CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A buoyant and dynamic economy is the one built upon a
sound financial system. Such finical system should be stimulated and maintained
by the effective activities of an efficient capital market, which is the head
of the “Stock Exchange”.
The stock exchange therefore is the market where
companies, raise capital on a short term and long term basis. This role of
mobilization and allocation of funds to every sector of the economy which made
it (Stock Exchange), the toast of investors has given it a pride of plan in
every economy. There is no doubt, that the success or failure of every sector
in the economy rests to every large extent on its stock exchange market. This
is because for any sector in the economy to grow an efficient means of capital
formation must not be ignored considering the importance of capital in any organization
setting.
Since the establishment of the Nigerian stock exchange
(NSE) some forty two years back (42) elements of stagnation, dormancy and unproductiveness
in the economy is being experienced despite the tremendous development in the exchange
systems. This situation has taken a worrisome dimension in which many questions
are being raised on the relevance of the Nigerian stock exchange in
facilitating investments in the Nigerian economy.
1.1 AN OVERVIEW OF THE BACKGROUND OF THE STUDY
There was no organized financial market or institution in
prior to the establishment of the central bank of Nigeria (CBN) by the Act of
parliament in 1958. Consequently, surplus funds of the financial system were invested
abroad there by starving the economy of the mush – needed capital for general
development. But immediately the central bank of came into existence, the
banks started pioneering the development of Nigerian financial market
comprising the money market for short-term funds.
The development of the Nigerian money market for short
term funds started in 1960 with the issue of the first Central Bank of Nigeria
Treasury Bills. Subsequently, other short-term debt instruments such as
Treasury certificates, commercial Bills, certificate of Deposits etc. were
introduced by Central Bank to increase the volume and depth of the money
market.
The first attempt of developing the Nigeria capital market can be traced to the year
1959, when the Central Bank of
floated the First Nigerian Development loan stock on behalf of the Federal Government
of Nigeria. The capital market was divided into two (2) categories. The primary
market which deals in new issues and the secondary market which deals in old securities,
all in the stock exchange. In ,
capital market is regarded as the stock exchange because of the integral part
it plays in the stock exchange market. It is involved in many financial
activities around which all other operators in the capital market revolve one
the other hand, the capital market comprises of various participants and they
are broadly divided into four (4) categories, namely.
1.
The provider of funds
for investors who could be individuals unit, trust and other corporate bodies.
2.
Users of funds, which
comprises of companies and the government.
3.
interim diaries,
facilities which includes stock broking firm, issuing houses and registrar
4.
Regulators these
includes Securities and Exchange Commission (SEC), the Nigeria Stock Exchange
(NSE).
As can be seen above the provider of funds essentially
comprises of individual and companies, while the users of the funds issuer of securities
are expected to be government and corporate bodies. in other words, individual
may not be able to raise money from capital market as they can do in money
market.
However, the stock exchange is one of the key
institutions in the capital market which is a network of individual
institutions and instruments involve in efficient channel of funds from the
surplus economic unit to deficit economy unit. It plays a central and indispensable
role in the market because the opportunity offers for subsequent trading in the
existing securities has made it a decisive factor in the success or otherwise
the efficiency. Thus, the availability of a secondary market engenders
formation and social economic development.
Hence, the Nigeria Stock Exchange (NSE), which constitutes
the hallmark of the Nigerian capital market, plays an important part in the
economic life of the nation. Through its functions, the stock exchange enables
government and industry to raise long term capital and finance developmental
project and expansion and modernization of individual and or commercial
concern.
It is sad to note that despite the various functions it
performance in our economy, its performance as well as its contributions to the
development of the economy is not adequate when compared with the investment
made in the Nigerian stock exchange.
1.2
STATEMENT OF THE PROBLEM
It is widely reported that the Nigerian Stock Exchange
(NSE) has not contributed adequately as desired to the development of the
economy especially with regard to investment in Nigeria this is due to certain
reasons:
1.
Low public awareness
of finance possibilities of the Nigerian stock exchange market.
2.
Inadequate trading
floor to meet the demand of the public.
3.
poor infrastructure
such as telecommunication, electricity etc. to facilitate its activities
4.
High cost of
transaction.
5.
Lack of venture
capital and weak savings mechanism.
It is along these that efforts will be made in this study
to bring to notice the validity of these and other allegations leveled against
the Nigerian Stock Exchange over the years.
1.3 OBJECTIVE OF THE STUDY
The study is being undertaken with various specific objectives
in mind, some of which includes:
i.
To examine the
activities and the performance of the Nigerian Stock Exchange (NSE) in
facilitating investment in Nigerian.
ii.
To identify the
contributions of the stock exchange in the development process of the Nigerian
economic activities.
iii.
To assess the major
problems facing the stock exchange and as against its performance.
iv.
To recommend measures
to be taken to tackle the problems of the stock exchange based on the findings.
v.
To bring to notice
the anticipating impact of the stock exchanges i.e. the central securities
clearing system (CSC).
The findings from the study is hoped to assist policy
markets to take appropriate action or decision towards improving the activities
of the stock exchange as well as in curbing the problem facing the exchange.
1.4
SCOPE OF THE STUDY
Basically, this study will cover the activities and
performance of the
stock exchange (NSE) ideal with such aspect as the historical background or
evolution of the stock exchange, capital formation as well as the role of the
Nigerian Stock Exchange others areas will include legal framework, members and
governance operations, listings requirement and instrument listed on the stock
exchange.
1.5
RESEARCH QUESTIONS
This study will examine the activities and performance of
the Nigerian stock exchange with the aim of finding out the extent to which it
has contributed to the development of the Nigerian economy especially in facilitating
investments opportunities. The following questions are therefore raised to
guide the study.
i.
To what extent has
the stock exchange provides necessary liquidity mechanism for investors through
a formal market for debt and equity securities?
ii.
To what extent has
the stock exchange contributed to capital formation as well as gross domestic
product (GDP) in the
economy?
iii.
How true is the
allegation that the Nigerian stock exchanges activities are note made public to
many individual investors as well as to companies in Nigerian?
iv.
To what extent has
the policy of expanding the geographical coverage of the stock exchange
activities been successful.