The Role Of Stock Exchange And Its Impact In Global Economy

Project and Seminar material for Public Administration

Abstract

This project work takes a look at the role of Nigerian stock exchange has played in a developing economy like Nigerians. The Nigerians stock exchange performance indicators has been examine and analyzed critically to show the extent the stock market has been able to mobilize capital in the economy.

This work also identified the regulatory and supervisory role of the Nigerian Securities and Exchange Commission (NSEC) and how it has taken apart or participated in the financial market especially in determining price of stocks and securities.

The mutual relationship between the value of transaction (VOT) and the gross Domestic product (GDP) are shown using the statistical and economical tools. Also the level of significant between the list of quoted companies are tested.

The researcher identified the problem inherent in the Nigerian stock exchange. That is, problems impending the stock from playing its functional role effectively.

Based on the finding of this research work, the researcher made policy recommendation on how the Nigerian stock exchange can improve in its functional responsibilities so as to play a prominent role in developing the Nigerian economy.

Table Of Contents

Preliminary Page(s)

• Title Page
• Approval Page
• Dedication
• Acknowledgement
• Abstract
• Table Of Contents

Chapter One

1.0 Introduction

• 1.1 Historical background of the study
• 1.2 Statement of problem
• 1.3 Objectives of the study
• 1.4 Research Question
• 1.5 Scope of the study.
• 1.6 Significance of the study.
• 1.7 Stock exchange as a Hub to the economic development of a Nation.
• 1.8 Impact on stock exchange development
• 1.9 The role of stock exchange
• 1.10 The need for a stock exchange in the economy.
• 1.11 The problems facing stock exchange
• 1.12 The London Stock exchange
• 1.13 Definitions of terms.

Chapter Two

2.0 Review of the Related Literature

• 2.1 The development of Nigerian Capital market.
• 2.2 Operation in the market.
• 2.3 The concept of a stock exchange
• 2.4 The Nigerian stock exchange and capital formation.
• 2.5 Nigerian stock exchange crisis
• 2.6 Other impact of the crises on the capital market
• 2.7 Investors protection.

Chapter Three

3.0 Research Methodology

• 3.1 Research design.
• 3.2 Sources of data
• 3.3 Method of data collection.
• 3.4 Determination of population
• 3.5 Sample procedures
• 3.6 Methods of administrating Questionnaires
• 3.7 Decision rule.

Chapter Four

4.0 Data Analysis and Presentation

• 4.1 Introduction
• 4.2 Data presentation and analysis

Chapter Five

5.0 Findings Conclusion and Recommendation

• 5.1 Finding
• 5.2 Conclusion
• 5.3 Recommendation
• Reference
• Appendix
• Questionnaire

Chapter One

1.O Introduction

A STOCK exchange can be described as a place where security bonds stocks, shares of various types are traded, openly and where one can purchase or sell any of such securities with relatives case.

Securities are documentary evidence of ownerships or entitlement to claim upon the assets of issuing organization which may be a business firm government or quasi government institution. There are documentary evidence usually have no fixed or absolute value which are subjectively determined by those buying and selling them.

Stock exchange is also a place where enormous capital which is required to operate the huge industrial and commercial cooperation of today can be raise in such large amount and of some competitive term, (cost, length of negotiation condition etc) that no other institution in a capitalist system can possibly match stock exchange is a vital economic institution, the height of development the world has attained makes the stock exchange market services indispensable the SEM is seen as a vehicle of fund mobilization and the development of local capital in Nigeria.

The stock exchange market is meant to be strong and very important source of capital in the capital market for the development of West African sub region. Over he years, the stock exchange market has been on the down ward swing and is characterized by low growth the market has defined all necessary change made to strengthen of stock exchange market is characterized by usable market growth, low level of income saving corruptions, inflation of market prices and lack of interest there and may more have made the stock exchange market to loss focus thereby causing a downward movement of the economy.

1.1 Historical Background Of The Study

The Nigerian stock exchange was established in 1960, as the Lagos stock exchange, Nigeria has formed an active capital market. Before 1961, nearly all formal savings and deposit went through the banking system while then masters invested major capital for the country on the London stock exchange.

However following the establishment of the central baking Nigeria (CBN) in 1950, it was logical to have a stock exchange in 1960, which commenced operation in 1961, the foundation was entered for the operation of the Nigeria capital market.

It was incorporated via the inspiration and supported of businessmen and the deferral government through the CBN but owned by about 300 members. The membership includes financial institutions, stock brokers and individual Nigeria high integrity who have contributed to the development of the stock market the Nigerian economy. The council members (board of director) of the stock exchange are elected at apiece annual general meeting by members of the exchange. The exchange is a self-regulatory organization (SRO), making and enforcing rules for its members. In 1977, the exchange was reorganized and renamed the Nigerian stock exchange (NSE).

