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:

1. Development Bank, NIDB, NBC
2. THE Nigerian Stock Exchange

• The Issues Houses

1. 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:

1. The federation of Nigerian First Development Stock 1964, 1969 and 1979.
2. 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.

1. Maintain the discipline in Capital market
2. Broadening the share ownership practice

• The creation of appropriate mechanism or instrument for capital market (investment) or formation of an efficient among competing project.

1. Maintain fair price for securities
2. Provision of special financing strategic for project lending long term periods.