| ction | | | | Managers: These are institutions registered by the |
| Securities are created and issued by corporate bodies | | | | statutory regulatory agency to manage the portfolio of |
| and governments, which are in need of funds to | | | | clients. Portfolio management entails the receipt of |
| finance expansion or development projects. For | | | | funds, sometimes very large sums, to be invested by |
| instance, Wazobia Plc, a manufacturing concern needs | | | | the portfolio manager. Most often, the choice of |
| to expand its facilities to accommodate present and | | | | investments are left to the manger who however |
| anticipated consumer demand as well as replace aging | | | | must send periodic investment statements, to his client. |
| or obsolete equipments. It is however, short of internally | | | | In exercising his discretion, the manager must at all |
| generated funds (retained earnings) to undertake the | | | | times, consider the best interest of his clients. Both |
| projects require long gestation and pay¬back | | | | investments advisory and portfolio management |
| periods, money market facilities which have short | | | | services require extensive economic/market analyses |
| tenure would be inappropriate funding sources. The | | | | to guide investment decisions and advice to clients.v) |
| company would be left with one possible option, that is, | | | | Registrars: These are institutions employed by |
| to access the capital market if it meets the | | | | companies to keep comprehensive registers of their |
| requirements for entry. This could be done by issuing | | | | members (shareholders) and creditors. In addition, they |
| shares and/or debt instruments. (Securities and | | | | arrange annual general and extra-ordinary meetings |
| Exchange Commission, 1999). Thus, capital market is a | | | | for their clients; distribute stock/share certificates, |
| segment of financial market that is responsible for | | | | annual reports, dividend warrants and notices of |
| mobilizing and channelling long term funds into | | | | shareholders' meetings. In cases of issue |
| productive investment such as fixed assets. The | | | | over¬subscription, registrars dispatch surplus monies |
| investments in capital market are at longer period of | | | | to subscribers.vi) Trustees: These are important |
| time, which are held for a minimum of five years. | | | | participants in debt issues and collective investment |
| Moreover, the term securities consist of stocks and | | | | schemes such as unit trust. The trustee protects the |
| bonds. It is not possible inthis paper to digest all aspect | | | | interest of investors in debt instruments by monitoring |
| of securities. Therefore, this paper shall limit itself to | | | | and ensuring the fulfillment of the term of the trust |
| stocks only (i.e. shares). | | | | deed.vii) Receiving Agents: These are banks and |
| Theoretical Framework | | | | stockbroking firms appointed by the issuing house to |
| Fischer and Jordan (2005) see investment as a | | | | serve as centers for the distribution of offer |
| commitment of funds made in the expectation of | | | | applications forms, as well as for the receipt of |
| some positive rate of return. If the investment is | | | | subscriptions monies on behalf of the issuing house, for |
| properly undertaken, the return will be commensurate | | | | a fee.viii) Receiving Bankers: These are banks |
| with the risk the investor assumes. | | | | designated by an issuer to receive proceeds of an |
| Similarly, an investment is the current commitment of | | | | issue on its behalf.ix) Solicitors: These are law firms |
| money or other resources in the expectation of | | | | which either represent the issue or the issuer. In |
| reaping future benefits. For example, an individual might | | | | practice, two solicitors are required in a public issue of |
| purchase shares of stock anticipat¬ing that the | | | | securities. These are the solicitor to the company |
| future proceeds from the shareswill justify both the | | | | (issuer) and the solicitor to the issue. The solicitor to the |
| time that her money is tied up as well as the risk of | | | | company among other things ensures that the |
| the investment. You sacrifice something of value now, | | | | memorandum and articles of association of the |
| expecting to benefit from that sacrifice later. (Bodie, | | | | company are in consonance with legal requirements of |
| Kane, and Marcus, 1998, p. 2). | | | | a public company, and effect amendments where |
| Distinction between real assets and financial assets | | | | necessary. The solicitor would examine issue relating |
| According to Bodie, Kane, & Marcus (1998) real assets | | | | to the authorized capital, ensuring that it can |
| are assets used to produce goods and services. In | | | | accommodate the issue being proposed. Where a |
| contrast to such real assets are financial assets, such | | | | debenture stock is to be floated, the solicitor would |
| as stocks and bonds. Such securi¬ties are no more | | | | make sure that the company has the borrowing |
| than sheets of paper (or entries in a computer) | | | | power to do so. Generally, it is the duty of the solicitor |
