INVESTMENT OPPORTUNITIES IN THE CAPITAL MARKET

Capital market refers to an arrangement through which buyers and sellers effect the exchange of capital funds of medium to long term nature. This could be debt or equity obligations. A capital market needs not have a physical location in the ordinary sense of a market, although Stock Exchange transactions are conducted in specific locations (trading floors). For the purpose of simplicity, this presentation will be sub-divided into six main areas as follows: Overview of the Capital Market The Regulatory Environment Advantages of Capital Market Investment Over Other forms of Investment Benefits of Investing in Shares The CSCS Option Benefits of the Capital Market Option to Users of Fund

OVERVIEW OF THE CAPITAL MARKET

Operations in the capital market are structured into two broad segments: the primary market and the secondary market. Capital Market Instruments include equities, bonds and derivatives. i. THE PRIMARY MARKET The primary market is the segment of the market whereby governments and companies raise fresh capital by issuing new securities. This can be done through: Offer for subscription A direct sale of new securities (equity or debt) to the public. The proceeds go to the issuer. Offer for sale This is a public offer of shares in a company by existing shareholder(s), the proceeds of which go to the seller(s) of such shares. Rights Issue This is simply an offer made to existing shareholders to buy more shares in the company usually at a price below the market price i.e. at a discount.

Private Placement This occurs where a company sells its securities to select individuals or investors and not to the public at large. ii. THE SECONDARY MARKET The secondary market provides the platform for trading in already issued or existing shares. The Nigerian Stock Exchange through its eight trading floors provides the facility for secondary market operations.

REGULATORY ENVIRONMENT
THE SECURITIES AND EXCHANGE COMISSION The apex regulatory body in the Nigerian Capital market is the Securities & Exchange Commission (SEC) which was established under Securities & Exchange Act, 1979 which was later repealed and replaced with Securities & Exchange Act 1990. Its main functions include the registration of market operators, (including Stock Exchanges), surveillance in securities dealings, promotion of capital market development and protection of the investing public. THE NIGERIAN STOCK EXCHANGE The Nigerian Stock Exchange regulates the activities of market operators by ensuring orderliness and sanity in the market and also ensures that quoted companies comply with post-listing requirements. THE INVESTMENTS AND SECURITIES TRIBUNAL This is the apex arbitration body of the Nigerian Capital market saddled with the responsibility of adjudicating on disputes arising from Capital market transactions. It has powers of the regular high courts. CHARTERED INSTITUTE OF STOCKBROKERS The Institute is saddled with the responsibility of training and re-training of Stockbrokers. It takes disciplinary measures against erring members. It grants practicing license to individual members which is renewed annually.

ADVANTAGES OF CAPITAL MARKET INVESTMENT OVER OTHER FORMS OF INVESTMENT

Divisibility: It is possible for an investor to dispose of a fraction of his investment in shares. This is not possible in some other forms of investment like Real Estate. Confidentiality: Capital market investments as a financial instrument confer on the owner some degree of confidentiality such that no one knows your real worth financially, except your stockbroker and anyone else you choose to reveal the information to.

Relatively Guaranteed Income: Investment in capital market instruments guarantees good returns in form of regular dividend, bonus issues and coupon payment as blue chips are top of the range in terms of their performance, while Federal Government bonds are default risk free. This is unlike the real estate investment whereby a tenant can default in paying rent to the landlord. Highly Regulated: Any investor that is wronged can have his case taken up by the market regulators. This opportunity is not readily available to most other investment means. Easier To Use As Collateral: The process of obtaining title on landed properties so that they can be used as collateral for loans can be very long and tedious compared to the use of your shares as collateral for loans. Liquidity: It is easier to raise money by selling stocks (especially the blue chips companies) as buyers are easier to get, than it is to dispose of other investments.

BENEFITS OF INVESTING IN SHARES

Price appreciation: when a quoted company is doing well, the market price of its shares goes up. Thus investors can buy at a low price and sell at a high price. Dividend: This is part of a companys profit distributed to shareholders after deducting the appropriate withholding tax. This can be interim or final. Liquidity: Shares can easily be disposed of to meet temporary financial commitments. The Stock Exchange provides the platform for buying and selling of shares. Scrip Issues: These are new shares allotted free-of-charge to existing shareholders in proportion to their existing holdings. It is the capitalization of a companys reserves. Diversification of Investment: Investing in the capital market is a way of diversifying ones investment portfolio and thus avoids putting all ones eggs in a basket. Means of savings: Investment in shares is saving for the rainy day or against expected and/ or unexpected financial obligations. Access to credit facility: Shares are acceptable form of collateral for credit. In actual fact, it is about the best form of collateral. Ease of valuation: Most Nigerian daily newspapers feature activities on the capital market. Thus, it is possible to do a valuation of your portfolio. Strategic reasons: This could be with the intention of becoming the core investor in a company. Right to Attend Meetings: Every shareholder is entitled to attend and participate at deliberations at Annual or Extra Ordinary General Meetings where vital decisions on the company are taken.

THE CSCS OPTION

The Central Securities and Clearing System (CSCS) is the electronic clearing house of the Exchange and is primarily saddled with the responsibility of clearing, settlement and delivery of transactions as well as being the central depository for shares. This implies that secondary market transactions are made possible through the operations of the
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CSCS. Any purchase made on the floor of the Exchange goes into the investors CSCS account while secondary market sales/ transfers are done directly from investors accounts. In essence, the CSCS definitely has advantages over keeping physical share certificates. ADVANTAGES OF THE CSCS Elimination of the risk of loss due to theft, fire, misplacement e.t.c. It becomes possible to take advantage of capital gains as it is easier to dispose of. Liquidity of holding is enhanced. Stocks in the CSCS are easier to use as collateral for loans through lien placement.

BENEFITS OF THE CAPITAL MARKET OPTION TO USERS OF FUNDS

Issuers stand to derive the following benefits by using the capital market option rather than approaching the Banks for funding: Ability to get the best possible price as the security to be issued is valued by professionals It is a cheaper means of funding when compared with the money market. Continuity in business is guaranteed for a quoted company Market perception is enhanced as quoted companies enjoy higher level of publicity Free entry and exit to shareholders. Easier access to credit facility Unrestricted access to the market to raise funds subsequently to finance modernization and expansion. Companies can either be listed as first-tier or second-tier companies. The difference between the two tiers lies in the listing requirements which are more stringent in the first tier.

CONCLUSION
The Nigerian Stock Exchange has taken several steps in the last few years to further develop the capital market. A good example is the CSCS which has reduced transaction cycle to four working days i.e. T + 3. The Exchange has been operating an Automated Trading System since April 27, 1999 with dealers trading through a network of computers connected to a server. Recently, it has become possible for stockbrokers to operate the remote trading option using the vast possibilities of the internet. Also, most branches of the Exchange are connected for online real-time trading. The current privatization programme and the gradual commencement of the implementation of the 2004 Pension Reform Act with the recent licensing of Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs), is expected to deepen the market. Ours is a developing market with lots of potentials. While it is true that investing in shares has its attendant risks, it surely has a leverage over other forms of investments.
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With sound professional advice, you are not likely to get it wrong in the long run. I therefore enjoin you not only to avail yourself of these opportunities, but also to encourage others to patronize the market, either as investors or user of funds.

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