Classification of Stocks and Market participants

The Capital Market

The primary aim of the Nigerian capital market is to mobilize long-term funds. The Nigerian Stock Exchange (NSE) is the centre point of the capital market while the Securities and Exchange Commission (SEC) serves as the apex regulatory body. It provides a mechanism for mobilizing private and public savings and makes such funds available for productive purposes. The Exchange also provides a means for trading in existing securities. To enable small as well as large-scale enterprises gain access to public listing, the NSC operates the main Exchange for relatively large enterprises, and the Second-Tier Security Market (SSM) where listing requirements are less stringent for small and medium-scale enterprises. The exchange which started with only 19 securities traded on its floors in 1961, now has 279 securities made up of 34 Federal Government Stocks. 62 Corporate/Bonds and 183 equities all with a total market capitalization of N170 billion. The major instruments used to raise funds in the market include equities, debentures, bonds and stocks. Capital markets are classified into two segments, namely primary and secondary.

The primary market for new issues of securities. The mode of offer for the securities traded in this market includes offer for subscriptions, rights issues, offer for sale, private placement etc. while the secondary market is a market for trading in existing securities. This consists of exchanges and over the counter deals where securities are bought and sold after their issuance in the primary market. Activities in the secondary market have increased substantially over the years. The number of stock brokers trading on the Exchange increased from 110 in 1991 to 140 in 1994.

The debt of the capital market has increased with the introduction of the Unit Trust Scheme for mobilizing the financial resources of small and big savers and managing such funds to achieve relatively high returns with minimum risks through efficient portfolio diversification. Efficiently managed unit fund schemes offer the advantages of low costs, liquidity and high returns. The promulgation of the Companies and Allied Matters Decree of 1990 provided the legal framework for the establishment of unit trusts.