| Financial assets are claims to the income generated | | | | to the company to ensure that the company complies |
| by real assets (or claims on income from the | | | | with the provisions of the corporate law of the country |
| government). If we cannot own our own auto plant, | | | | (e.g. the Companies and Allied Matters Decree 1990 in |
| we can still buy shares in General Motors or Toyota | | | | Nigeria).x) Auditors: These are the existing auditors of |
| and, thereby, share in the income derived from the | | | | the company. In their capacity as the auditors, they |
| production of automobiles. | | | | provide historical perspective on the accounts of the |
| Definition of Stock | | | | company for inclusion in the prospectus.xi) Reporting |
| In simple terms shares is ownership in share of a | | | | Accountants: These are firms of accountants which |
| corporation. According to Ahmed (2008) securities as | | | | provide independent assessment of the accounts of |
| stocks and bonds. According to him, a stock | | | | the company. They review management forecast and |
| represents a share, or percentage, in a | | | | examine the reasonableness or otherwise of such |
| corporation’s profits and assets. By purchasing | | | | forecast. Based on their findings, the reporting |
| stock an investor is buying a percentage of ownership | | | | accountants can recommend adjustments to the |
| in a company. | | | | management forecast. They also prepare statement |
| Different Types of Stock | | | | of indebtedness of the company, among other things. |
| There are two main types of stock or shares, namely; | | | | Prerequisites to successful investing in stocka) |
| ordinary shares and preference shares. Ordinary | | | | Selecting a Broker |
| shares according to Nwiwu, Ya’u, Ezeocha, | | | | According to Fischer and Jordan (2005) the investor's |
| Ezima and Uzoigwe (2007) this form that part of | | | | first step in establishing a satisfactory relationship with |
| capital structure of the business contributed by the | | | | a broker is to choose a firm that is suitable for his |
| common stock holders .For a new company it is called | | | | needs and to select a representative of the firm with |
| venture capital but in the old companies it is called | | | | whom he can work. In practice separating the two |
| equity share capital. | | | | choices is hard, for if one has chosen a satisfactory |
| Ordinary or equity shareholders ordinarily own the | | | | firm but is unhappy with the representative, it is |
| business, so all reserves belong to them. They have | | | | embar¬rassing to shift one's account to another |
| the right to votes in the company. The shares are non- | | | | representative within the same firm. The brokerage |
| redeemable even though transferable. However, they | | | | firm should be a well-known and long-established |
| have no fixed rate of dividend since rate depends on | | | | institution. In select¬ing a firm an investor can ask for |
| the level of profitability, company liquidity and | | | | recommendations from his bank or from friends |
| management discretion. On the other hand, Preference | | | | whose opinions he trusts.b) Opening a Brokerage |
| shares are the hybrid or bat of financing because they | | | | Account |
| exhibit the tendencies of both equity and debt at the | | | | This is an investment account, which is opened with |
| same time. They have a fixed percentage dividend | | | | the CSCS through a stockbroker. When this account |
| before any dividend is paid to the ordinary | | | | is opened a client is issued with two numbers. The first |
| shareholders. | | | | number is called ’CSCS No.’. It is |
| Share Certificate | | | | computer-generated numbers allocated to a new |
| Nwaiwu (2004) when shares are allotted to the | | | | shareholder. It is unique to each stock-broking firm. |
| investor a note will be sent indicating the number of | | | | Although a shareholder can have as many accounts |
| shares allotted. After some period a share certificate | | | | as the number of stockbroking firms he uses. |
| will be issued. This certificate is a security, a proof of | | | | Furthermore, CSCS No is alphanumeric which is used |
| ownership of the shares in the company. If in future | | | | if you have to fill in public offers if you desire shares |
| the shareholder wishes to sell the shares, the share | | | | allotted to you to be credited to your account. |
| certificate must be surrendered to a stockbroker who | | | | Investors Account No. is numeric which is used |
| will forward it to the company’s registrar. | | | | internally on the floor for trading. In other word, |
| Nigerian Investments and Securities Law Reports | | | | investor’s No. is the CHN represents the |
| (2004) pointed out that securities in the market are | | | | Clearing House Number assigned to every shareholder |
| available in either of the following two (2) forms:i. In | | | | at the first point of entry into the CSCS system. He |
| certificate form; andii. In dematerialized form | | | | She must have completed the CSCS -- R005 |
| When a security is presented in a certificate form, the | | | | — Shareholders Particulars Form. They are to |
| selling agent needs to verify the signature of the holder | | | | provide the same CHN to all subsequent stockbroking |
