HISTORY OF THE NIGERIAN CAPITAL MARKET CONTENT
COMMERCE
SS 3 FIRST TERM
WEEK 6
TOPIC:
HISTORY OF THE NIGERIAN CAPITAL MARKET
CONTENT:
1. Historical development 1946: development of loan stock
2. 1960 Lagos stock exchange act
3. 1962 capital issue committee
4. 1979 security exchange commission
5. 1985 second tier security market
6. 1999 investment and security act
DEFINITION OF CAPITAL MARKET:
The Capital market is a financial market where medium- and long-term funds for industrial development are mobilized and traded. The traders (players) in this market are known as operators. The operators act as intermediaries between the fund raisers and fund users (buyers). They buy the medium- and long-term securities issued for investment, hold them until maturity, and then give out their coupon or dividend to those who have purchased these securities from them.
The Nigerian capital market has a long history stretching back to 1946 when loan stock was first developed as a financing mechanism for government projects. Several key milestones followed over the years, including the establishment of the Lagos Stock Exchange in 1960 and the passage of the Lagos Stock Exchange Act that same year. In 1962, the Capital Issues Committee was formed to oversee capital raising efforts and guide policy development in this area.
EXAMPLES OF OPERATORS
These include: Securities Exchanges, Brokers, Dealers, Issuing Houses, Registrars and Insurance Advisors.
HISTORICAL DEVELOPMENT OF CAPITAL MARKET:
DEVELOPMENT OF LOAN STOCK 1946:
The origins of Nigerians Capital Market date back to colonial times when the British Government ruling Nigeria at that time sought for funds for running the local administration. Most of these funds are derived from agriculture, produce marketing and solid mineral mining. Discovering that these sources were inadequate to meet its growing financial obligation, the colonial administration decided to expand its revenue base by reforming the system of revenue mobilization, taxation and other payments. This was achieved in 1946 with the issuance of Nigeria’s first development loan stock. The Nigerian Capital Market was born in 1946.
1960 LAGOS STOCK EXCHANGE ACT:
The development of loan stock achieved maturity with the establishment of the IAGOS STOCK EXCHANGE in 1960. On September 15, 1960, the Lagos Stock Exchange was incorporated as a private limited liability company, limited by guarantee under the provisions of the Lagos Stock Exchange.
1962 CAPITAL ISSUE COMMITTEE:
In order to mobilize funds for economic development, a capital issue committee was established in s1962 and upgraded to Capital Issue Commission in 1979.
1979 SECURITY EXCHANGE COMMISSION:
The Securities and Exchange Commission Decree was promulgated on April 1, 1979 to replace the Capital Issue Commission and expand the scope of its activities following the recommendations of the Financial System Review Committee (OKIGBO COMMITTEE) of 1976.
1985 SECOND TIER SECURITY MARKET.
With the success so far achieved and the need to expand the capital market further, the Second Tier Securities Market (SSM) was established on April 5, 1985. It was established to carter for the requirements of small and medium scale enterprise. It essentially diluted the listing requirements of this category of companies to encourage them to seek quotation and thereby further broaden and deepen the market. The Decree was re-enacted in 1988 as Securities and Exchange Commission Decree NO. 29, so as to make provision for developing the capital market further and also for protecting investors.
1999 INVESTMENT AND SECURITIES ACT:
The Stock Exchange Decree of 1988 was replaced with the Investment Securities Act (ISA) No.54 of 1999 to provide for a more efficient and viable capital market that could meet Nigeria’s economic development needs better. The ISA of 1999 re-established the Securities and Exchange Commission (SEC) as a body corporate with perpetual successor and common seal, which can sue and be sued in its corporate name.
EVALUATION
1. Define capital market.
2. Trace the development of the Nigerian Capital Market from 1946 to 1999.
3. List five (5) operators in the capital market.
4. Explain the role of the Lagos Stock Exchange in the development of the capital market.
5. Describe how capital issues are mobilized through a secondary market.
6. Discuss three key features of the Securities and Exchange Commission Decree of 1988 that were later included in 1999 Investment Securities Act.
7. Explain the role of the SEC in promoting capital market development in Nigeria.
8. Describe how the SSM has contributed to the development of the Nigerian capital market.
ADVANTAGES OF CAPITAL MARKET
1. Provision of long-term loans.
2. Mobilization of savings.
3. Growth of merchant banks.
4. General running of the company.
5. Development of the economy.
6. Supporting the rate of interest in the country
7. Generating income for the government through taxes and other charges on the capital market participants
8. Facilitating foreign direct investments in Nigeria’s economy by providing an avenue for selling and buying of Nigeria’s shares
9. Other advantages include employment generation, risk sharing, especially in the case of insurance firms, and facilitating liquidity for investments that are low on liquidity
10. Finally, capital markets provide greater market efficiency by promoting price discovery and public companies as well as encouraging corporate governance through increased transparency and accountability to shareholders
FUNCTIONS OF CAPITAL MARKET
1. Long term Fund mobilization.
2. Avenue for lending and borrowing.
3. Gives Nigeria opportunity of ownership in foreign business.
4. Channeling of funds to productive investment.
5. Economic growth and development 6. Government can borrow long term capital.
DEFINITION OF MONEY MARKET
Money market can be defined as a market for short-term loan. The market consists of institutions or individuals who either have money to lend or wish to borrow on a short-term basis.
INSTRUMENTS TRADED IN THE MONEY MARKET
1. Treasury bills.
2. Treasury Certificate.
3. Commercial bills.
4. Bankers’ acceptance
5. Repurchase Agreements (REPO).
7. Commercial paper and others
ADVANTAGES OF MONEYMARKET
1. Provision of finance.
2. Creation of extra income.
3. Promotion of economic development.
4. Ability to recall invested funds.
5. It enhances savings.
FUNCTIONS OF MONEY MARKET
Money market performs the following functions:
1. Provision of short-term loans.
2. Encourages Investments.
3. Effective and efficiency of monetary policies.
4. Facilities transfer of fund.
5. Use of surplus fund
6. Promotes liquidity and safety of financial assets.
WEEKEND ASSIGNMENT
1. Define Money Market.
2. State the functions of the Money Market.
3. State five (5) similarities between Money Market and Capital Market.
4. State five (5) differences between Money Market and Capital Market
5. Explain the role of the National Association of Securities Dealers Automated Quotations (NASDAQ) in the functioning of the money and capital markets.
6. Describe how various financial instruments are traded in both the money and capital markets, with a particular focus on stocks, bonds, and derivatives such as options and futures.
7. Discuss the key factors that influence the performance of both the money and capital markets, including macroeconomic conditions, regulatory changes, and investor sentiment.
8. Analyze how developments in the money and capital markets affect other aspects of the global financial system, such as interest rates and exchange rates.
Pre – Reading Assignment
Read about stock exchange
Weekend Activity
List and explain four methods of raising from the capital market.
Reference Texts
Essential Commerce for Senior Secondary Schools Book 3 by A O Longe
