Capital market – Investment is a tool that stimulates economic advancement of any nation. Nigeria has its fair share of this economic driver where citizens and corporates put excess funds in their hands to work.
Before the global recession of 2006, Capital market investment is a renown one in Nigeria, though Nigerians were beginning to embrace investment vehicles when the world nosedived, however the market has been performing considerably ever since.
Just recently, the Africa’s telecommunication giant MTN announced and invited interested members of the public to buy its shares in a public offering for the first time.
If you are looking to understand how the Capital market works either for investment or education purpose, this guide will provide a firsthand information and a top notch insight that’ll help you.
What is Capital Market in Nigeria?
Capital Market is a market where long term debt instruments/securities are traded.
The idea in this market provides an enabling or meeting point between people who are looking to borrow capital and those who are looking to supply such capital.
The borrowers meet willing suppliers, where the market is further sub-divided into Primary and Secondary market.
How Capital Market works
The market is made up of suppliers of debt instruments and users of such funds. In this arrangement the suppliers may involve households who raise some funds through savings and investments they hold with the banks and other viable money outfits.
These savings could also be coming from other funds like the pension and retirement benefits, charity funds or no financial outfits who may have generated excess cash.
In the other hand, the users of these funds may include government institutions looking to undertake or finance government infrastructure, non-financial companies are not left out in the category of users of these funds.
Read also: The concept of money market, how it works in Nigeria
Now you should get a clearer picture of how the instruments are being traded, who supplies and who is using the supplied funds.
By extension, the debt instruments traded in the Capital market are; shares, bonds, etc.
The Capital Market is divided into two, Primary markets and secondary markets.
The Primary market: The primary market is seen in arrangement where companies sell new stocks or bonds for the very first time. Often seen in the initial public offering (IPO), may still be referred as the new issues market.
Illustration 1
A bank XYZ may decide to make “Initial Public Offering,” maybe she wants to raise N2 billion naira to undertake a project or expand business.
The bank may inform members of the public that she is selling share worth N2.5 billion at N7.50 per share.
Where minimum quantity may be pecked 2000 units per purchase.
In this regard, the bank attracts members of the public who are willing and have the capacity to buy in bulk.
Significantly, in a primary offer, the company wants to raise funds immediately so they’ll prefer people who have the capacity to buy huge amount of shares to clear up their offering almost immediately.
The secondary market: At the Secondary market, you can buy existing stocks who have passed their initial public offering from other investors, not necessarily from the company who made such offering.
You can buy existing shares at the Secondary market any time provided you can afford its unit price.
The Secondary market allows you to buy at your own pace, the stock is always available for purchase, the beauty of it is that you can buy fewer stocks according to your budget.
Most of these purchases may have to go through certified brokers licensed to carry out such transactions under the dictate of the “Security and Exchange Commission (SEC).”
Illustration 2
If bank XYZ above made her “Initial Public Offering” and by any means you couldn’t afford to make purchases at that time.
The secondary market provides you an ample opportunity to buy into bank XYZ shares in the future from the Secondary market.
You will mostly be buying from investors who are looking to sell either part or whole investment holdings.
How to buy shares in Nigeria
Shares/stocks are units of ownership interest in a company, may also be referred to as a financial asset that makes for an equal distribution in profits made, these profits or interests are declared as dividends.
Concept of the stock market: This is a market where securities, equities, shares are traded. However, in Nigeria these shares are traded on the floors of the Nigerian stock Exchange (NSE).
To invest in the Nigerian stock market you will have to follow the below guidelines.
You have to open a brokerage account through which all your instructions on purchases will be carried out by your preferred stockbroker, equivalent of bank account in banking.
This account is called the Central Security Clearing System (CSCS) account.
Your broker will provide a CSCS account opening form, complete it appropriately where in you will be assigned an account number thereafter.
Requirements for the CSCS account
- Completed CSCS account opening form
- Valid ID card (Driver’s license, voters card, international passport or national ID)
- Your complete address and
- Bank details
- Recent colored passport photograph
- Utility bill not later than 90 days
Thereafter credit your account with funds when profiled. At this point you are good to start buying and selling shares in Nigeria.
Buying shares
Having identified a share you’ll like to buy, kindly send an order to your broker to buy same on your behalf.
Related terms
| Money and capital market | Money market is a market where short term debt instruments/securities are sold. Instruments traded in the money market include; commercial papers, banker’s note, commercial deposits, treasury bills, etc. Capital market is a market where long term debt instruments are traded. They are usually traded between 1 – 10 years. Instruments traded in this market are; shares(stocks), bonds, etc. |
| History of Capital market in Nigeria | The history of the market in Nigeria can be traced back to 1946, where there was a floatation of 300,000 pounds bond by the then colonial government to implement its 10-year development plan. Sequel to this, the Lagos Stock Exchange was established as a private company Limited guarantee, and commenced operation in 1961. |
| Types of capital markets in Nigeria | The capital market in Nigeria is divided into the: Primary and Secondary markets. |