ABSTRACT
The main objective of the study is to examine the
roles of regulatory bodies in the capital market development in Nigeria
with special reference to Security and Exchange Commission and, also, the
in-depth analysis of the operations of the Nigerian Capital Market. The
findings made from data obtained during the course of the research work. The
discussion was obtained from internet searched and relevant textbooks. Through
the research, it is clearly showed that capital market has contributed
immensely to the development of Nigeria
economy but encountered some problems. However, certain recommendation were
made to the regulatory authorities on how to remove some impediments that tends
to hinder the growth and performance of this market with a view of stabilizing
and inducing suitable growth of Capital Market.
TABLE OF CONTENT
Page
TITLE I
CERTIFICATION II
DEDICATION III
ACKNOWLEDGEMENT IV
ABSTRACT V
TABLE OF CONTENT VI-VIII
CHAPTER
ONE
1.0 INTRODUCTION 1
1.1 BACKGROUND
OF THE STUDY 1 – 3
1.2 STATEMENT
OF THE PROBLEM 3 –
4
1.3 RESEARCH
QUESTION/ HYPOTHESIS 4
1.4 OBJECTIVE
OF THE STUDY 4
1.5 JUSTIFICATION
OF THE STUDY 4 – 5
1.6 SCOPE
OF THE STUDY 5
1.7 LIMITATION
OF THE STUDY 5
1.8 ORGANIZATION
OF THE STUDY 5
1.9 DEFINITION
OF TERMS 6
– 7
CHAPTER TWO
2.0 LITERATURE
REVIEW 8
2.1 INTRODUCTION 8
2.2 FUNCTIONS
OF CAPITAL MARKET 8
2.3 OPERATION
OF THE CAPITAL MARKET 8
– 9
2.4 CLASSIFICATION
OF CAPITAL MARKET 9
– 10
2.5 THE
ROLE OF THE SECURITIES AND EXCHANGE COMMISSION 10
– 11
2.6 THE
ROLE OF NIGERIAN STOCK EXCHANGE IN
DEVELOPMENT ECONOMY 11 – 13
2.7 THE
NIGERIAN STOCK EXCHANGE PERFORMANCE
INDICATION 13 – 16
2.8 OTHER
ISSUES RELATED TO THE TOPIC 16
CHAPTER THREE
3.0 RESEARCH
METHODOLOGY 17
3.1 INTRODUCTION 17
3.2 RESEARCH
QUESTION AND HYPOTHESIS 17
3.3 RESEARCH
DESIGN 17
3.4 STUDY
POPULATION 18
3.5 RESEARCH
INSTRUMENT 18
3.6 METHOD
OF DATA ANALYSIS 18
CHAPTER FOUR
4.0 DATA
ANALYSIS AND PRESENTATION 19
4.1 INTRODUCTION 19
4.2 INTERPRETATION
OF THE DATA 19
4.3 TESTING
AND INTERPRETATION OF HYPOTHESIS 19
- 26
4.4 GENERAL
COMMENTS 26
– 30
CHAPTER FIVE
5.0 SUMMARY,
CONCLUSION AND RECOMMENDATION 31
5.1 SUMMARY 31
– 32
5.2 CONCLUSION 32
5.3 RECOMMENDATION 33
– 34
APPENDIX 35
– 37
REFERENCES 38
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
The malfunctioning in the economy
system brought about the birth of the Structural Adjustment Programme (SAP) in
1986.
The policy package in the Structural Adjustment
Programme includes among other things which are deregulation of interest rate
structure and dividend policy. With this new wave of market liberation, capital
market has now become a more viable option for capital formation. More
companies now use the market the market facilities for strengthening the
balance sheet and growth in the process, there has been a flurry of right issue
offer for subscription for equity and debentures stock.
The
rapid economies development of any economy depends, among other things, on
ready access of adequate financial resources (Alile and annao, 1990). The
desire to develop financial market in an economy is intimately connected with
the objective of accelerating industrial and agricultural development. Among
this financial market is the Stock Exchange, while deals with the mobilization
of both medium and long term funds (Sule and Momoh, 2009).
