Nigeria Security Clearing System (CSCS)

WEEK 9

 

TOPIC: STOCK EXCHANGE cont’d

 

CONTENT:

 

1.    Speculation: meaning and speculators

           

2.    Bodies can assess the capital market (public and government).

 

3.    Second tier security market i. meaning

 

4.    Advantages to the company and public investing

 

5.    Operating regulations

 

6.    Primary and secondary markets/ first tier and second tier

 

SUB-TOPIC 1:

Speculation

 

Speculation is the purchase of securities by speculators in the hope that its price will rise and that profitable resale will thereby be possible. Speculators take advantage of price fluctuation of prices, buy shares with the intention of reselling them when the prices rise.

 

Types of speculators

 

1.     Bull: a bull is a speculator who buys securities with the intention of reselling them at a higher price before the payment on the securities is due. He buys securities and waits for a time of general rise in price of securities.

 

2.     Bear: A speculator who expects prices to of securities to fall before delivery dates and thus sells out to make good profit. He sells to people the securities he does not

 

yet possess with the speculation that the price of the securities will fall before the delivery date so that he can acquire the securities and sell at a profit margin.

 

3.     Stag: A stag is a speculator who applies for new issues of shares and stock in large quantity with the hope that prices of the shares will rise above the offer prices. He hopes to make profit after selling.

 

SUB-TOPIC 2

BODIES THATCAN ASSESS CAPITAL MARKET

 

1.    The Securities and Exchange Commission (SEC) is the apex regulatory body for

 

Nigeria’s capital market which operates the supervision of the Federal Ministry of

 

Finance. Securities and Exchange commission was established in 1979 and has the following functions:

 

a.     Valuation of shares

 

b.     Registration of Market operators

 

c.      Approval of shares allotment

 

d.     Registration of Securities

 

e.     Enforcement of sanctions against erring operators

 

f.       Approval and registration on merger and acquisition.

 

g.     Acting as Regulatory Apex Organization of Nigeria Capital Market.

 

2. Nigeria Security Clearing System (CSCS):

This is an independent organization which performs the clearing and settlement of transaction for the stock exchange. They perform the following roles:

 

a.     Acting as a central depository of certificate.

 

b.     It acts as sub-registrar to all companies

 

c.      It reduces the settlement cycle

 

d.     Ensures clearing and settlement of transactions.

 

e.     Keeps financial instrument.

 

f.       Eliminates cases of missiong identification.

 

g.     Issues central securities identification numbers to stock brokers and investors.

 

EVALUATION:

 

1.    Describe the following: i. bull ii. Stock broker iii. Stage iv. Securities.

 

2.    List 2 bodies that assess capital market and their functions.

 

SUB-TOPIC 3: SECOND TIER SECURITY MARKET

 

MEANING OF SECOND TIER SECURITY MARKET

 

Second Tier Security Market (SSM) is a market is a market in which buying and selling of existing securities of companies take place. It was set up in order to complement the efforts of the stock exchange market towards fund mobilization for investment. The major participants in this market are the stock brokers and banks such as acceptance houses, investment banks and issuing houses.

 

EVALUATION

 

1.  Describe second tier security market.

 

Advantages of SSM to the companies

 

1.    Opportunities for buying and selling of shares: The market provides opportunity for buying and selling of shares of companies.

 

2.    Raising more capital: It is an avenue for companies and investors to raise more capital.

 

3.    Fund to companies: It makes short and long term fund available to companies and also leads to expansion in operation and prospects for growth.

 

4.    Financial advice: It provides financial advice to companies in areas to invest their funds.

 

5.    Enhance Investment Avenue: SSM is established to enhance investment avenues and the development of the Nigerian economy.

 

6.    Complements the efforts of the stock exchange: SSM also assists and complements the efforts of the stock exchange market.

 

7.    Ensures survival and development of companies: It ensures survival and development of companies without fear of discontinuity.

 

Advantages of SSM to the investing public

 

1.    Assessing the profitability and efficiency of companies: SSM affords investors the opportunity of assessing the profitability and efficiency of companies so as to know which companies to invest.

 

2.    Opportunity of obtaining loans: Investors are provided with the opportunity of obtaining loans.

 

3.    Avenue for long term investment: It provides avenue for long term investment.

 

4.    Ability in buying and selling of shares: Investors enjoys enhance d ability in buying and selling of shares.

 

5.    Assurance of enjoying 10% of equity capital: Investors have the assurance of enjoying 10% of equity capital of companies operating at SSM.

 

Operation regulations

 

1.    Offer for sale: This is the method under which the company’s existing shares are offered to the public through an issue house.

 

2.    Offer for subscription: This is done by the company itself through the agency of an issuing house who offers fresh issues to the public.

 

3.    Private Placement: This occurs when shares are offered to a few large institutions that are investors such as insurance companies or investment trust.

 

4.    Stock Exchange Introduction: This is a method of obtaining a stock exchange quotation without making a public offering of securities. It gives access to finance in the capital market in the future.

 

SUB-TOPIC 4:

Primary and secondary market/ first tier and second tier

 

Meaning of primary market (first tier): This is the main market on which the equity of large companies is traded. However, it is also a market where new shares are traded.

 

Meaning of secondary market (second tier): This is a secondary market where securities which are not listed on the main stock exchange can be traded. It is also set up for the buying and selling of shares of small-scale companies so as to encourage small-scale business.

