Capital Market and Stock Exchange

DEFINITION

This is also called stock exchange market. It is a highly organised market where investors can buy and sell both private and public securities. This is a market where those who are interested in purchase of securities are brought into contact with the sellers. It serves as a source of raising capital as well as a forum for financial investment.

FEATURES OF CAPITAL MARKET

The feature of capital market are as follows:

• It is a market whereby finances can be raised on long term basis
• The products of this market are shares, debentures, stocks, bond, gilt – edge securities and so on
• It is a market whereby securities can be converted to cash and be made to change hands
• The returns on the securities in this market are dividends and interest
• The regularity authority in this market is the Security Exchange Commission (SEC)
• The dealers in the market are individual persons, stock brokers, government, companies, jobbers, speculation, investment companies, unit trust and so on.
• The market has networking through the branches in geographical locations and in commercial locations in Nigeria.

LISTING ON THE STOCK EXCHANGE MARKET

Listing is the admission of a company’s capital or instrument on the trading floor of the stock exchange market. Before the admission, the company must have complied with the listing requirements as embodied in the stock exchange green book. A company can be listed on the First Tier Securities market or Second tier security market.

Requirement for admission into SSM

Before a company can so admitted into SSM it has to fulfil the following requirements

1. The company must be incorporated as a public limited liability company  under the companies Act 1968.
2. The shareholders must not be less than 100
3. The company must sign a general undertaking with the stock exchange market.
4. The company must make available at least 10% of its equity share to the investing public.
5. The financial statement of the company for three years must be submitted to the stock exchange.
6. Any investor or shareholder will not be allowed to either directly or indirectly acquire more than 75% of the issued capital.

Operating Regulations of SSM

a. Method of Admission: the following are the methods of admission into the SSM

1. Offer for Sale: This is an office to the public to sell part of the equity of existing shareholders of a company to investors.

2. Offer by introduction: A company can so allowed entry offer it has sold 10% of its equity to the public.

3. Offer by placement: Here, stockbrokers undertake to look for buyers for at least 25% of the company’s share.

4. Offer for subscription: offer for subscription is an offer to sell new shares of a company to interested investors.

FUNTIONS OF SECURITY AND EXCHANGE COMMISSION

• Valuation of shares
• Registration of securities
• Registration of market operations
• Approval of shares allotment
• Enforcement of sandoom against erring operators
• Approval and regulations on merger and acquisition
• Acting as regulatory apex organization of Nigeria capital market.

FUNCTIONS OF NIGERIA STOCK EXCHANGE

The stock exchange performs the following functions:

1. Facilitate the purchase and sales of securities
2. Provision of corporate information
3. Valuation of price of securities
4. Provides information about daily transaction
5. Provision of rules and regulations
6. Provides professional advice
7. Ensuring the liquidity of securities
8. Help the government to raise funds
9. Transfer of securities
10. Enable company to raise fund
11. Increase in the volume of security
12. Provides market for investment
13. Stability of capital

MEMBERS OF THE STOCK EXCHANGE MARKET

1. Stock brokers
2. Jobbers
3. Issuing houses
4. Registrars
5. Receiving banks
6. Authorized clerks
7. Unauthorized clerks

ASSIGNMENT

Differentiate between a jobber and a broker

State the function of the stock exchange market