The total amount
of capital raised on the market between 1989 and 1991 was about N3.8 billion
which represent the half of the entire capital raised over the year, while
capital raised on the market from 1992 to date is about N5.2 billion which
shows the increment in the capital raised by companies in companies in the
previous years.
The
need for capital market regulation is motivated by the desire to protect the
investing public from malpractice. Having instill confidence in the system and
ensure financial market been stable for the growth and development of the
capital. Regulatory bodies are therefore to police activities in the market
with the ultimate aim of preventing and minimizing the abuse which might affect
the investor’s confidence. The need for regulatory mechanism in the market
brought about the birth of Security and Exchange Commission in 1960.
Moreover,
in the recent time before the horrible occurrence of the Global Economy
Meltdown, there is effectiveness and efficiency in the operation and activities
of the capital market, which shown in an increase in the numbers of trading
floors of the Nigeria Stock Exchange and as well the so-call over trading
system was replaced with the Automated Trading System (ATS) with bids and offer
now matched by stockbrokers on the trading floor of the Stock Exchange through
network of computers.
The
development of the Nigerian capital market has some other reasons too. A number
of Nigerian banks are investing in the Nigerian stock market so that they can
roll the money and can earn some good profit from the market. The recently
introduced minimum capital requirements for the bank have encouraged the banks
to choose the stock markets. The Nigerian capital market is still gaining depth
and so that it was a bit risky for the banks to take the decision but they took
the risk and the results are very positive. It not only encouraged the
individual investors but at the same time provided some good support to the
growth of the Nigerian capital market.
It
is true that the Nigerian capital market is performing well and the country is
experiencing some historical public offers by the banks like the Zenith Bank.
But at the same time, it is also true that the market has to go a long way to
because still now the NSE's market capitalization is, much lower than the GDP.
According to the ongoing trends, the market capitalization should be nearer to
the GDP or in certain cases it is more than the GDP as in the case of Johannesburg that
recorded 239% of GDP. The turnover ratio of Nigeria stock exchange was 12.4% in
2005. The Nigerian bond market is also passing through a developing phase.
But
in the middle of 2007 down through 2008, due to the Global Financial Crisis
that started in United States (USA) and United Kingdom (UK), has crippled the
operations and activities of the Financial Institutions globally which included
Nigeria Capital Market and Nigerian economy as whole.
This
incident has hindered the confidence and discourage of the investor from
investing in the capital market, which made most of the investors to preferred
investing in real sector of the economy i.e. buying of properties e.g. Land,
Building houses e.t.c. rather than investing in financial sector of the economy
e.g. Stock, Bonds etc. This situation leads to the huge withdrawals of capital
in the market. Also, resulted to losses in equity markets, and volume of
activities of the Nigeria
Stock Exchange (NSE) has dropped drastically, which slowed down investment
activities in the secondary market.
However,
the regulatory bodies (authorities) have being making every effort to resurrect
and restore the confidence of the investors in the market. According to Director-General of NSE, Ms.
Arunma Oteh in the Business and Finance News (dated Tuesday, 24th of
July, 2010), stated that The Nigeria Capital Market is undergoing a metamorphosis,
while change is an inevitable effect of growth. Meanwhile, it’s clearly known
that capital market is a barometer of the Nigeria economy. So, the regulatory
authorities have begun to take some steps by implementation of the Chief
Compliance Officer Certificate Programme on corporate governance.
Another
recent development in Nigerian Stock Exchange is the current capitalization
which is about $75 billion (N12 trillion) as at Tuesday, 24th of
January, 2012 with the exchange the exchange rate of 1 USDP= 158.853 NGN, while
the Nigerian Stock Exchange (NSE) is targeting a market capitalization of $1
trillion (N159 trillion) in the next five years being 2016. Also, Director-General
of NSE, Ms, Arunma Oteh Has stated in Nigeria Business and Finance (Swarm
Point) dated Tuesday 20th of July, 2010 that the recent policy made
which is termed new rules and regulations on the book-building, its aimed to
stem the tide of market in fractures that deny shareholders returned on their
investment.
