N50 million. While, the Abuja stock exchange has been converted into a commodity exchange also in 2001 when the federal executive council announced it conversion through the transport minister.

2.2 FUNCTIONS OF THE STOCK EXCHANGE.

  1. It assists in financing government projects whose cost cannot be met through rate and taxes alone. The government thus borrows through the stock exchange by selling stocks, bonds e.t.c.
  2. It is a place where shares and stocks are bought and sold.

iii. Companies that require finance to develop new products or for expansion also go to the stock market to sell there shares and stocks.

  1. It acts as a vehicle through which unit trust, insurance companies and pension funds can invest funds mobilized from unit holders and pensioner in order to earn profit.
  2. It presents an ideal setting for an individual to make a fortune with relatively little effort in terms of contributing anything of substance to national out put, but also a remarkably easy means for the unwary to lose a fortune through false judgment. This fortune comes mainly from capital gains realized from the sales of shares.
  3. It acts as barometer for measuring the profitability and efficiency of listed companies.

vii. It provides a mechanism which can measure and detect the symptoms of an impending prices to change in economic boom or decline because of sensitivity of security prices to change in economic conditions and trends.

viii. It creates a continuous market for the immediate sale and purchase of securities at prices determined by their valued and supply and demand forces through “buy and sell” orders from investors. This enables investors who have such marketable securities to maintain continuous liquidity situation since they are not obliged to sell them immediately.

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2.3 MEMBERSHIP OF STOCK EXCHANGE

        The owners (share holders) of the stock exchange are called members. Applications for membership of the exchange are from firms or institutions as well as from individuals who by virtue of their experience in investment and finance matters are likely to make valuable contributions to the exchange. Each corporate body, if admitted to the exchange is entitled to five shares worth N100.00 in total since the exchange is a non-profit making organization, no dividends are paid to the members.

There are three types of membership, council member, ordinary members and dealing members.

  1. COUNCIL MEMBERSHIP

The council members are drawn from the last two categories the national council members are elected at the exchange annual general meeting by members of the exchange.

  1. ORDINARY MEMBERSHIP

An ordinary members (institution or individual) of the exchange is a member who has, in accordance with the articles of the exchange, taken up five shares of the issued share capital of the exchange, has bee admitted into the register of members. Only such a person can describe himself/herself as a “a member of the Nigerian stock exchange”. No dividend accrues to such a member.

iii. DEALING MEMBERSHIP

A dealing member of the exchange is a person or an institution who, in order addition to being an ordinary member is licensed by the council to trade in stocks, shares and bonds on the stock market and accepts to be bound by the rules and regulations of the exchange such a member also does not receive any dividends but only remuneration in the form of brokerage commissions. Other sources of income include fees for investment counseling and issuing house fees. A dealing members is generally referred to as a stock broker. In addition to the five shares of N20.00 each for membership, the applicant will be required to pay a certain amount of deposit which may be in  cash a legal mortgage of unencumbered landed property, or any easily realizable security as well as annual membership fee determined by the council.

2.4 STRUCTURE OF THE STOCK EXCHANGE

A national council or board of directors drawn from the ordinary and dealing members governs the exchange. Members of the exchange elect the national council members at the exchange annual general meeting. The tenure of office is one year and at the end of tenure elected members or officers may offer themselves for re-election. However, the president of the exchange can stay in office for a maximum of three year term. The national council elects the president and the vice-president after each annual general meeting by ballot to direct the affairs of the national council. The main powers and functions of the council are;

  1. i) The enforcement of the articles as well as rules and regulations of the exchange, which include that a dealing member should, maintained active offices in at least two branches.
  2. ii) To discipline members that breach the rules and regulation of the exchange as mentioned above.
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iii) To investigate complaints from against another.

  1. iv) Granting of quotation to companies and decisions to delist, suspend or withdraw quotation from any quoted company as it may deem fit.
  2. v) Marketing attending, or revoking regulations or fees for effect operation of the exchange.
  3. vi) The national council also appoints other committees such as quotation committee, disciplining committees e. t. c these committees assist the council in the performance of its functions.

The director-general and his team of executive administer the day-to-day management of the exchange. The teams of executive are heads of department and branch directors. There are also the branch councils elected from the members of the stock exchange at the branches. The main function of the branch council is to supervise the activities of the exchange at the branches.

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