An Evaluation Of The Impact Of Regulatory Bodies In Developing A Viable And Sustainable Capital Market (A Case Study Of Nigerian Stock Exchange)

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An Evaluation Of The Impact Of Regulatory Bodies In Developing A Viable And Sustainable Capital Market (A Case Study Of Nigerian Stock Exchange)


The Nigerian Capital Market is indeed a tool for economic growth and development. Many researchers are of the opinion that the market has done well, especially in terms of return on investments. If this is true, the impact is supposed to be shown on the economy of the nation. The aim of the research is therefore to evaluate the impact of regulatory bodies in developing the capital market with particular reference to the Nigerian Stock Exchange. Data were gathered on the activities of the Nigerian capital market for a period of 5 years (i.e. 2005 – 2010) through studying existing documents and the administration of questionnaires. Descriptive research methods were used. The analysis of data was based on chi-square and the use of table and simple percentages. The findings of the study revealed that the impact of the regulatory bodies on the capital market has enhanced the listing of more companies on the floor of the Nigerian Exchange. Finally, it is recommended, among others that less stringent listing requirement be employed by the Exchange to allow more participation of intending participants in the market.

Table of Contents

Preliminary Page(s)

  • Title Page
  • Declaration
  • Approval Page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Contents

Chapter One

1.0 Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problems
  • 1.3 Objectives of the Study
  • 1.4 Research Hypothesis/Questions
  • 1.5 Significance of the Study
  • 1.6 Scope of the Study
  • 1.7 Historical Background of the Case Study
  • 1.8 Definition of Terms

Chapter Two

2.0 Literature Review

  • 2.1 Relevant Concepts and Theories
  • 2.2 Sub Heads

Chapter Three

3.0 Research Methodology

  • 3.1 Population and Sample Size
  • 3.2 Sampling Techniques
  • 3.4 Sources and Method of Data Collection
  • 3.5 Methods of Data Analysis
  • 3.6 Justification for the Choice

Chapter Four

4.0 Presentation and Analysis of Data

  • 4.1 Data Presentation
  • 4.2 Data Analysis and Interpretation
  • 4.3 Testing of Hypothesis/Questions and Interpretation

Chapter Five

5.0 Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Limitations of the Study
  • 5.3 Conclusion
  • 5.4 Recommendations
  • Bibliography
  • Appendix

Chapter One


1.1 Background of the Study

The economic growth and development of any economy largely depend on the ability to raise capital through the capital market. The Nigerian stock exchange is a place where the enormous capital which is required to operate the huge industrial and commercial cooperation today can be raised.

Osaze (1991) asserted that the emergence of the institution of the Nigerian stock exchange is a spontaneous reaction of the enterprise economies. The significance reaction of the stock exchange in an economy such as our own cannot be over emphasized, for it is the bed-rock of large scale investment. The Nigerian government hopes to create an economy which would bring about the best in its citizens, compete effectively in the global market and improves the standard of living of its people. An economy where hard work, accountability and transparency would be the cardinal principle that both foreign and local investors would be proud to participate in. once investors looses confidence as a result of market abuse, the growth and development of capital market would be adversely affected and considerable effort would be required to restore confidence.

To be globally attractive and completive, the stock market must be seen to imbibe practices which are globally acceptable. For this reason government tries to put in place adequate regulatory mechanism to prevent or at least minimize market abuse in order to uphold the integrity and confidence that is very essential for the development of a viable and sustainable capital market.

The Nigerian stock exchange is the centre point of the Nigerian capital market. However, the Securities and Exchange Commission (SEC) and the central bank of Nigeria (CBN) are the apex regulatory bodies to the capital market. The tendency of our financial structure has been to channel loans to industries of the past rather than the future (i.e. the rich third world countries). This has become invariably clear that even those external financiers are eroding, thus the need for our own structure in Nigeria to meet up with the excess demand for capital to finance gigantic projects and businesses.

