The capital market is a market for the
mobilization and utilization of long term funds for development. The instruments traded in the market include
government securities, corporate bonds and share s (stocks) and mortgage loans.
The market consists of an inner capital market (Market for
new securities ) and the outer capital market (not directly
concerned with the issue of new
securities but engaged in the business
of long term borrowing and lending upon which the issued of new securities
depends . the capital market embraced
therefore both the new
issues (primary ) market and the secondary
(Seasonal securities) market.
Participants in the Nigerian capital market include the Nigerian stock exchange (NSE),
discount houses, development banks,
investment banks, building societies, stock broking firms, insurance and pension organizations, quoted companies, the government,
individual and the Nigerian
securities and exchange commission
(NSEC).
The Nigerian Stock Exchange Market (NSE):
A stock exchange is a highly organized
market for dealing in stocks and shares.
Through the stock exchange, business concerns can raise the massive
financial capital by selling shares and debentures. The
memorandum of association of the stock exchange in Nigeria included the
following objective.
a.
To provide facilities for trading in securities
and supervise such trading activities.
b.
Facilitate the flow of
long term funds into commerce
and industry
c.
Maintain
fair prices for securities
However, the Nigerian stock exchange
(NSE) has branches in Kaduna, Abuja and Portharcourt which are fully operational.
business transactions handled by the stock exchange include those involving fixed
interest securities (Bonds ),
private debentures and
issues of shares. Also, the
members of the stock exchange include:
i.
Stock brokers agents, buying and selling stocks on
behalf of clients
ii.
Jobbers - buying and
selling on their own account they
use their money to buy shares and then sell some to the members of the
public.
Investment Houses: They are also known
as investment trusts. They sell shares of smaller denominations and help small
investors to participate in share floating.
Issue House: These are institutions which assist the entrepreneurs by providing immediate resources by purchasing the shares
of the issuing authority en-bloc by the
sale of shares
Underwriting House: To underwrite a
share means to provide guarantee for its sales. So underwriting house, issue
houses purchase entire issue of shares of issuing authorities and guarantee
their sales.
Also, like all stock exchange, the NSE
is made up of many market for new issues (primary market), market for exiting
securities (secondary market) and markets for debts securities and equities. There
are in fact markets for each of the sectors of the economy.
The Primary
Market:
The market is concerned with the offering of new issues or the
initial insurance and sales of securities in the NSE previously
quoted companies can seek expansion funds through the insurance of supplementary securities in this market while “new’ companies (companies not hitherto quoted on the exchange) will have to go to public before they can issue (sell )
securities to the public through the
market.
The secondary
market: The existing issues or secondary market, in a
strict sense, constitute the stock exchange since it is the mechanism which
gives liquidity to the securities listed on the exchange.
The Second –Tire
Market (SSM):
The second tire securities market was establishment on the 30th April,
1985 to small and medium-sized companies
that were unable to met their requirement of the first
-tire market (NSE) in raising
long- term capital. To encourage the
development of the SSM, stringent
conditions for enlistment in the first –tire market
were relaxed for indigenous enterprises seeking
to raise funds through the SSM.
The Nigeria Securities and Exchange
Commission (NSEC): The history of the Nigerian securities and exchange commission dates back to 1962
following the establishment of the capital issues committee
(an adhoc committee devoid of any legal
status) whose primary function was to
see to the orderly development of the capital market by regulating share prices and determining the timing of issues, the committee functioned essentially as an
advisory body under the umbrella of the central bank
of Nigeria (CBN) , after the
civil war, however given the recognition
of the important role the committee had
played in the successful implementation of the
1972 Nigerian enterprises
promotion Act, the capital issue
Act was promulgated by the
federal government in 1973, (CIC) vested with the power to determine:
a.
The price
at which shares or debentures of
a company are to be sold to the public either through offer for sale or indirect issues
b.
The
timing and amount of sale
c.
In
the case of a quoted company, the prices, amount and time of any subsequent or supplementary
offer of shares or debentures are to be sold.
However, only public companies (quoted
or unquoted) fell within the sphere of the CIC. In other
words, private companies were not obliged to seek the approval
of the CIC before raising funds through the security market.
In
1976, following the realization of the
need for an apex capital market
regulatory body, the financial
system review committee
recommended the establishment of the
securities and exchange commission.
The commission was later established
by the securities and exchange
commission Act on 27th September,
1979 (effective retrospectively
from April, 1978) with an
autonomous and legal status.
In addition to the various arms of
capital market mentioned above, it is common knowledge
that the country’s development needs at the federal, state, and local government levels for
outstrip her revenue generation
capabilities. However, the finance
and insurance sector is one that
has experienced about the
highest growth in the Nigerian economy especially since
after the introduction of the structural adjustment
programme (SAP) in 1986 . .Hence, this has had
positive and far reaching implications on the activities of the capital market in Nigeria .