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AN ANALYSIS OF THE OPERATION OF THE NIGERIAN CAPITAL MARKET (A CASE STUDY OF THE NIGERIAN STOCK EXCHANGE KADUNA BRANCH
ABSTRACT
The capital market has an important contribution make in terms of mobilization of savings to profitable self liquidating investment. An analysis of the Nigeria capital market is the subject of this research because effective capital market can offer several advantages to governments and private sector. This project is designed to analyze the problems and prospects of the capital market, this is because it is from the capital market that funds were raised to finance most of the investment in premises, buildings productions, plant and machinery of the private sector in Nigeria. Nevertheless the result of this project shows that the Nigeria capital market has contributed immensely towards providing short–term and long capital for government and private companies for the economic growth of Nigeria. It also assist investors, to have great confidence in funding big project. Finally, for the capital market to enable operational efficiency and attract more investors, it depend largely on the extent to which the capital market adapts fast hanging world information through the use of internet, E-mail, E-Commerce and effective telecommunication like the telephone, locally and (internationally) GSM and etc.
TABLE OF CONTENTS
Title page- – – – – – – — – – i
Declaration – – – – – – – – – ii
Approval – – – – – – – – – – iii
Dedication – – – – – – – – – iv
Acknowledgement – – – – – – – – v
Abstract – – – – – – – – – – vii
Table of contents- – – – – – – – – viii
CHAPTER ONE – Introduction
1.1 Background of the study – – – – – – 1
1.2 History background of Nigerian Stock Exchanged
Market in Nigeria – – – – – – – 3
1.3 Objective of the study – – – – – – – 8
1.4 Statement of General Problems- – – – – 9
1.5 Background of the Subject Matter – – – – 10
1.6 Rational for the study- — – – – – – 11
1.7 Scope of the study – – – – – – – 12
1.8 Statement of hypothesis– – – – – – – 12
1.9 Definition of terms – – – – – – – 13
CHAPTER TWO– Review related literature
- Introduction – – – – – – – – 14
- The Nigerian securities and Exchange Commission – 17
- Evaluation Stock Exchange Commission Activities in
Nigeria – – – – – – – – – 19
- The role of the capital market – – – – – 21
- Ideal environment for efficient capital market – – 22
- The Nigerian Stock Exchange Operation – – – 23
- Trading procedure in Nigeria Stock Exchange – – 26
- The Issuing Houses practice – – – – – 29
- The Unit Trust – – – – – – – – 34
- The Problems of the Nigerian Capital Market – – 35
CHAPTER THREE – Research Methodology
3.0 Introduction – – – – — – – – 43
3.1 Research approaches used – – – – – 43
3.2 Justification for approach used- – – – – 43
33 Instrument used- – – – – – – – 44
3.4 Research population and sample size- – – – 45
3.5 Sampling procedure employed – – – – – 45
3.6 Justification for sample procedure and sample size- – 46
3.7 Statistical techniques used in Analysis the data. – 46
CHAPTER FOUR – Presentation and analysis of Data
4.0 Introduction – – – – – – – – – 48
CHAPTER FIVE – Summary, Conclusion and Recommendations
- Introduction – – – – – – – – – 55
- Summary of finding – – – – – – 55
- Conclusion – – – – – – – – 55
- Recommendations – – – – – – – 56
References – – – – – – – – 58
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The capital market as a subsection of financial market, deals in long term and short term, as well as operating stock. It may not involve the issue of negotiation instrument but, cash flow from operators and direct negotiation or re-capitalization. These are done through organization such as:
- Development Bank, NIDB, NBC
- THE Nigerian Stock Exchange
- The Issues Houses
- The Unit Trust which are largely the government owned and therefore, have their capital subscribed by government. It also involves Insurance Company which also have their capital issued subscribed direct also have owner i.e. government or private owned. They Rightly be called the market for direct negotiation long term (NDLF) that is the arm of capital market.
The other arm of capital market is the securities market that deal in the issue of sales of long term securities like the money market. Securities market involves the lending of money in one form or the other unlike the money market however, the securities trade in long term debt are bonds issue by the government on agency which when bought by individual or institution grants loan to what ever organization that issued it.
It is thus a promissory note or (100) whichever issue promissory to repay at certain date in the future and pay by the buyer as a guaranteed rate of interest. Among such bonds available in Nigeria capital market are:
- The federation of Nigerian First Development Stock 1964, 1969 and 1979.