The international organization such as the world bank group are very conscious of the high risk involved in venture of loan given to third world countries which will eventually evade payment of such loans.

There is every need to meet such demand and requirements for smooth and long lasting system for sourcing of such requisite finance.

The study therefore examines in order to evaluate what regulatory bodies have done to ensure the development and sustenance of a viable capital market that will meet global challenges.

1.2 Statement of the Problem

For an emerging market like Nigeria, the stringent control measures put in place to regulate the activities of the Nigerian stock exchange for the smooth running is a very huge problem that is hindering the development of the market. The researcher hopes to seek for solution(s).

Regulators in our emerging market are also faced with a problem of ignorance, Nigeria with a population of 160 million, and half of the populations are ignorant about the investment opportunities that abound in the capital market. This is also a monumental problem that the researcher hopes to proffer solution to. Only if solutions to the stated problem are provided that the research work will be significant

1.3 The Objective of the Study

The objective of this study is to seek for the means of relaxing the stringent control measure put in place to regulate the activities of the Nigeria stock exchange to make it run smoothly and effectively.

To educate and sensitize Nigerians who are ignorant of the investment opportunities that are available in the Nigeria capital market. If about 160 million or half of the population invest in the capital market that will bring about a viable development and sustained growth in the Nigerian capital market.

1.4 Research Hypothesis / Questions

Hypothesis is the method used by the researcher to test and prove guess statement in connection with the problem of the research being carried out in this study to confirm on the hypothesis made.

Null Hypothesis Ho- the impact of the regulatory bodies on the Nigerian capital market has not enhanced the listing of more companies on the floor of the Nigerian stock exchange.

Alternative Hypothesis Hi- the impact of regulatory bodies on the Nigerian capital market has enhanced the listing of more companies on the floor of the Nigeria stock exchange.

1.5 The Significance of the Study

The significance of this study cannot be over-emphasized. The research will contribute to the existing body of knowledge in the capital market administration; it will help the director general of the Nigerian stock exchange and his or her management team by exposing some means through which they can improve their performance towards meaningful achievement therefore, this study will have the following significance, the study will evaluate the impact of the regulatory bodies in developing a viable and sustainable capital market. Whether it has helped increased the aggregate of listing of more companies on the floor of the Nigerian stock exchange or not. When it is found out to be negative solution will be suggested.

In this regards, the research work will be significant to the following:-

  1. The director general and his or her management team.
  2. The Nigerian stock exchange (NSE)
  3. Academicians. It will serve the purpose of arousing deep thought and genuine interest on the subject matter for further research.
  4. The stock market operators.
  5. The public as well need the knowledge to be able to assess the performance of the stock market
  6. Government, regulatory bodies such as the Securities and Exchange Commission and the Central Bank on Nigeria
  7. Non governmental organization(NGOs)
  8. Financial analysts
  9. Foreign and local investors
  10. The general public

1.6 The Scope of the Study

The scope of this research is limited to Nigerian Stock Exchange. The researcher will focus on the evaluation of the impact of regulatory bodies in developing a viable and sustainable capital market in Nigeria. In essence, the researcher will look at the regulatory frame work put in place to ensure the development of an effective and efficient capital market. Between 2005-2010

1.7 Historical Background of the Case Study

The Lagos stock exchange (LSE) established in 1961 became the Nigerian stock exchange (NSE) in 1977 as the hub of the capital market activities where media and long term financial securities are traded. NSE provide avenue where by sellers and buyers exchange securities at mutually satisfactory prices thereby creating liquidity through its price mechanism. Initially NSE had a set of requirement to be fulfilled before a company is enlisted in the stock exchange market, but in 1985 another requirement for enlistment were issued to allow smaller and particularly wholly individual enterprise to be registered with the stock exchange. Securities that met the initial requirement are referred to as first-tier securities, whereas securities that could meet only the next set of requirement are referred to as second-tier securities. As such there are two types of securities market in NSE, First-tier securities market (FSM) and second-tier securities market (SSM).

