Nigeria Capital Market

Capital Market is a subset of the financial market which provides an avenue for the efficient mobilization and channeling of medium and long-term funds to users of funds for investment purposes from the savers of fund. In the capital market, the surplus unit of the economy are majorly individuals and corporate bodies as government rarely supply funds to the market while the deficit units consist mainly of corporate bodies and government since conventionally, individuals cannot access the capital market funds ( Ewah et al, 2009). 

The capital market consist of two arms; the primary market which creates a medium for long-term fresh funds to be raised through the issuance of new financial securities and the secondary market which provides opportunities for the sale and purchase of existing financial securities that have already been traded in the primary market, among investors thereby encouraging investment in financial securities and boosting economic growth. Capital market in any economy serves as a major driver or lubricant that keep turning the wheel of the economy to growth and development because of it’s imperative function of not just mobilizing long-term fund and channeling them to productive investment but also efficiently allocating these funds to projects of best returns to fund owners. This allocate function that it performs is critical in determining the overall growth on the economy (Donwa et al, 2011).

 The institutional framework through which the capital market in Nigeria functions include; the Security and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), Stock Brokers, Issuing Houses and Investors.As far back as 1946, government securities were being floated in Nigeria, but the basic institution for the operation of a capital market were not provided until the establishment of the Lagos Stock Exchange (LSE) in 1961. The exchange was incorporate under the company’s ordinances as an association limited by guarantee; the Lagos stock exchange was given initial financial backing by the Central Bank of Nigeria (CBN) in the form of annual subventions. Following the recommendations of the Government financial system committee of 1976, the Lagos Stock Exchange was re-named and reconstituted into the Nigerian Stock Exchange in December 1977, with branches established in some of the major commercial cities of the country where each branch has a trading floor. Presently there are 14 branches of Stock Exchange in Nigeria including the head office in Lagos. The branch in Lagos was opened in 1961 which is the head office of the exchange, the one in Kaduna was opened in 1978; Port-Harcourt, 1980; Kano, 1989; Onitsha, February 1990; Ibadan, August 1990; Abuja, October 1999; Yola, April 2002; Benin, January 2005; Uyo, 2007; Ilorin, 2008; Abeokuta, 2008; oweri, 2009 and Benue, 2009. The Nigerian Stock Exchange (NSE) serves as the central point of the Nigerian capital market, while the Security and Exchange Commission (SEC) serves as the apex regulatory body. The NSE provides a mechanism for mobilizing public and private savings, and makes such funds available for productive purposes and it also provides a means for trading in existing securities (CBN, 2010).

In order to be at par with developed nations the Nigerian Capital Market authorities have recently initiated the first private trading floor in Lagos, located at Tinubu street in the marina axis of  Lagos’s main central business district, with a 150-seat capacity multi-purpose trading floor  and a number of reforms aimed at making the market attractive and vibrant to both domestic investors and operators and their foreign counterparts alike. The introduction of the automated trading system (ATS) is a welcome effort in the right direction. The system is aimed at facilitating speedy trading and clearing at the Capital Market. It interfaces with the Central Security Clearing System (CSCS) and was commissioned in 1998. The Abuja Stock Exchange, which has been converted to Abuja Security and Commodity Exchange which also installed its own Automated Trading System. The system which is an online, screen based integrated system is capable of performing multiple functions, being equipped with equity, debt and depository modules.Furthermore, to deepen the Nigerian Capital Market, Decree No.45 of 1999 was promulgated to restructure and widen the functions and powers of the Nigerian Stock Exchange Commission (NSEC) to establish a commodity exchange, future market, derivatives and any other exchange has various benefits for the member. Thus, members can deal on the floor of the exchange or with the clients of the exchange, who deal through brokers registered with the exchange (Onoh, 2002).The Nigerian economy on the other hand has undergone various structural changes since her independence in 1960. In 1970s, the Nigerian economy was mainly an agro-based one which constituted over 70% of our Gross Domestic Product (GDP) and the earnings of foreign exchange. During this period the Nigerian economy diversified her economy into the oil sector having its economy resources from the crude oil revenue.

This has not leaded to forward or backward linkages in lubricating all sectors in the economy to ensure macro economic development. In Nigeria the type of consumption-production pattern is largely import-oriented due to inappropriate and inadequate macro-economic policies. The effect of this has resulted into continuous rise in the prices of goods and services and also the problem of unemployment is as a result of low productivity level in the economy thereby making Nigeria unable to compete favorably in the world market. Thus, this is affecting the external reserves of Nigeria and its balance of payments and also the economy is faced with exchange rate problems, debt overhang and various economic distortions. This account for why it is so necessary to formulate policies for the market that would assist in facilitating economic growth.