- Cooperate debenture stock: These are issued by the government whose stock are normally, quested on the stock exchange, are recent one being the CFAO often for subscription of N25 million 12% redeemed debenture stock.
The equities on the other hand are purchase share or stock issued by company or institutions by individual, group or financial intermediaries. The purchased of share or stock does not become a creditors as the case of bond or under bond issue, rather he became an owner of the company. The corporation promises nothing in return except through good business management, it increase its earning which allow the purchased (now an owner) to earn in dividends.
The equities on the other hands are purchased shares and stock issued by a company or institution by an individual. The equity can be in form of shares (offer for subscription) as the case was first issued in the Nigeria in February 1959 when the Nigeria Cement Company Limited. (Niger Cement) made a public offer of N100.00 N2 per value share at April, 1960.
The securities market can be newly issued securities board, or equities that primary segment of the capital market or in securities that have already been issued. That is the secondary market for outstanding securities that has also been issued.
1.2 HISTORICAL BACKGROUND NIGERIAN STOCK EXCHANGE MARKET
The Nigerian Stock Exchange (NSE) was established in 1960, and currently has some 283 listed companies with a total market capitalization as at March 09, 2007 of about N5.819 trillion ($46.2 billion). All listed are included in the only index, the Nigerian Stock Exchange, All shares Index (website [1] (http.
In 1998, the NSE management protested to the government about a report of a committee the government had established, headed by respected banker Dennis Odife, on the form of Nigerian Capital Market. The NSE said that the report recommendation for setting up what would be called the Lagos Stock Exchange (L.S.E) was bound to be misunderstood by many Nigerian and Foreign Investors, who might questions its down grading to local exchange. NSE officials requested that the exchange retain its name and be allowed to operate on level of playing field with proposed government exchange and argue that the SEN should not be given undue advantage over the NSE and other competitors. The Securities and Exchange Commission (SEC), the apex government body which regulated the capital market in Nigeria favour the multiple exchange system, which is view at a better option for attracting the investors to cities other than Lagos, when capital market activities concentrated.
The Lagos exchange is an affiliate member of the Federation Stock Exchange (FIBN) its also an observer at the meeting of International Organization of Securities (I.O.S.C.O) and the foundation member of African Stock Association (ASEA).
The exchange has an automated trading system. Data on his companies performance are published daily, weekly, monthly, quarterly and annually. In order to encourage foreign investment in Nigeria, the government has abolished legislation preventing the flow of foreign broken to enlist a dealer registration. The Nigerian Stock Exchange and Investors of any nationality are free to invest.
Nigerian companies are also allowed multiple and cross burden listing on Foreign Markets Trading days and times are on Monday to Friday 11.00 to 13.00 charges include 3% commission traded value shared and a 1% securities and exchange with holding tax on dividend and invest remain at 10% Corporate Income Tax 35% per capital gain tax 10% how is the all shares index calculated what is the value of listed year 1994?
In the 1950s, there serious discussion in both business and academic circle about the formation of an organization of an capital market in Nigeria. However, in May, 1958, the Federal Ministry of Commerce and Industries appointed a committee to consider the desirability and means of establishing the stock market. The committee recommendation that, stock exchange market should be established and that part time broker to be “licensed to market off” sellers and buyers of marketable securities. On 15th September, 1960, the then Lagos Stock Exchange was incorporated as non profit organization purposely encourage in low and out flow of securities for the purpose of investment.
The Nigerian Industrial Development Bank (NIDB), the Central Bank of Nigeria (C.B.N) Federal Government with authorized share capital of N100.00 dividend into 500 share of N2.00 each. However, this has been increase to N20.00 it was further recognition to the existence or strengthened by the Lagos Stock Exchange Act 1961 which gives recognition to the existence to the stock exchange by granting protection to its business (non-member where prohibited by its provision from electing in stock exchange quested on the exchange). However, the committee formed for the purpose of establishing stock exchange market, market submitted to the following recommendation.
- The Established of Rules of Transfer
- The creation of facilities for dealing share
- The reduction or elimination of tax deduction at source including measure to encourage saving issue of securities of government and other organization.