There was an attempt for establishment of Abuja stock Exchange (ASE) apart from the Nigerian stock exchange (NSE) which is to be named as Lagos stock exchange (LSE) but the federal government of Nigeria later changed the ASE to Abuja commodity Exchange in 2001 however, the attempt for establishment of ASE was done in order to enhance the efficiency of the stock market activities in the country through healthy competition by the two stock exchanges instead of monopoly by a single institution.

Issuing House:

Issuing houses are institution that advise assist and sometimes undertake the issuance of securities for companies that want to raise funds in the capital market in Nigeria issuing house are primarily merchant bank and stock brokerage firms which set some requirement for a company before accepting to package and act as agent for the company in the said issue. Some of these requirements include level of growth in profitability adequacy of working capital, spread of risk of the venture, size of company and soundness of management decision.

Share Registrars:

A share registrar could be the secretary of a listed company or an institution, which maintains the register of shareholders for a company that has raise funds from the capital market. The registrar is responsible for issuing share certificate to the shareholders. In Nigeria the major share registrars are three (3) big banks in the country. (UBA, FBN and Union Bank). Stock brokerage firms and some trading companies.

Unit Trusts:

Unit trusts are new institutions arrangement in Nigeria for mobilizing the financial resources of small savers for investments in the capital market and managing such resources to achieve maximum return possible with minimum risk through efficient portfolio diversification. Companies and Allied Matters Decrees of 1990 provides the legal framework for establishment of unit trusts in Nigeria. These trusts pool the funds of the public by selling the shares of the trusts and investing the funds mobilized in the capital market securities. The holders of trusts shares are given dividend or capital gain on pro-rate basis.

Stock Brokerage Firms:

A stockbroker is a firm or an individual who buys and sells securities on behalf of investors on the floor of the Stock Exchange for a Commission called brokerage. Issuing houses originate and sometimes underwrite securities issues, stockbroker distribute and market securities. Issuing houses are also stock brokers in Nigeria and some affiliate companies of merchant banks.

1.8 Definition of Terms

Private Placement: One of the pre-requisite for a company to be listed on the NSE is for it to do private placement. This is done in private without advertisement where a particular set of investors not necessarily the public is informed about the offer and invited to invest in a company.

Initial Public Offer (IPO):

An IPO is when a company is offering its shares for sale for the first time to the general public. Many companies e.g. Zenith Bank, NAHCO, Dangote Sugar Refinery Plc etc have had IPOs in the past.

Right Issue:

This occurs when a company wants to raise money, but only through existing shareholders of the company. Shares are allocated to already existing investors.

Bears and Bulls:

This is an investment jargon used to describe the market movement. When the market is bearish it means most stock prices fell, but a bullish market is one in which most stock prices are going up.

Market Capitalization:

The market capitalization of a company is what it is worth on the Stock Exchange. It is an easy way to evaluate the worth of a company. It is simply the market price of the stock multiplied by the overall issued shares of the company.

Blue Chip Company:

These are shares of companies with long track record of good performance, stability and earnings.


A company is said to be listed when its shares are quoted on the floor of the stock exchange. This enables the shares of the company to be easily traded on the stock market.

Call Price:

The price at which a security with a call provision can be repurchased by the issuer prior to the security maturity period.

Net Asset Acquired:

These are proportions of shares in nominal value and the reserves as at the date of acquisition of the company.

Minority Interest:

These are the net assets (i.e. shares capital and reserves due to the other shareholders in the company other than the holding company.)

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

A global survey of capital market categorized the market into developed markets and emerging market. A close look at those countries with such developed markets such as USA, UK, Australia etc can convince a reader that the capital market has much to offer to the society. In the same vein, emerging markets which Nigerian Capital Market is one equally have a role to play in the Nigerian Society.

