CAPITAL MARKET STRUCTURE AND
DEVELOPMENT (A CASE STUDY OF NIGERIA 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.