| and the validity of the presented certificate(s) with the | | | | firms they may have transactions with for ease of |
| Registrar to the company, after which it could be | | | | reference. |
| deposited for sale or any other form of transfer in | | | | Other Prerequisites to successful investing in stock |
| dematerialized form into the account of the beneficial | | | | include opening a Bank Account, access to Post office |
| owner held with the CSCS. Consequently, any | | | | Box (P. O. Box), access to Phone and active E-mail |
| subsequent sale or transfer of these securities can | | | | Address. |
| validly be undertaken without any need to revert to the | | | | Process of acquiring shares |
| Registrar. It therefore follows that securities held in the | | | | According to Nigerian Investments and Securities Law |
| CSCS ac¬count of any holder are deemed to have | | | | Report [NISLR] (2004) shares could be acquired by six |
| undergone the necessary veri¬fication and | | | | (6) main modes; |
| confirmation with the Registrars and therefore the | | | | 1) Public offer; |
| holder is rightfully accepted as the true beneficial | | | | 2) Rights offer; |
| owner of the securities reflected in his account with | | | | 3) Bonus; |
| CSCS. Thereafter, the only proof of ownership of the | | | | 4) Nominal transfer; i.e. Transfer of share by way of |
| said securities that is available to the beneficial owner | | | | gift. |
| is the CSCS statement of account issued to him. | | | | 5) Transmission from a dead relation or friends or |
| Benefits of Investing in Shares | | | | collective investments or investments previously held |
| According to Kofa (2004) there are numerous benefits | | | | under a corpo¬rate name for a beneficiary; and |
| accruing to a shareholder who invests in shares. Such | | | | lastly |
| benefits include:i) Return on investment by way of | | | | 6) By purchase on the secondary market. |
| dividend payment (share of profit by the company on | | | | In general, a prospective investor who wishes to |
| each share owned by the shareholder. This of course | | | | purchase shares on the secondary market is |
| depends on the number of shares held by the | | | | expected to approach a stockbroker such as |
| shareholder. The dividend declared by the | | | | Newdevco with a request to purchase or to invest in |
| company’s Directors must however be | | | | shares at a secondary market. In response, the |
| approved at the company’s Annual General | | | | stockbroker asks the prospective client which stock |
| Meeting (AGM).ii) Bonus issue, this is an additional share | | | | shares he/she intends to purchase. Where the client |
| given to shareholders based on the number of shares | | | | has a selected stock in mind, the stockbroker |
| owned by each shareholder free of charge at a ratio | | | | executes the order according to the expressed need |
| approved by the Board of Directors/Management and | | | | or interest of the client/customer. (Kofa, 2004). |
| ratified at the company’s AGM.iii) Capital | | | | Kofa (2004) added that in a situation where a client |
| appreciation; this is an increase of share price over | | | | does not know which stock/share to buy, the |
| time. The value of company share increases due to | | | | stockbroker explains and advises the client accordingly |
| performance and demand/supply factors. That is, for | | | | in detail the shares to invest in. Consequently the |
| example, unit price of share purchased today at N10.00 | | | | stockbroker gives the client the necessary share |
| could be N20.00 one year after, due to market | | | | transfer forms and Central Security Clearing System |
| forces.iv) It can be used for security/collateral for loan | | | | (CSCS) (particulars of shareholder) for completion. |
| purposes. Share certificates or statements are | | | | These documents are used to lodge the shares at |
| acceptable as good collateral for loans by banks and | | | | Registrars Department of the company and also to |
| other financial institutions.v) Pressing immediate needs | | | | open the new CSCS account for the client. The |
| could be met without seeking any bank/individual | | | | shares requested by client to be purchased are |
| financial assistance by disposition of shares. | | | | normally paid for by Bank Draft or physical clash to a |
| Risks associated with stock investment | | | | stockbroker, who will in turn given an official receipt for |
| Elakama (2004) emphasized that there are no | | | | the draft value or cash collected. Thereafter, the |
| guarantees when it comes to individual stocks. Some | | | | stockbroker purchases the shares as requested by |
| companies pay out divi¬dends, but many others do | | | | client. Whenever the transactions are fully |
| not. And there is no obligation to pay out dividends | | | | consummated, the stockbroker shall forward the |
| even for those firms that have tradition¬ally given | | | | CSCS statement of stock position to the client as |
| them. Without divi¬dends an investor can make | | | | evidence of ownership of such shares. |
| money on a stock only through its appreciation in the | | | | Benefits of Central Security Clearing System (CSCS) |
| open market. On the downside, any stock may go | | | | Nigerian Stock Exchange (2008) states the benefits of |
