Capital Market Structure And Development (A Case Study Of Nigeria Stock Exchange NSE)
Capital Market Structure And Development (A Case Study Of Nigeria Stock Exchange NSE)
Abstract
The Nigerian stock exchange (NSE) has undergone a tremendous revolution over the years. This research project has the objective of highlighting the Nigerian capital market operations, the key participants in the Nigeria capital market and to analyze the capital market structure in aiding the development of Nigerian economy. 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 markets recommendations will in no small measure serve as guide towards improved performance. In view of his, capital market operators, the need for stock exhcnage and capital structure and development thoroughly dealt with for analytic purpose. The study was conducted by means of questionnaire administered to forty (40) people by hand and the researcher did the collection of completed questionnaire personality. The questionnaire was divided in two sections A concerns the personal data of the correspondents: this will help to determine the degree of reliability to be placed on the responses section B concerns the main questionnaire with a view to determining the purpose of the research. The responses are alas equally assembled, analyzed interpreted using the simple percentage for each understanding of the study work effort were made to analyze data collected through various sources by way of primary and secondary method used the problems will be arrived for purpose of study due to questionnaire. The inability of the exchange in fulfilling this function adequately most of the time has been the brain child of the present poor employment and the sky rocketing cost of things. What we need is more reliable and efficient stock market structure whose performance will be adequate and when play a more positive and dynamic role in from of it development other will respond quickly to needs and aspiration of the Nigeria citizenry. The market must be able to provide spectrum of investment alternatives, new trading instruments with investors hedge their risk as well as environment which is honest, as efficient structure and where policies are flexible enough to accommodate very different investment needs. There is still much that thus market can contribute to the effort to put economy on the part to a sustainable development and growth.
Chapter One
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 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.
Chapter Five
Summary, Conclusion and Recommendation
5.1 Summary
The Nigerian stock exchange has undergone a tremendous revolution over the years. After about 38 years of its establishment the Nigeria stock exchange can be saw to have existed long enough to permit a capital look at its establishment was expected to provide appropriate machinery to facilitate further offering to stock and shares to the investment of saving so soon as it is clear that stocks and shares are readily available.
The chronic problems at the national and corporate indelitrarss have driven home the futility of combining too much short-term with too long markets as intended as at the time of establishment. There are some constraints in this sector. It is believed in some quarters of the economy that the Nigeria capital market is underdeveloped and has shown substantial growth since independence. And that shares a re rarely traded and prices do not reflect trading features of the listed companies.
Also it is referred that the Nigerian capital market “too many” things to do, that it will be unable to develop it’s market structure effectively efficiently.
This research project has the objective of high lighting the Nigerian capital market operations, the key particulars in the Nigerian capital market and to analyzed the capital market structure in aiding the development of the Nigerian economy. In view of his, capital market operators, the need for stock exchange are thoroughly dealt with for analytic purpose.
This study will educate and expose ignorant business men an students to understand operation of the NSE, thus, widening horizon of knowledge of the general public: epically the operators and policy makers of the capital market recommendation will in no small measure serve as a guide towards improved performance.
Therefore, the following invalid and alternative hypothesis could help us to reach an more resonance and unbiased end. Null hypothesis states that the present structure of the capital market facilitate rapid development of the economy, the second set of null and alternative hypothesis states that: the NSE has not been performing any significant role in the Nigeria economic development act that NSE has been performing a significant role in the Nigerian economic development respectively.
The questionnaire was administered forty (40) people by hand and the researcher did the collection of completed questionnaire personality. An annual report of CBN 2000 was a service of data collection.
However there is a little awareness of the public about the NSE and so it’s performance cannot be judged by all. Lack of financial resources has made participation in NSE not encouraging. Investors lack confidence in the market and no effective operating market structure. One observable trend is that, there is still armchair stock broking in Nigeria. The whole business is still too elitist.
5.2 Conclusion
It is an indisputed fact that modern organizations need capital for both modernization and expansion especially in the present era industrial and technological advancement. Even though it is possible to raise capital through debt, experience has shown that such measure is only good to a certain level. The inability of the exchange in fulfilling this function adequately most of the time has been the “brain child” of the present poor employment and the sky rocketing cost of “things” what we need is more reliable and efficient stock market structure whose performance will be adequate and when playa more positive and dynamic role in from of it development other will response quickly to needs and aspiration of the Nigeria citizenry.
The challenges that are a head is to be able to increase and retain as many of our domestic individual and institutional investors as possible and simultaneously attract foreign once to our market.
To achieve this, he will have to be dynamic innovative and have an open mind so that new ideals can be absorbed and put to use. In this respect the market must be able to provide spectrum of investment alternatives, new trading instruments with investors hedge their risk as well as environment which is honest, as efficient structure and where policies are flexible enough to accommodate very different investment needs.
Our objective thus, must always be to implement policies and strategies with the progress and good of the entire industry in mind. The investors who are the saver, the fund raisers who are the savers, the fundraisers who are the government and the publicly listed companies and stock broking community.
5.3 Limitation
In the conduct of this study, certain problems were encountered. They form the basis of the limitation.
- As pointed out in chapter three, the study made use of questionnaires for the collection of data from respondents. Hence, the questionnaire study is some of the inhibiting factors in the application of the results and conclusion.