On the 5th of June, 1961, prior to the acceptance or otherwise of the recommendation, the Lagos Stock Exchange Act 1961 came into being as a result the exchange was transformed into Nigerian Stock Exchange with branches Kaduna, Lagos, Port Harcourt. All mentioned branches are operating primary as trading floor while the National Council remain over-all responsibility for the quotation and enforcement of regulating capital market. However, being a capital market where flow objectives of the capital market include the following.
- Maintain the discipline in Capital market
- Broadening the share ownership practice
- The creation of appropriate mechanism or instrument for capital market (investment) or formation of an efficient among competing project.
- Maintain fair price for securities
- Provision of special financing strategic for project lending long term periods.
1.2 OBJECTIVES OF THE STUDY
The position of the capital market to the economic development of any economy as very great and therefore, business managers are very conscious of its operation its on this basis that this study is paramount in order to understand the working of the Nigerian Stock Exchange and how its positively engineering the growth of the Nigeria economy through the provision of capital to individual and organization to either expand their business or capitalize.
This study would attempt to look at how the growth of business organization positively or negatively and the way forward. It would attempt to look at how the growth of business organization it would also assess the difficulties organization faces in an attempt to their expand or re-capitalized their business through the Nigerian Stock Exchange.
It is also hope to mute solution on the way forward solving some of the problems organization faces in order to acquire capital through the Nigerian Stock Exchange.
1.3 STATEMENT OF GENERAL PROBLEMS
The position of the capital market to the following economic development of any economy as very great and therefore, business managers are very conscious of its operation. Its on this basis that the study is paramount in order to understand the working of the Nigerian Stock Exchange and how its positively engineering the growth of the Nigeria economy through the provision of capital to individual and organization to either expand their business or capitalize.
This study would attempt to look at how the growth of business organization positively or negatively and the way forward. It would attempt to look at how the growth of business organization it would also assess the difficulties organization faces in an attempt to their expand or re-capitalized their business through the Nigerian Stock Exchange.
It is also hope to mute solution on the way forward solving some of the problems organization faces in order to acquire capital through the Nigerian Stock Exchange.
A new era in life of the Nigerian Capital Market began on Monday July, 31st 1978, with the opening in Kaduna a branch of Nigerian Stock Exchange. The branch serve million of Nigerian Investors. The idea of having the branch is to assist in spreading the benefits of stock market operation to the northern part of the country.
The Kaduna Stock Exchange is located at Turaki Ali House behind NNDC on the first floor of the building. The formation and proper use of capital is pre-requisite for development of any country. Although capital on its own cannot bring development, it has not be combined with the other factors of production like land and labour.
Capital is formed when people refused to spend their present income and invest it somewhere like business for future use. Capital is formed i.e. surplus money not spent now has to be channeled properly it is that role of capital market comes in. Therefore, the Nigerian Stock Exchange Kaduna branch is now located at the Magadishu layout opposite Unity Bank Building, Kaduna.
1.5 RATIONALE OF THE STUDY
This research project is of utmost important in the light of the fact that brings an additional understanding of the Nigerian Capital Market in terms of its operation as it affect organization.
It will also help to create awareness of the general public particularly investors to appreciate the opportunities that exist in the capital market.
This study will secure as reference to student studying financial market to understand the operation of the capital market easily.
1.6 THE SCOPE OF THE STUDY
Given the scope of the Nigerian Capital Market, the study will look into the operation of the Nigerian Stock Exchange within the capital market particularly Kaduna branch.
The role of securities and exchange commission and to some extend the activities of the issuing houses as market operators within the capital market and also give some possible solution and recommendation.
1.7 STATEMENT OF HYPOTHESIS
Ho: The operations of the Capital Market did not satisfy the demand of Nigerian’s economy.
Hi: Operation of the Capital Market satisfy the demand of Nigerian’s economy.
1.8 DEFINITION OF TERMS:
(1) N.S.E: Nigerian Stock Exchange
(2) S.E.C.: Security Exchange Commissions
(3) F.I.B.C.: Federal of Internal Stock Exchange
(4) C.S.C.S.: Capital Securities Clearing System
(5) C.I.C.: Capital Issue Commission
(6) A.S.E.A.: African Stock Exchange Association
(7) L.S.E.: Lagos Stock Exchange
(8) (J.S.E): Johanneseburg Stock Exchange
(9) F.S.E.: Federation Stock Exchange
(10) I.O.S.C.O.: International Association Securities Commission
(11) F.A.C.O.M.E.X.: First African Commodity and Future Exchange
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