| bankrupt, in which case your investment is worth | | | | CSCS to the operation of the Nigerian Stock |
| nothing. | | | | Exchange as follows:a) To Investors |
| Similarly, Securities and Exchange Commission (1999) | | | | Investors statements of stock position are issued |
| like other forms of investments, there are risk/cost | | | | every quarter free of charge or on demand for |
| associated with investing in the capital market. There | | | | =N=100.00. |
| are also obligations on issuers of securities. The risk to | | | | Use of stock position as collateral for loan facility |
| investors includes possible unfavourable rate of return | | | | after T + 3 settlement cycle i.e. 4 working days. In |
| owing to depreciation in market value and/or | | | | effect, a statement of stock position is obtainable from |
| non¬payment of dividends. It could also involve | | | | CSCS 4 days after transaction. |
| possible loss of investment should a company go | | | | Investors can speculate more and take advantage |
| burst. | | | | of capital appreciation in their investment because of |
| Nature of capital market | | | | the T+3 settlement cycle. |
| At this point, it is important to recognise the nature of | | | | Reduced risk of loss of certificates.b) Quoted |
| capital market. Sulaiman (1999) defines capital market | | | | Companies |
| as a network of interrelated institutions governed by | | | | Huge cost associated with the production of share |
| operational guidelines which permit the sale of equity | | | | certificates for transaction through the secondary |
| and long term debt | | | | market has been significantly reduced. |
| Elements of the capital market | | | | Before CSCS, a single transaction on a certificate |
| There are three identifiable features of a capital | | | | led to the cancellation of the certificate and the |
| market. These are: the instruments; the market place; | | | | issuance of as many as ten (10) certificates depending |
| and the participants.a) Financial instruments | | | | on allotments made. This is no longer so since few |
| Financial instruments are the investment products, | | | | shareholders request for certificates. |
| created to ensure the smooth and easy transfer of | | | | Indeed, of the 400,000 shareholders who use |
| funds in the capital market. These instruments, | | | | CSCS system now, only 2,200 shareholders have |
| generally known as securities are financial assets, | | | | requested for certificates to date. |
| which represent either debt or ownership. The | | | | Amalgamation/consolidation of several accounts |
| instruments have various features depending on their | | | | for a shareholder on the register leading to reduction |
| type between the primary and secondary markets is | | | | of cost to the company.c) Stockbroking Firms |
| the fact that proceeds of sale of primary securities go | | | | Prompt Inter-member money and stock-settlement |
| to the issuer (company or government) whereas in the | | | | are assured. |
| secondary market, proceeds go to the investor.b) The | | | | The problems associated with delivery of shares |
| market place | | | | are minimize |
| Securities and Exchange Commission (1999) the capital | | | | Increased efficiency and profit |
| market is divided into two separate but closely-related | | | | Reduction in operational cost. |
| segments known as the primary and secondary | | | | Disposal of Shares |
| markets. Primary Market a forum where new shares | | | | According to Kofa (2004) a shareholder who wishes |
| are offered to both existing shareholders and general | | | | to dispose his/her shares is expected to go to a |
| public for purchase. Primary market offers can either | | | | licensed stockbroker only. A Stockbroker is seen as |
| be made directly by the company to increase its | | | | the authorized agent approved by the government to |
| paid-up capital or through privatization of Government | | | | deal in shares, especially in the purchase or sale of |
| holdings, technically called divestment of government | | | | shares on behalf of an individual, group or company. |
| shares. On the other hand, Secondary Market is a | | | | The original hare certificates or CSCS statement will |
| market where existing shares are traded (sold and | | | | be tendered to a Stockbroker who will issue the |
| bought). Trading of shares at secondary market takes | | | | relevant forms for completion by the shareholder and |
| place on the floor of The Nigerian stock exchange. | | | | then forwarded to company Registrars for signature |
| The Stockbrokers buy and sell shares on behalf of | | | | verification. That is, confirm the ownership of the |
| their respective clients. Essentially, the Stockbrokers | | | | shares in the case of share certificate. However, in the |
| are the dealing member firms licensed by both the | | | | case of CSCS statement, the stockbroker verifies his |
| Nigeria Stock Exchange (NSE) and the Securities and | | | | client’s signature. After the confirmation of |
| Exchange Commission (SEC) to deal on shares and | | | | signature, the share is taken to the floor of, say, the |
| offer other services to the investing public. (Kofa, 2004, | | | | Nigerian Stock Exchange for appropriate disposal. |
