1.1 BACKGROUND OF THE STUDY
A buoyant and dynamic economy is the one built upon
a sound financial system. Such finical system should be stimulated and
maintained by the effective activities of an efficient capital market, which is
the head of the “Stock Exchange”.
The stock exchange therefore is the market where
companies, raise capital on a short term and long term basis. This role of
mobilization and allocation of funds to every sector of the economy which made
it (Stock Exchange), the toast of investors has given it a pride of plan in
every economy. There is no doubt, that the success or failure of every sector
in the economy rests to every large extent on its stock exchange market. This
is because for any sector in the economy to grow an efficient means of capital
formation must not be ignored considering the importance of capital in any
Since the establishment of the Nigerian stock
exchange (NSE) some forty two years back (42) elements of stagnation, dormancy
and unproductiveness in the economy is being experienced despite the tremendous
development in the exchange systems. This situation has taken a worrisome
dimension in which many questions are being raised on the relevance of the
Nigerian stock exchange in facilitating investments in the Nigerian economy.
OF THE PROBLEM
It is widely reported that the Nigerian Stock
Exchange (NSE) has not contributed adequately as desired to the development of
the economy especially with regard to investment in Nigeria this is due to
awareness of finance possibilities of the Nigerian stock exchange market.
trading floor to meet the demand of the public.
infrastructure such as telecommunication, electricity etc to facilitate its
venture capital and weak savings mechanism.
It is along these that efforts will be made in this
study to bring to notice the validity of these and other allegations leveled
against the Nigerian Stock Exchange over the years.
1.3 OBJECTIVE OF THE STUDY
The study is being undertaken with various specific
objectives in mind, some of which includes:
the activities and the performance of the Nigerian Stock Exchange (NSE) in
facilitating investment in Nigerian.
the contributions of the stock exchange in the development process of the
Nigerian economic activities.
the major problems facing the stock exchange and as against its performance.
recommend measures to be taken to tackle the problems of the stock exchange
based on the findings.
To bring to
notice the anticipating impact of the stock exchanges i.e. the central
securities clearing system (CSC).
The findings from the study is hoped to assist
policy markets to take appropriate action or decision towards improving the
activities of the stock exchange as well as in curbing the problem facing the
This study will examine the activities and
performance of the Nigerian stock exchange with the aim of finding out the
extent to which it has contributed to the development of the Nigerian economy
especially in facilitating investments opportunities. The following questions
are therefore raised to guide the study.
extent has the stock exchange provides necessary liquidity mechanism for
investors through a formal market for debt and equity securities?
extent has the stock exchange contributed to capital formation as well as gross
domestic product (GDP) in the Nigeria economy?
How true is
the allegation that the Nigerian stock exchanges activities are note made
public to many individual investors as well as to companies in Nigerian?
extent has the policy of expanding the geographical coverage of the stock exchange
activities been successful?
H0: The market capitalization of the Nigerian Stock
Exchange does not contribute to the growth of the financial system and the
development of the Nigerian Economy.
H1: The market capitalization of the Nigerian Stock
Exchange contributes to the growth of the financial system and the development
of the Nigerian Economy.
SIGNIFICANCE OF THE STUDY
It is a widely held view among economists and
financial scholars that the economic growth and development of any economy
depends on the level of capital formation of that economy. Nigeria’s low level
of economic advancement has largely been attributed to the inability of the
Nigerian Stock Exchange to mobilize and allocate the much needed investable
Therefore, any research efforts in these directions
will contribute immensely in addressing the country’s economic problems. The
findings of this research could be of tremendous benefit to policy maker
particularly in the current effort to sensitize the capital market support it
and make it viable as well as international standard.
The economy and the investing public could also
benefit significantly from the result of the investigation, large number of
Nigerians even though having large sum of investigable funds, are either
completely ignorant or are not well informed about the operation of the stock
exchange. This unfortunate state of affairs is responsible for the large size
of money outside the financial system and consequently, the low level of
investment in the economy, on the other hand many Nigerians who are ready to
operating their own enterprises they do no know were and how to obtain
additional funds to increase their operations.
The research work is also intent to help reverse
the trend by providing necessary information about the activities of the
StockExchange to the public especially the investing public.
OF THE STUDY
Basically, this study will cover the activities and
performance of the Nigeria stock exchange (NSE) ideal with such aspect as the
historical background or evolution of the stock exchange, capital formation as
well as the role of the Nigerian Stock Exchange others areas will include legal
framework, members and governance operations, listings requirement and
instrument listed on the stock exchange.
BACKGROUND OF THE NIGERIA STOCK EXCHANGE IN THE ECONOMIC DEVELOPMENT OF NIGERIA.
There was no organized financial market or
institution in Nigeria prior to the establishment of the central bank of
Nigeria (CBN) by the Act of parliament in 1958. Consequently, surplus funds of
the financial system were invested abroad there by starving the economy of the
mush – needed capital for general development. But immediately the central bank
of Nigeria came into existence, the banks started pioneering the development of
Nigerian financial market comprising the money market for short-term funds.
