LITERATURE REVIEW OF NIGERIA STOCK MARKET



In this chapter, which is basically the review of relevant literatures, discussion would be focused on description of the capital market as it efforts in Nigerian economic development for the period of 1993 -2002.
In addition, the effect of other companies and broking firms in the economic development and by comparing other stock exchange outside the country in term of performances.

DEFINITION OF STOCK MARKET
The stock market at times called the capital market  was  defined by Dangall and Ganmnitz (1975)  as the   complex  of institutions and mechanisms through
  which  intermediate term trade and long term funds   are polled  and made available to business, government and individuals and instruments already outstanding are transpired.
Ajayi O. (1984) defined a stock market as a market for the mobilization of funds from the savings deficit sector, However, Burns and Midlay (1979) defiled a stock market as a market which provides a focus for the activities of buyers and sellers of securities or services.
Okafor F.O. (1983) agreed with this definition, but went further to describe the market as covering all services rendered by institutions and facilities which exist for mobilization of long term funds and for channeling such funds to ultimate users.
More so, the capital market is a network of individuals, institutions and instruments involved in the efficient channeling of funds from the supply to deficit economic units.
The capital market constituencies can be broadly divided into four categories, namely:
(a)  Provider of funds (Investors-Individuals, units trust and other corporate bodies).
(b)  Users of funds (Companies and Government)
(c)  Intermediaries  (Facilitators-stocking broking firms, Nigerian stock exchange).
According to Alike and Amao (1986) the stock exchange actually comprises several markets: that is within or annexed to a market for existing securities.
There is again a market for debt securities and market for equities. There is also market for example the petroleum sector, sector for Breweries, pharmaceuticals, the exchange is regarded as a market mainly for otherwise known existing securities as the secondary market.
In the last decade, the federal governments encourage the state and local governments as well as their resource gaps. Consequently, five stage governments have raised loan capital on the market. In 1993, we listed the first Municipal bond-the Lagos Island Local Government 100 Million floating Rate Revenue Bond 1996/2000. The proceeds of the issue were part of the financing for the New Sura Market on the Lagos Island. 

However, with the introduction of the Structural Adjustment Programme (SAP) in 1989 and the subsequent adoption of policy instrument such as the foreign Exchange Market (FEM) the deregulation of interest rate structure and divided policy, the Nigerian capital mark has become a more viable option for strengthening their capital structure, for modernization and expansion of operations. In the process, there has been a flurry of right. Issue offers for subscription for equity and debenture stocks.
The stock exchange: it started its operation as the Lagos state stock exchange in 1961 as a non private company limited by guarantee.
When branches of the stock exchange were append at Port Harcourt and Kaduna in 1978. The name was changed to the Nigerian stock exchange. The objectives of the Nigerian stock exchange is the machinery for the mobilization of private and public savings and making them available for productive investment through stocks and shares to facilitate the purchase and sale of securities amongst others.

It is primary purpose and objectives are
(a)  To provide facilities to the Nigerian public and now the international investing public for the purchase and sale of stock and shares of any kind and for the investment of money.
(b)  To control the granting of a quotation on the stock exchange in respect of funds, stocks and shares of any company, government, municipality, local authorities or other corporate bodies.
(c)  To investigate any irregularity or alleged irregularity in the dealings of members with their client.
(d)  To investigate any irregularity or alleged irregularity in the dealings of members with their client (inside dealings), any differences or disputes between members and their clients, any complaint made against members by other members of any other parties, provided that such differences disputes or complaints shall relate to or touch on the stock broking business or activities of such members or deal with and decide upon such irregularities differences, disputes  or complaints shall relate to or touch on the stock broking business or activities  of such member or  to deal with and decide upon such irregularities difference, disputes or complaints and to take  necessary steps for enforcement of its decision s and awards.
(e)  To promote, support, propose legislature or other measures affecting the above mentioned objects and objectives.
(f)   To standardize and review from time to time if necessary of desirable, increase or decrease the fees of other charges to be made by members for services rendered to their clients or modify the method of assessing or calculating such fees or charges.
(g)  To calculate the stock broking activities of members and facilitate the exchange of information for their mutual advantages and for the benefit of their clients and to offer facilities whereby the public can be informed of prices of shares dealing by members.
(h) To co-operate with the Association of stock-Brokers and stock exchanges in other counties and to obtain and make available to members, information and facilities likely to be of advantage to them or clients.