Finally,
it’s clearly seen that the regulatory authorities has being putting in place
various strategies and policies to resurrect the efficiency in the market and
restored the confidence of the investors in the capital market. Persistence in
the effort of the regulatory bodies will lead to stability in the market and it
will in turn bring about an increase in the numbers and spread of shareholders
/ investors.
The
study is an attempt to look at roles played the regulatory bodies and how they
have been able to put sanity into operation of the capital market.
1.2 STATEMENT
OF THE PROBLEM
Given the number of years since the
Nigerian Stock Exchange has been established and the substantial financial
resources available in the country, coupled with existing institutions, one can
claim that the entire spectrum of the capital market has not been sufficiently
active, especially when compared with the capital unit of similar or lesser
aged units in other developing countries. The factors responsible for this
could be identified to include
Ø High cost of transaction
Ø Lack of transparency
Ø Poor economy performance e.t.c
The
performance of the Nigerian Stock Exchange was overcast in 2009 by global
financial and economy crisis, which was precipitated in August 2007 by the
collapse of the sub-prime lending market in the United States. The crisis led to
the crash of most other sectors and markets across Europe with consequent
effect on developing economies especially oil-export dependent countries like Nigeria.
The
spiral effect of the global economics crisis on the Nigerian Capital Market
continued through Nigerian Stock Exchange in 2009 with the exorbitant lending
rate mounting pressure on the stock market as a result of massive borrowed fund
in the market. The rush by stock investors to liquidate their investment to
repay their loans in order to avoid the excessive lending rate caused the
Nigerian Stock market to crash. Sere –
Ejembi (2008) noted that it is not the global financial crisis and the
speculative subprime mortgage bubbles and bust alone that is responsible for
the crash of the stock market, other contributory factors lent support. Some of
these, namely: margin lending by the Deposit Money Banks (DMBs), stock price
appreciation that had no correlation with the fundamentals in the quoting
companies and local Investor’s opting to invest in foreign capital market to
take advantage of the low stock prices.
This
study intends to evaluate the roles of Securities and Exchange Commission in
terms of capital market activities and determine the extent to which it has
contribute to the development of Nigeria Capital Market and to the capital
formation process of the economy.
1.3 RESEARCH
QUESTION/ HYPOTHESIS
Ho: That the capital market is not a cost
avenue for fund -seeker to source for long term
Funds
Hi: That the capital market is a cost avenue
for fund –seeker to source for long term funds
Ho: That the roles of Securities and Exchange
Commission doesn’t contribute to the economy development
Hi: That the roles of Securities and Exchange
Commission contribute to the economy
development
1.4 OBJECTIVE
OF THE STUDY
He
study attempt to make in-depth analysis of the operation of the Nigeria Capital
Market and show the extent at which regulatory bodies have been able to control
its operation as well as how they have been able to improve its development.
1.5 JUSTIFICATION
OF THE STUDY
Alice
(1992) said that the capital market in Nigeria regulated by the following
bodies:
Ø The Nigeria Federal Ministry of Finance (NFMF)
Ø Central Bank of Nigeria (CBN)
Ø The Securities and Exchange Commission and (SEC)
Ø The Nigerian Stock Exchange (NSE)
However,
this study is focused on two of the above bodies; the Securities and Exchange
Commission, it shows the genesis of these regulatory bodies and their roles
towards the capital market development in Nigeria for simplicity. This study
is divided into five chapters; chapter one, introduction, background of the
study, the statement of the problem, objective of the study and justification
of the study are also highlighted, chapter two is for the literature review
while chapter three espouses research methodology, research question and
hypothesis, chapter four takes a look at introduction, presentation of data
analysis and testing and interpretation of hypothesis, finally, chapter five is
devoted to summary, conclusion and recommendation.
1.6 SCOPE OF
THE STUDY
The
scope of the study will be limited to the regulatory bodies in capital market
especially their roles, how far it has gone in achieving its establishment,
purpose of existence in capital market.