Today the (NSE) has 10 functional trading floors in different parts of the country, namely: Lagos, Abuja, Kaduna, Port-harcourt, Kano, Onitsha, Ibadan, Yola, Benin, Ugo, and Ilorin. Companies listed on the exchange cut cross ways the economic sectors of Nigeria and include local affiliates or subsidiaries of multinals.

The exchange has two tiers out 1st tier securities and 2nd tier securities. Apart from the regulatory actions of exchange as an SRO, government oversight on the capital market in Nigerian is reached through the operations of the Securities and Exchange Commission (SEC). It maintains surveillance over the securities market to ensure clean and equitable dealing in securities protecting the integrity of the securities market against arising from the practice of insider trading.

1.2 Statement Of Problems

The Nigerian stock exchange (NSE) buyers and sellers are the same peoples, the market is no more than a manipulative institution, when corruption and demand of transparency have brought misery and poverty to investors. How could one describe a situation where market crashed in (2008) with capitalization from 15 trillion to #6 trillion without any body lifting a finger (Etubom 2010). Because of deficienincy, corruption has permeated the system; there is price fixing and overvaluation of shares. Most executive and council members of the exchange stooped so low to collaborate with stock brokers by leaking information thereby manipulating prices of shares.

The universal banking, which brought the banks into stock broking business did not help matters either the banks saw the loopholes in one man market and went for the kill and there by destroying themselves and the market. Operator and dealers alike were deceived into believing that the Nigerian economy is shielded from the 54

The universal banking, which brought the banks into stock broking business did not help matters either the banks saw the loopholes in one man market and went for the kill and there by destroying themselves and the market. Operator and dealers alike were deceived into believing that the Nigerian economy is shielded from the global economic meltdown that hit the world economy. This further fueled the complacency of the operators and dealers towards taking precaution any measures to absorb the shock of global economic meltdown.

1.3 Objective Of The Study

The objectives of this research among other things are to appraise the extent to which the Nigerian capital market has been affected as a result of the crises in the stock exchange. The study also aims at talking a look at the cause of the crises and how to manage it. It is also interest to appraise the rational for making the exchange a self-regulatory organization, in addition to the above this work also seeks in ascertain the effects of the crisis on investors, confidence in the market and the general response of the economy to the crisis.

1.4 Research Question

To achieve the above objectives, the following research questions were raised

1. What are the accomplishments and challenges of the Nigerian stock exchange in developing the capital market.
2. What roles did the global economic meltdown play in the crisis?
3. Is the crisis individually motivated or generally a managerial and system failure.
4. How do investors respond to the capital market during and after the crisis.
5. What steps have been taken to manage the crisis and restore confidence back.

1.5 Scope Of The Study

The study callers the Nigerian capital market as a whole and the Nigeria economy. The Nigeria stock exchange is taken holistically about but with the Onitsha branch of the change as a contact point – it covers all relevant issues pertaining to the Nigerian capital market nod the Nigerian stock exchange vis-à-vis in Nigerian economy. It also takes into account the role of SEC in managing the crisis in the stock exchange and the role played by CBN ultimately, the study investor’s response and positions as it regards to achieve this, investors in Enugu metropolis were selected.

1.6 Significance Of The Study

It is a noted fact that for any meaningful economic transformation of a country to take place, her capital market must be effectively active. It has a lot been an identified fact that economic strength of any nation is measured according to how active or effective the capital market is performing its supposed functions. This study will be of significant interest to government and the central bank of Nigeria as they are aware of the problems covering the Nigerian stock exchange and remedies to grap the problems.

1. The study will also be significant to institutional operators of the market especially the Nigerian Securities and Exchange Commission (SEC) and the future researchers who might went to share this experience.
2. This study will be of interest to investors who have been at the receiving end of the crisis in the exchange.
3. They will be healthy to know the real cause of the problems, response of protect efforts being prefabricated to protect their investments.
4. The significance of this study will wage foreign business with the facilities to offer their shares and give the Nigerian public an opportunity to invest and participate in the share and ownership of foreign businesses.

1.7 Stock Exchange As A Hub To The Economic development Of A Nation

The stock exchange is into financial institution saddle with the responsibilities of coordinating the transaction of stock in terms of shares and other valuable properties. The stock exchange is concerned with the exchange of assets, properties or shares for funds needed for investment purpose. It is an undisputable fact to note that every country must have a stock exchange market where stock exchange is also regarded as capital market of any country because of the vital role it plays in the financial sector of an economy. In this regard it is certain that the stock exchange markets are different sizes in nature of various countries and continent due to large economic operation. This is envisaged by the presence and operation of the London stock exchange and the taxes stock market which also operates international transactions and invisites investors across the world.