- There cases of poor response due to the awareness by the public of the Nigeria stock exchange, which made questionnaire a problem.
- There was a problem of this constraints, there was limited time to cover properly all areas for research.
It is therefore necessary that the conclusions drawn from the findings are applied with due cognizance’s of these limitation.
5.4 Recommendation
Despite the structure and development of the Nigerian stock exchange as a contribution to the modernization and expansion of the Nigerian economy, a lot remains to be done as there is still much that thus market can contribute to the effort to put economy on the part to a sustainable development and growth. To thus and, I recommend the following measures for improvement, they include.
- Firstly, there is need for the creation of awareness, and which could be done by organizing seminars to promise activities, advert both newspaper and media, education programmes, and particular strategies should be developed to widen the investors education programme beyond the intellectual levels or the institutional investor and current market players currently adopted.
- More trading floors branches have to have to opened for the Nigeria stock exchange structure and development to be felt nation wide.
- There should therefore be an effective and simple operating market structure that should facilitate quick switches from one from of security to the other presently the system is so laborious, time consuming one at times utterly frustrating to be relied upon.
- It is necessary to maintain investor’s confidence in our market and in ensuring these NSE should not be left alone to attract investment. In the country, the government should maintain sound economic policies ensure security of live and property generally and continually improve investment.
- Finally, the structure and the development use of the stock market should be facilitated by up grading and improving upon the present standards and practices.
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Frequently Asked Questions
What is the structure of capital market?
Capital Market – Structure STRUCTURE OF CAPITAL MARKET EUGENE ITTIARA (440) VALERIAN ANTHONY (406) NEHA DUKHANDE (426) RAJESH KHARE (451) Prologue Capital markets are a sub-part of the financial system. Definition “The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds.
Do Capital Markets play a role in economic development?
A well-functioning financial system permits an economy to fully exploit its growth potential, as it ensures that the best investment opportunities receive the necessary funding, while the inferior opportunities are denied capital; in this regard, we endeavor to investigate the role that capital markets play in economic development.
What are the challenges in developing capital markets?
However, there are challenges in developing capital markets as they are to a large extent dependent on the level of economic and structural development of a country. Factors affecting the development of capital markets include;
What is the capital markets regulator doing to encourage innovation?
The capital markets regulators are already doing a lot, such as establishing REIT regimes, derivatives and exchange traded funds, but more needs to be done to encourage product development and innovation,
What is the role of capital markets in the economy?
This in turn helps the business community to raise long-term funds that are used to purchase capital goods, thereby propelling their growth and supporting the country’s economic growth. Capital markets are a general category of markets that facilitate the buying and selling of securities with medium-term and long-term maturity, of one year or more.
Why is the capital market an effective tool to drive growth?
The capital market is an effective tool to drive economic development and growth. Here’s why…? The capital market effectively transfers monetary purchase power from surplus funds of investors to those with deficits for a fixed period in exchange for greater future purchasing power.
What is the impact of capital markets on productivity?
Most importantly, it has led to more jobs and higher wages. By raising the productivity growth rate, the development of the capital markets has enabled the economy to operate at a lower unemployment rate. In addition, higher productivity growth has led to faster gains in real wages.
What are the advantages of the capital market for an entrepreneur?
Existing companies, because of their performance will be able to expand their industries and also go in for diversification of business due to the capital market. 7. Capital market is the barometer of the economy by which you are able to study the economic conditions of the country and it enables the government to take suitable action.
What are the factors affecting the development of capital markets?
Factors affecting the development of capital markets include; Country Fundamentals: The size of the economy in terms of aggregate gross domestic product and per capita income affect the development of capital markets.
What are the different types of capital markets?
Common types include commercial banks, investment banks, stockbrokers, fund managers, and stock exchanges, Users of Capital: Also known as deficit units, users of capital spend more money than they receive or need funds for investments or development. They are also termed as borrowers. They access funds from the capital markets.
Why do we need to develop and strengthen capital markets?
In light of the investment requirement, there is a greater need to develop and strengthen capital markets in order to mobilize commercial financing.
What are the economic implications of capital market reforms?
The implication will be an increase in productivity within the economy leading to more employment, increase in aggregate consumption and hence growth and development. It also helps in diffusing stress on the banking system by matching long-term investments with long-term capital. It encourages broader ownership of productive assets by small savers.
How can regulators encourage innovation in the financial markets?
This is because they set the framework, including limitations for services and products, and, ultimately, for collaborations. Therefore, when regulators demand innovation within the financial markets, they also need to provide an environment within which it can be fostered without fear.
Why do we need to regulate the capital markets?
Prudential regulation requires financial firms to control risks, hold adequate capital and liquidity, and have in place workable recovery and resolution plans. It is essential that our regulatory regime accounts for the vital role the capital markets play in providing credit and financing the real economy.
How are the financial requirements of businesses met by the regulators?
The financial requirements of the businesses are met by the capital market regulators as it makes funds available for a longer period. Capital market regulators also help in the research and development. This results in increasing the productivity of the economy.
Why do countries review the functioning of their capital markets?
This is prompting many countries to review the functioning of their capital markets to provide better conditions for financing private sector innovation, investment and growth. Capital market reforms are often supported by more competitive corporate governance regulations, including company law and securities regulation.