CENTRALS SECURITIES CLEARING SYSTEM LTD
The organization was established in 1992 to provide the capital market with an integrated clearing, depository and settlement system. It commenced operation on Monday, 14th April, 1997. It was looked on-ling to the Routers Electronic Contributor System (ECS) through which our market information are disseminated globally.

TYPES OF SECURITIES `
Securities are primarily of two types: Debt and Equity
(i)   Debt instrument are financially claims with an obligation by the issuer to pay interest at stated internals and to redeem the issue at a future date. The types available on the Nigerian stock market are divided into two groups.
(a)   federal government development stocks, Bonds or Gilt Edged
(b)  Industrial loans, preference stacks and bonds federal government development stocks, bonds or Gilt edged are usually issued annually. They are long term loans with maturity ranging between 6-25 years. Industrial loans preferences stocks and bonds are corporate loan stocks that are standard forms for financing long term capital requirement. Sometimes there is no need to raise a charge on the assets of the firms an unsecured loan stock, may be issued if the financial propite of the firm is sound. At other times, the loan stock may be secured by a floating charge, specific change or even a general lien. The  stock may be specific as to redemption date, thus the company has a  definite  number of years to plan the repayment, usually,  there is a sinwing fund made up of specific periodic,  amount set aside from profits to  meet the repayment  at maturity, Okereke Onyinke (1984) 

Another feature is the tax shield effect of interest payment. Here, the interest that is paid on the loan stock is charged against the operating profit and so the cost of interest payment. Her, the interest that is played on the loan stocks is charged against the operating profit and so the cost of obtaining the fund is effectively   reduced by the amount of tax sequel the cost of loan capital is further reduced when allowance is made for inflation says Philip Toyin (1983)
Although a company can raise its level  of debts to the maximum of the directors borrowing powers, Modigliani and Miller (MM)  1958  however suggested that “the  existence of tax  advantage  does not necessarily  mean that corporation should at all times seek to use the  maximum possible   amount of  debt in their  capital structure”   the limitation of high leverage are multi-dimensional coming  from the lenders and the exchange in  the process  of  preserving flexibility and a reduced risk  impact .
Equity capital refers to the capital of the owners of the firms i.e. ordinary shares or common stocks the ownership of a share confers on the holder some rights including the right receive notices of meetings. These and other things are stated in the memorandum and articles of association of the modern company.  The ordinary shareholders are entitled to any surplus of income in the company after the prior rights of creditors have been satisfied.  

     Odife  O (1985)  noted that equity claims are viewed  as a source of permanent capital with no contractual  payment by the firm for the company, the flexibility  offered by equity as far as dividend payments,  earnings  and cash flows are  uncertain, and its  other potentiating  are  protection against  the vulnerability which can occur as a result of a rapidly  rising  interest when  the company’s debt /equity ratio  rises. However the shareholders experts a specific after tax return   from their investment and this is the minimum return which a company must seek to earn in order to fulfill the shareholders expectation. In respect of this, the exchange expects management to run the   company in the interest of the shareholders and to enhance growth in Nigerian economy   

   In addition to the above, however, economic development is not achieved in a vacuum, the policy environment must be conducive and significant financial investment must be made in infrastructures development, including his construction of access roads, boreholes and provision of electricity
In line with  the above,  government of Nigeria had taken a bold step by abrogating the restrictive  exchange  control act  1962 and the Nigerian  enterprise  promotion decree  1989, and  its  replacement in  1995  with  foreign exchange (monitoring and miscellaneous  provision) decree  1995  and the Nigerian investment  promotion commission decree  1995  respectively, we  are beginning to notice an increasingly active foreign  presence in our market process 
Conclusively, there are indications that this trend will continue, all things being equal. Finally, many quoted companies have raised money in recent years, through rights and public offers. The Nigerian stock exchange has also been providing facilities for indigenous companies and foreign to raise long term capital to finance their expansion and modernization. Typical example is the recent pronouncement by the central bank of Nigeria to banks to increase their capital base to the tone of N25 billion by December, 2004.
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