In African the stock exchange market in south is one of the biggest in African continent which also accepts across boards listing from other Nigerian and other countries. However, the Nigerian stock exchange market which was once known as the West African region, it also stand as a pillar to many African economics. It has also been a market where foreign counties are traded hence adding and determine the value of a country currency. This is with bid to encourage investment it’s a key player the financial sector of an economy the stock exchange market partners.

With the monetary authorities in a country to regulate the economy as well as the activities of the financial institutions in the country. The market is also responsible for given sound advice to industrialist on measure which they consider effective for economic growth development. As a matter of fact, one would think of what an economy will look like without a stock exchange retardation would have been the prevailing circumstance we may also consider the stock market as a link between the citizens and the `industrials because is provided every necessary information and valuable advice which can help and encourage investment. Over the past 10 years, the total value of stock listed in all the world, stock markets rose from 4.7 trillion to 15.2 trillion, which the share of total world capitalization represented by the emerging market jumped for less than4 percent to almost 13 percent.

1.8 Impact On Stock Exchange Development

There are alternative views about the effect of liquating on long-term economic growth however, some analysts argue that very liquid market encourage investors because they make it easy for dissatisfied investors to seal quickly liquid market may weaken investors commitment and reduce investor incentives to extent corporate control by performance and potential.

According to this view enhanced stock market liquidity `may actually hurt economic growth the empirical evidence however strongly supports the be list tat greater stock market liquidity boost or at least precedes economic growth to see how consider three measure of market liquidity, three indicators of how easy it is to buy and see equities.

One commonly used measure in the total value of shares traded on a country’s stocks exchange is a share of G.D.P. this ratio does not directly measure the cost of buying and selling securities at posted price yet average over a long-time the value of equity transaction as a share of national out put is likely to the case of trading. In other words, if it is costly or risky to ride there will not be more trading.

1.9 The Role Of Stock Exchange

The stock exchange as a major stakeholder helps in the actualization of the bank consolidation program. This is done by observing the banks that are financial active as well as monitoring the consolidation plans of prospecting merging banks by receiving the report of the memorandum of understanding signed by these banks and reform agenda.

1.10 The Need For A Stock Exchange In The Economy

This is to sustain economic growth development in a nation. However, this can be monitored by adequate regulation of the operation of the stock market and ensuring that individuals are allowed to invest of foreign exchange as well as providing proper securing. And also rising capital for business, the exchange provides comprises with the facilities to raise capital for expansion through selling shares to the investing public.

1.11 The Problems Facing Stock Exchange

Hence the stock exchange market requires much private and government hands to be on test to enhance proper regulation of economic growth and development is lacking the revise is now the case proper supervision of the sector is not some thing to vitiate home about is one of the most problems facing stock exchange is the prime institution in the stock market or capital market, and it is a specialist market place where government and private companies are able by the issues of new stock and share.

The Nigerian stock exchange (NSE) is an organized market place for the purchase and sale of securities the stock exchange is owned by financial institution and network investors that is individual investors it is not owned by the government. The stock exchange of shares which already exist, the so called reader market provides a service which industry or government will be taken up and hope fund provided for new projects and so on the idea is that investors must have facility of selling out, should the need arises stock exchange plays a vital role in our national prosperity, not only by providing some of the financial for investment necessary for industrial expansions attracts foreign exchange into the country in which it exist.

1.12 The London Stock Exchange

The London stock exchange is one of the world’s oldest stock exchanges and can trace its history back more than 300 years. Starting life in the coffee house of 17th century London, the exchange quickly grew to become the city’s most important financial institution. Over the centuries following, the exchange has consistently led the way in developing a strong well-regulated stock market and today lies at the heart of global financial community. Here are some of the milestones in the story of the London stock exchange.

1698: John casting begins to issue at this office in Jonathan’s coffee. House a list of stock and commodity prices called the coves of the exchange and other things. It is the earliest evidence of organized trading in marketable securities in London. Stock dealers are expelled from the royal exchange for rowdiness and start to operate in the streets and coffee house nearby, in particular in Jonathan’s coffee house in change Alley.

1720: the wave of speculative fever known as the South sea Bubble bursts, fire sweeps through change Alley, destroying most of the coffee houses. They are subsequently rebuilt a group of 150 stock brokers and Jobbers from a club at Jonathan’s to buy and sell shares. The brokers erect their own building in sweeting’s Alley with a dealing room on the ground floor and a coffee room above. Briefly known as “New Jonathan’s members soon change the name to the stock exchange.

