CENTRAL SECURITIES CLEARING SYSTEM LTD | TYPES OF FINANCIAL SECURITIES



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
(a)  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  form 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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