This study therefore attempts to look at the impact of the regulatory bodies in developing the Nigerian Capital Market with particular reference to the Nigerian Stock Exchange which is the nerve centre of the Nigerian Capital Market.

Contending views of researchers about the performance of the Nigerian Capital Market where looked at in chapter one.

Research questions were also raised to enable the researcher have a focus on the subject matter. The significance as well as the rationale behind the study were also stressed to inform better appreciation of the study.

A review of related literature was undertaken to know what views researchers hold on the matter (i.e. the stock market). In the course of doing that, brief history of the Nigerian Capital Market was traced from inception. The Regulators and Operators of the Exchange were discussed as well as various instruments.

In chapter three, basic research methods which include descriptive and statistical analysis were discussed. The method for data collection for the study which was basically primary was also stated. The researcher went further to discuss various techniques used in data analysis (which is chi-square and simple percentages and tables) and the justification for the choice of such techniques.

The history of Nigerian Stock Exchange was traced from inception to date. Data were collected and analyzed to assess the performance of the Exchange during the period under review (i.e. from 2005 – 2010).

Another issues considered were the level of compliance with the regulations of the Exchange in Capital Market development. The research finding revealed the general low performance of the Nigerian Capital Market. The conclusion, limitation of the study and various recommendations are highlighted below.

5.2 Limitations of the Study

A research can hardly be free of limitations. This research work was not an exception in carrying out this study, the following constraints were encountered.

i) Financial Constraint:

The researcher faced financial constraints resulting in his inability to go to Lagos floor of the Nigerian Stock Exchange where the bulk of the activities are being carried out.

ii) Time Constraint:

Because of time constraint the researcher could only visit Kaduna floor of the Nigerian Stock Exchange and the Securities and Exchange Commission in Abuja.

iii) Conflicting Views and Figures:

There are conflicting views from different authors about the same issues and figures supplied by the two main components of the capital market (NSE & SEC). Sometimes these views are at variance which pose a problem to the researcher. In spite of the above limitation encountered, the researcher was still able to get all the needed data for the research work.

5.3 Conclusion

The capital market is an indispensable tool for economic growth and development of any nation. In view of this, the research was based on an evaluation of the impact of regulatory bodies in developing a viable and sustainable capital market with special emphasis on the Nigerian Stock Exchange.

Based on the research findings, it was revealed that the securities traded on the Nigerian Stock Exchange have enhanced the listing of more Nigerian companies on the floor of the Nigerian Stock Exchange. The introduction of modern technology (computerization) in the market such as central securities clearing system and linking with Reuters to mention but a few. Another positive impact is the enhancement in capital formation and level of investment.

5.4 Recommendations

In line with the findings and conclusion of this study, it is deemed appropriate to make the following recommendations:

  1. There is the challenge of low awareness about the operations and benefits of the capital market in the economy. There should be increased and better enlightenment program through public lectures, seminars and symposia to create awareness about the functions and activities of the Nigerian Capital Market.
  2. The stringent listing requirements of the Exchange should be reconsidered to allow more participation.
  3. More so, there is need to canvass for self-regulation in the institution of capital market as well as the cooperation and full commitment by operators towards the challenges employing professionalism and maintain high ethical standard of management.
  4. Efforts should be made to study the securitization of other kinds of debt instrument with the view to further assist the development of an active and vibrant private debt securities market to complement the market in equities and government securities.
  5. There should be establishment of more branches of the Nigerian Stock Exchange so as to cover a wider segment of the country.
  6. It was discovered in the course of the findings that it takes a long time for a company to get quotation on the Nigerian Stock Exchange. The Exchange should improve on this so as to allow many intending companies to get quote don the stock exchange. The time frame of processing application by the Exchange should be reduced.
  7. To improve the share determination by the Nigerian Securities and Exchange Commission or allow the market through the forces of demand and supply to determine share price so as to make it more efficient.

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