| p.28).c) Participants in the Market | | | | After the disposal contract, a note shall be raised |
| Securities and Exchange Commission (1999) to | | | | appropriately and the net proceeds is remitted to the |
| facilitate the saving and investment process in any | | | | shareholder after commissions and statutory charges |
| economy, financial intermediaries must exist and in | | | | are deducted as approved by the Nigerian Stock |
| good number. The financial intermediary is essentially a | | | | Exchange. |
| middleman who pools funds form savers and passes | | | | Recent Development in the Nigerian Capital Market |
| on such funds to those in need of them. An | | | | There are two recent developments in the Nigerian |
| intermediary is a specialist) professional) in his line of | | | | Capital Market. First, is the launching the e-dividend |
| business and thus, heavily relied upon by his clients to | | | | payment system which would subsequently solve the |
| make good investment judgement on their behalf or | | | | problem of unclaimed dividends by the Securities and |
| provide professional advisory services to them. The | | | | Exchange Commission (SEC). |
| capital market has a wide array of intermediaries | | | | According to Olamijulo (2008) the e-dividends payment |
| performing various intermediation functions. They | | | | system refers to the payment of dividend due to |
| include:i) Issuing Houses: These are institutions which | | | | shareholders through electronic means into the |
| assist corporate bodies and governments to raise | | | | shareholders’ nominated bank accounts. It |
| long-term funds by packaging security issues for | | | | implies same day clearance for dividend payment. He |
| subscription on their behalf. The issuing house by this | | | | added that the system would enable shareholders |
| function plays a central role in the issuance process, | | | | receive their dividends on the same day, thereafter a |
| and in industrial development. The issuing house as the | | | | confirmation letter of the dividend payment would be |
| principal agent of and adviser to the issuer has the | | | | dispatched by the registrar. The e-dividend payment |
| responsibility of advising its clients on the most | | | | system would minimise cases of unclaimed dividends, |
| appropriate instrument and method of sourcing the | | | | eliminate dividend loss in transit, the forfeiture of |
| required capital. It also has the responsibility of | | | | dividends in the future and enhance the ability of |
| assembling and coordination all other specialists | | | | shareholders to immediately access and utilize the |
| required in the issue process, ensuring that statutory | | | | proceeds of their investments. |
| and all other requirements are met, and that the issue | | | | Secondly, is the launching of e-allotment which will be |
| is properly packaged and successfully concluded. | | | | fully operational from January 1, 2009. Ahmed, (2008) |
| Packaging would include pricing of the securities, | | | | reported that the system is aimed at enabling the |
| preparation of the prospectus and other documents, | | | | achievement of a certificate-less system in the Nigeria |
| as well as marketing and distribution of the securities.ii) | | | | capital market. |
| Stockbrokers/dealers: These are major players in the | | | | E-allotment of shares as it is known is a process of |
| secondary market. Stockbrokers are the only persons | | | | direct credit of approved allotment on offers to the |
| permitted to transact business on the floor of a stock | | | | CSCS account of shareholders, as against the |
| exchange or on the over-the-counter market. A | | | | conventional issuance of share certificates. It is a |
| stockbroker, therefore, stands between the seller and | | | | process which will aid the achievement of |
| buyer of registered securities, making it possible for | | | | certificateless transaction in the Nigerian capital market. |
| both parties to realize their desire to buy or sell | | | | (UBA Registrars, 2008) |
| securities. To act as an agent of the public or deal in | | | | The e-allotment is introduced as a result of postal |
| his own account, a stockbroker/dealer must be | | | | services delays, and "the need to reduce costs in |
| registered by the statutory regulatory agency | | | | printing and dispatch of share certificates as well as to |
| (Securities and Exchange Commission) and licensed | | | | enable all investors in public offers speedily allotted |
| by the stock exchange. As an agent of his client, the | | | | shares." |
| stockbroker is under obligations to transact business | | | | Conclusions and Recommendations |
| for him at the best price obtainable in the market.iii) | | | | It can be concluded that in Nigeria, the only obstacle to |
| Investment Advisers: These are institutions/persons | | | | stock investment is the low level of investors’ |
| registered by the statutory regulatory agency to | | | | enlightenment on the benefits of the entire system, |
| provide investment advisory services to their client for | | | | which has greatly affected the acceptance level |
| a fee. Investment advisory services are incidental to | | | | negatively. |
| stock broking and issuing house business.iv) Portfolio | | | | |