CAPITAL MARKET STRUCTURE AND DEVELOPMENT (A CASE STUDY OF NIGERIAN STOCK EXCHANGE NSE)

CHAPTER ONE

1.0     INTRODUCTION

1.1     BACKGROUND OF THE STUDY   

The Nigerian capital market is a long term end of the Nigeria financial system just as the money market is its short-termed in other words, the capital market performs for the economy, at the long-term end, the functions which the money market performs at the short-term end of the spectrum. Thus, while those who are short of funds and need to borrow for short-term propose borrow from the money market, those who are short of fund and are desirous of borrowing for the long-term go to the capital market, those who are short of fund and are  desirous of borrowing for the long-term go to  the capital market.

Similarly while those who have funds surplus to their immediate requirements and wish to lend or invest these funds for short-term periods do so in the money market, those who have such funds and to lend there for long periods invest or lend these funds to  capital market.

The regulation of financial markets and the liberation of economies capital flows in sere veal African countries raise a number of challenging issues. Policy makers and practitioners are concerned and involved with these issues. A vast set of issues concerns the setting up and designs of capital market operation (trading structures). This employs the philosophy of capital market building, the role of capital market (stock) market in achieving the overall financial objectives (auctions and dealership) choice for the relative competitiveness of emerging stock markets, connections between innovative in trading and regulations world market.

1.2     STATEMENT OF THE PROBLEM

The Nigerian stock exchange has undergone a tremendous revolution over the years. After about 38 years of establishment, the Nigerian stock exchange can be said to have existed long enough to permit a capital look at its structure and development. The stock exchange long enough to permit a capital look at its structure and development. The stock exchange or its establishment was expected to provide appropriate machinery to facilitate further offering to stock and shares to the general public in the private sector of the economy, encourage the investment of savings so soon as it is clear that stocks and shares are readily available.  

However, any doubt the importance of domestic capital market  in ensuring a balanced economic growth should have been dispelled following the experience of most countries since 1980’s. The chronic problems of national and corporate indebted have  driven the futility of combining  too much short term with too  little long term equity.

Things have not been that “smooth” for the Nigerian capital market as intended as at the time of establishment. There are some constrains in this sector. It is believed in some quarters of the economy that the Nigeria capital market is underdeveloped  and has not shown substantial growth since  independence. And that shares are rarely traded and  prices do not reflect trading features of the listed  companies.

Also it is feared that the Nigeria capital market has “too many” things to do that it will be unable to develop it’s market structure effectively and efficiently.

1.3     OBJECTIVES OF THE STUDY

This research project has the objective  of highlighting  the  Nigeria capital market structure and development. It looks at the capital market operations, the  key participants in the Nigeria capital market and to analyze the capital market structure in  aiding the development of the Nigerian economy.      

In view of this, capital market operations, the need for stock exhcnage and the Nigerian capital make and capital structure and development thoroughly dealt with for analytic purpose.

1.4     SIGNIFICANCE OF THE STUDY

This study will educate and expose ignorant business men and student to understand the operations of the NSE thus, widening the horizon of knowledge of the general public, especially the operations and policy makers of the capital market recommendations will in no small measure serve as guide towards improved performance.                                  

1.5     STATEMENT OF HYPOTHESIS

Hypothesis is a conjectural statement of the relationship between two or more variables. They  are always declarative sentence from and they relate to either generally or specifically variable to variables.                                                    

Therefore, the following invalid and alternative hypothesis could help us to reach a more reasonable and unbiased end:

Ho:    The NSE has not been performing a significant role in the Nigerian economy development.

Hi:    The NSE has been performing a significant role in the Nigeria economic development.

1.6     SCOPE OF THE STUDY

This project is restricted to the study of Nigerian stock exchange, Lagos as a case study. And covered the period 2005 to 2007.

1.7     DEFINITION OF KEY TERMS

          NSE – Nigeria stock exchange

SEC – Securities and exchange commission

SECURITIES – These are written on printed financial documents by which the claims of holders in specialized properly are secured. They could be stock, shares, bonds and debenture traded on a stock exchange.

STOCK EXCHANGE – An organized market for securities.

SHARE HOLDING – The shares owned by specific payer.

ISSUING HOUSE – This is a dealing member that helps to prepare prospectus to sell new securities offered to the public by company and government.

EQUITY – Ordinary shares of a company residual right of ownership over the assets of a firm.

DIVIDEND – part of the profits of a company appropriated to shareholders.

DEBENTURE – A document, which contains an acknowledgement of your indebtedness.

JOBBERS – Those who help map up all surplus stock and release   them to the market as demand permits.

STOCK BROKERS - A firm or person who buys and sells securities on behalf of investors for a commission called brokerage.

INVESTORS – A person or an institution who uses his savings or borrowing to buy securities.

BROKERAGE – This is a commission that stock broker charge for service rendered.

RIGHT ISSUE – these are funds obtained by issue of share for cash ordinary share holders in proportion to their existing holdings unless shareholders in general meeting agreed otherwise.

PRICE EARING: - this is the current market price of share of ratio (PIE) dividend by it’s earning per share. The ratio indicates investor’s confidence in the stock as well as pay back period of the stock.

BONUS SHARES SCRIPT – These are new share made fully paid by the capitalization of reserves and allotted three of charge to ordinary shareholders in   proportion to their existing holdings.                       

NSEC – Nigeria Stock Exchange commission                                                        

IPO’s – The pricing of securities

BOND – Securities that has a nominal value and which entitles it’s holder to the payment of interest by the issuer at  regular intervals until the user redeems the bond.

BOND HOLDER – the on who  owns a bond.

CAPITAL MARKET – A market for the supply of capital to firms.

ECONOMIC DEVELOPMENT – This is a sustained improvement in material well development being which we may consider to be reflected in an increasing flow of goods and services                                                                                                                   

OFFER FOR SALE - A public offer of shares in a company which is made by an issuing house and in which the shares being sold are not new shares but have been sold by the existing share holders.