1.7 LIMITATION
OF THE STUDY
The
focus here is to analyze the effectiveness of the importance of these bodies in
the economy; the project does not seek to and will not formulate new policies
for the system further suggestions will be made on how to improve on existing
ones.
1.8 ORGANIZATION
OF THE STUDY
The
study shall commence by a background of the study matter which include the
following
Ø
Statement of the
problems
Ø
Research question
/ Hypothesis
Ø
Objective of the
study
Ø
Justification of
the study
Ø
Scope of the study
Ø
Limitation of the
study and
Ø
Definition of
terms, justifying the need for the study in chapter one.
Chapter
two shall present related literature concerning the roles of regulatory bodies
in the capital Market development. The chapter shall also present the
theoretical framework for the study. The research methodology shall then be
outlined in chapter three.
While the chapter
four focuses on data analysis and testing and interpretation of hypothesis.
Concluding comments in chapter five shall reflect on the summary, conclusion
and recommendation.
1.9 DEFINITION
OF TERMS
Capital Market:
Traditionally, this has referred to the market for long term debt instruments
(those that mature in more than one year). That is, the market where capital is
raised. A capital market is a market where both government and companies raise
long term funds to trade securities on the bond and the stock market. It
consists of both the primary market where new issues are distributed among
investors, and the secondary markets where already existent securities are
traded.
Financial Market: A financial market that works as a conduit for demand and supply of debt
and equity capital. It channels the money provided by savers and depository
institutions (banks, credit unions, insurance companies, etc.) to borrowers and
invitees through a variety of financial instruments (bonds, notes, shares)
called securities. A capital market is not a compact unit, but a highly
decentralized system made up of three major parts: (1) stock market, (2) bond
market, and (3) money market. It also works as an exchange for trading existing
claims on capital in the form of shares.
Bonds:
This can be defined as a debt instruments yielding a fixed rate of return over
a set period of time that can be traded in the market like any other security.
Bonds are essentially a loan the issuing organization received from the
investors who in turn becomes the creditor. Bonds typically have a maturity
period during which they cannot be normally traded for full value unless
specified otherwise. The rate of return offered by bonds will be lower compared
to stocks due to bonds offering security against turbulent markets.
Primary Market:
also called the new issue market is the market for issuing new securities. That
is, a market for new capital will be traded over a longer period. Also called
the new issue market is the market for issuing new securities. Many companies,
especially small and medium scale, enter the primary market to raise money from
the public to expand their businesses. They sell their securities to the public
through an initial public offering. The securities can be directly bought from
the shareholders, which is not the case for the secondary market. The primary
market is a market for new capitals that will be traded over a longer period.
Secondary Market: Is the market where, unlike the primary market, an investor can buy a
security directly from another investor in view of the issuer. It is also
referred as “after market” i.e. a market meant for the trading of existing
issues. It’s a place where any type of used goods is available. In the
secondary market shares are maneuvered from one investor to other, that is, one
investor buys an asset from another investor instead of an issuing corporation.
So, the secondary market should be liquid.
Debentures: Debentures
are long-term Debt Instrument issued by governments and big institutions for
the purpose of raising funds. Debenture is regarded as an unsecured investment
because there are no pledges (guarantee) or liens available on particular
assets. Nonetheless, a Debenture is backed by all the assets which have not
been pledged otherwise.
Stock: the
term stock means shares. Different companies sell a part of their shares in the
stock market and the buyers purchase these shares and become a partner in the
company’s profit.
Treasury bill: these
are promissory notes issued by government and sold to lender of funds by the
Central Bank acting as agent of government. The Treasury Bills do not yield any
interest before they mature. They are usually sold at discounts on their
respective face values. In that respect they are like zero-coupon bonds.
Stock brokers: these
are the major operators in the secondary market. They are the only duly
authorized dealers on the Stock Exchange that bring the Securities into the
market. i.e they are the agents who buy and sell securities on behalf of
clients (investing public).
Commercial paper: An investor may agree to lend credit to an organization for a short
period of time in return for a mutually agreed rate of interest. Most
commercial papers are negotiable instruments.
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