 

REQUIREMENT FOR ADMISSION INTO FTSM

 

1. The company must register as a public limited company.

 

2.    Application for listing must be sponsored by one of the dealing members of exchange.

 

3.    Submission of five years trading records.

 

4.    The company should make available not less than 25% of the issue capital to the public.

 

5.    The amount of capital to be raised is limitless.

 

6.    The number of shareholders should not be less than 300.

 

Examples of company listed on first tier market

 

1.    Access Bank Plc

 

2.    Zenith Bank Plc

 

3.    Julius Bergger Nig. Plc

 

4.    UTC Nig. Plc

 

5.    Longman Press Plc

 

6.    Oando Plc

 

REQUIREMENTS FOR ADMISSION INTO SSM

 

1.    The company must be registered as a public company

 

2.    A minimum of 10% equity capital must be available

 

3.    The number of shareholders must not be less than 100

 

4.    The company should have a consecutive three years trading records

 

5.    The amount of capital to be raised is limited to N20 million

 

Evaluation Question

 

1.      (a) Explain the second tier security market (b) Justify the existence of the Second Tier Security Market

 

2.      State five for each the advantages of SSM to the company and the investing public

 

3.      List and explain four operating regulation of SSM

 

4.      Distinguish between primary and secondary markets

 

5.      Outline five requirements for admission into SSM

 

General evaluation

 

Objective test

 

1. The speculator in the stock exchange market who sells securities in

 

anticipation of a fall in price is called a               A. bull B. jobber C. bear D. stag

 

2.    The dealers who buy and sell stocks and shares in their own name are called A. jobbers B. brokers C. bears D. stags

 

3.    A speculator who applies for new stocks and shares with the intention of selling them at a higher price is a A. bull B. stag C. bear D. jobber

 

4.    —– is a market where new shares are traded. A. Primary market B. Secondary market C. Money market D. Capital market

 

5.    —- was set up in order to complement the efforts of the stock exchange market towards fund mobilization for investment. A. Secondary market B. Primary market C. Export market D. Money market

 

6. Secondary market _________________ the objectives of stock exchange. A. Supports B. Compliments C. Competing with D. Meeting its own needs and requirements

 

7. The market where securities that are not listed on the stock exchange are traded is called _________________. A. Primary market B. Money market C. Second tier security market D. Capital market

 

8. The number of shareholders required for a company to be listed on the SSM is _______________ 100 members. A. 100 B. 500 C. 300 D. 1000

9. The minimum capital required for a company to be listed on the SSM is _______________ N20 million. A. N500,000 B. N100,000 C. N50,000 D. N20,000

10. The regulations guiding the operation of SSM include regulations on _____________, requirements for admission into the market, and rules governing transactions. A. securities trading B. listing requirements C. capital adequacy D. investor protection and security measures against manipulation of prices

 

 

WEEKEND ASSIGNMENT

 

Read Essential Commerce for Senior Secondary Schools by A.O. Longe Page 349 – 353.

 

PRE-READING ASSIGNMENT

 

Read about economic groupings in West Africa.

 

WEEKEND ACTIVITY

 

1. State the formation of ECOWAS and their membership.

 

REFERENCE TEXTS

 

Essential Commerce for Senior Secondary Schools by A.O. Longe (Tonad Publishers Ltd)

 

 

 

1) Stock exchange market deals with

Options

A)

exchange of commodities

B)

exchange of stock fish for stock

C)

exchange of treasury bills

D)

sales of foreign exchange

E)

sales of second hand securities

 

2)  a stock exchange is a market that

Options

A)

deals with the exchange of commodities

B)

deals with purchase and sales of securities

C)

exchanges stockfish for lady fish

D)

exchanges treasury bills for bills of exchange

E)

sells foreign exchange

3) The business in the stock exchange is characterized essentially by

Options

A)

dealing

B)

brokerage

C)

speculations

D)

transactions

4) Shares, stocks, government bonds trade in the stock exchange marks: are known as

Options

A)

debentures

B)

gut-edged stocks

C)

merchandises

D)

securities

E)

treasure bills

5) Abubakar wants to sell his shares on the Kano Stock Exchange. Which service would he employ?

Options

A)

auctioneer

B)

chamber of commerce

C)

del-credere agent

D)

insurance agent

E)

stock broker

6) In the stock exchange what is the day when the parties to a transaction decide whether the bargain should be completed held over until the next settlement?

Options

A)

account

B)

contango

C)

making- up

D)

name

E)

ticket

7) In stock exchange, the buyer is NOT entitled to the dividend when the stock is quoted

Options

A)

clean

B)

cum-dividend

C)

double barreled

D)

ex-dividend

E)

firm

8) Dealing on the Stock Exchange may be either

Options

A)

‘for cash or ‘for hire’

B)

‘for jobber’ or ‘for broker’

C)

‘for cash’ or ‘for account

D)

‘for cash’ or‘ for credit’

E)

‘for bull’ or ‘ for bear’

9) Which of the following can quote its shares on the stock exchange?

Options

A)

Partnership

B)

Co-operative society

C)

Sole proprietorship

D)

Public limited Company

10) Who among the following does not function in the stock exchange market?

Options

A)

Bull

B)

Broker

C)

Jobber

D)

Promoter