1801: the business reopens under a formal membership subscription basis. The first regulated exchange comes into existence in London, and the modern stock exchange moves into a new building in capel court, and then the first codified rule was created.

1973: first female members admitted to the market, the 11 british and irish regional exchanges amalgamate with the London exchange. Deregulation of the market known as Big Bang

1. Ownership of member firms by an outside corporation is allowed.
2. All firms become broker and dealers able to operate in a dual capacity.
3. Minimum scales of commission are abolished.
4. Individual members cease to have voting rights.
5. Trading moves from being conducted face to face on a market floor to being performed, via computer and telephone from separate dealing rooms.
6. The exchange becomes a private limited company under the companies Act 1985.

1991: the governing council of the exchange was replaced with a Board of Directors drawn from the exchange’s Executive, customer and user base. The trading name becomes the London stock exchange. (ATM) was launch as international market for growing companies, then (SEETS) stock exchange Electronic trading service, was launched to bring greater speed and efficiency to the market.

200-2007: it transfer it role as UK listing Authority with HM treasury to the financial services Authority (FSA) shareholders vote to become a public limited company. London stock exchange PLC. A new generation supplier of real time market data and trading systems move to brand new headquarter. The London stock exchange merges with Boras Italian, Creating London stock exchange.

1.13 Definitions Of Terms

Capital Market:

This market is concerned with the mobilization and intermediation of long –term funds.

Market Capitalization:

This can be described as the market mechanism that determines the growth rate of fund and the availability of fund in stock market.

Methodology:

This can be described as the method by which this study can be carried out

Money Market:

The money market is the market for short-term funds/securities with securities of less than one year.

Operations In The Market:

This can be described as the players in the stock exchange market. There players include the financial institutions which act as financial intermediaries for allocation of some institution that require them.

Performance Indicators:

This can be defined as instrument that measures the rate at which the stock exchange works. It can also be referred to as measures that point out the level at which the stock exchange works.

Securities:

This can be defined as documentary evidence of ownership or entitlement claims upon the asset of the using organization which may be a business firms, government or quasi government institution.

Stock Exchange:

This can be defined as a market where bonds, stock and share of various type are bought and sold.

The Primary Market:

This is market ID for new securities. It is a platform where a company or government for investment purpose.

The Secondary Market:

The secondary market exit for the sales and purchases of sold already existing security.

Chapter Five

5.0 Conclusion And Recommendation

5.1 Conclusion

Basically, the Nigerian stock exchange has remain inefficient in its performance and its intermediatory functions. For a stock market to perform the function for which it was established, it must be efficient in its operational character. In an efficient stock market, information must be freely available to rational profit optimizing investors. Stock prices must be so fairly valued that the average investors will receive an average returns because the market is an efficient place of earnings and potential risk. The desirability of this type of market in socio economic terms is to ensure that savings are channeled in to the most profitable investment and capital are allocated optimally.
The researcher believes from observation that the institution for improving long term development financing mechanism exist in this country and that if the guide specified earlier in this chapter are followed, then all the recognized problem can be solved and the Nigerian stock exchange can attain its rightful position as one of the leading stock market around the world.

5.2 Recommendation

The Nigerian capital market as the main source of long term capital has remained sluggish in terms of growth, efficiency activities and funds mobilization, the problems which the researcher earlier identified can be mitigated through .

1. Better and more progressive educational programme to enlighten both management of companies and the general public on the advantages of the stock market.
2. Viable transition to civil rule programme that will bring confidence to both foreign and local investors.
3. The federal government should also establish minimum capital requirement for firms who wish for securities, thus to honour their obligation and avoid distress.
4. Viable privatization programme should be implemented so that the foreign investors will not be scared away.
5. Strict measures should be taken to ensure that quoted companies disclose their activities an ensure regular and prompt payment of dividends.
6. The federal government should compel all companies that have attained a particular minimum size to seek quotation.
7. Establishment of a single in fragmental stock exchange with branches rely on similar regulation for effectiveness and control.
8. Improving accounting and auditing standard to satisfy the information requirements of financial market investors and the international investment public.
9. Federal, state and local government should patronize the indigenous goods and services to enhance encourage investors setting ethical principles and standards of honestly fairness. Diligence competence and integrity for market operations.
10. Intermediation costs should be reduced to eliminate stamp duties and deregulating dealers commission.
11. Deregulating the price mechanism which is not beneficial to a free market economy.

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