The development of the Nigerian money market for
short term funds started in 1960 with the issue of the first Central Bank of
Nigeria Treasury Bills. Subsequently, other short-term debt instruments such as
Treasury certificates, commercial Bills, certificate of Deposits e.t.c were
introduced by Central Bank to increase the volume and depth of the money
The first attempt of developing the Nigeria capital
market can be traced to the year 1959, when the Central Bank of Nigeria floated
the First Nigerian Development loan stock on behalf of the Federal Government
of Nigeria. The capital market was divided into two (2) categories. The primary
market which deals in new issues and the secondary market which deals in old
securities, all in the stock exchange. In Nigeria, capital market is regarded
as the stock exchange because of the integral part it plays in the stock
exchange market. It is involved in many financial activities around which all
other operators in the capital market revolve one the other hand, the capital
market comprises of various participants and they are broadly divided into four
(4) categories, namely.
provider of funds for investors who could be individuals unit, trust and other
funds, which comprises of companies and the government.
diaries, facilities which includes stock broking firm, issuing houses and
these includes Securities and Exchange Commission (SEC), the Nigeria Stock Exchange
As can be seen above the provider of funds
essentially comprises of individual and companies, while the users of the funds
issuer of securities are expected to be government and corporate bodies. in
other words, individual may not be able to raise money from capital market as
they can do in money market.
However, the stock exchange is one of the key
institutions in the capital market which is a network of individual
institutions and instruments involve in efficient channel of funds from the
surplus economic unit to deficit economy unit. It plays a central and
indispensable role in the market because the opportunity offers for subsequent
trading in the existing securities has made it a decisive factor in the success
or otherwise the efficiency. Thus, the availability of a secondary market
engenders formation and social economic development.
Hence, the Nigeria Stock Exchange (NSE), which
constitutes the hallmark of the Nigerian capital market, plays an important
part in the economic life of the nation. Through its functions, the stock
exchange enables government and industry to raise long term capital and finance
developmental project and expansion and modernization of individual and or
It is sad to note that despite the various
functions it performance in our economy, its performance as well as its
contributions to the development of the economy is not adequate when compared
with the investment made in the Nigerian stock exchange.
The relevant terms which are used in this research
work that may be new to the reader are defined or explained below.
a. Security: These are written document or prints financial documents
by which the claims of a holder in specific properties are secured; they could
be share, bounds and debentures traded on the stock exchange.
b. Stock and shares: They are instrument representing partial
ownership interest in a business enterprise. The enterprise entitle the holder
to a proportional right over the profit known as dividend.
c. Bond and debenture: they are kinds of securities. They are legal
documents representing a promise by the company or by government (in case of
bound0 to pay back a loan, plus a certain of interest over a specific period of
d. Investment: The spending of money for purposes other than
consumption in order to earn income from it or to realize a capital gain at a
later date. It includes the purchase of stock exchange securities, government
stock, life insurance and policies.
exchange: A stock exchange is an
organized market were large and small investors alike buy and sell stock
through stockbrokers, the stock and share of companies and government agencies.
f. Stockbroker: A firm or a person who buy and sell securities on
behalf of investors for a commission called brokerage. The commission exchange
regulated by the stock exchange.
g. Jobbers: These are dealers engaged in whole-selling of
securities on a stock exchange market but do not deal with public, they only
deal with the brokers and other jobbers.
h. Listing/quotation: Listing is an omission in to official list of
exchange. To be listed is synonymous with the word “to be quoted” and this
entitled the securities to be quoted on the exchange.
i. Registrar: A registrar is a common place it is where records
in respect to quoted stocks and shares are kept.
trust: This is an instrument
whereby people pool their subscription together under a trust deed. The scheme
involves on one hand, a managing and on the other hand a trustee, which is usually
a company, very often a bank or insurance company.
k. Cum-Dividend: This is sometimes written as “co’ and it means
that shares are transferred with dividends.
or “XD”: It is a financial
expression for without dividend. A declared in that period for its new
capitalization: The value
of a firm as determined by the market place of its issued and outstanding
securities clearing system (CSCS): This is a computerized subsidiary company of the Nigeria Stock Exchange
(NSE) put in place to expedite the settlement delivery and custodian traded in
the stock exchange. The CSCS was commissioned and commence full operation on 8th
and 14th April 1997 respectively.
market: The market in which
stock is traded after being issued in a primary market.
market: This is the market for
initial offer of securities as when a company makes its initial contact with
the public in search of public fund, initial corporate capital or additional by
already existing or quoted company.
tier securities market: This
is the market where small and medium scale companies have their shares listed
on daily basis.
stock: Equity securities
having last cliam or residual assets and earning of a corporation.