PRUEBAS DE FUNCIONAMIENTO

The historical evolution of the Nigerian capital market can be traced back to the 1950s when the British Government ruling Nigeria at the time sought funds for running the local administration. During the colonial rule, most of the funds used in running the government were derived from agriculture, produce marketing and solid mineral mining. When the

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British Government discovered that these sources were inadequate to meet its growing financial obligations, the colonial administration decided to expand its revenue base by reforming the system of revenue mobilization, taxation and other payments. It also saw the need to raise funds from public sector to cover temporary shortfalls in funds availability. Hence, the colonial government found it essential to establish a financial system by setting up the basic infrastructure for its take-off pending the development of an organized private sector (Osaze, 2007, Ewah et al., 2009).

In line with the above argument, the first step towards the development of the Nigerian capital market was to secure the necessary finance for the development of this infrastructure and long-term capital project. This the colonial government did in 1946 when it promulgated the 10-year plan Local Loan Ordinance for the floatation of the first N300, 000, 3% Government stock 1956/61 with its management vested on the Accountant- General (Odife, 2000). This was followed by the enactment of the Government and Other Securities (Local Trustees Powers) Acts in 1957, which specified the types of securities in which trust funds may be invested. In addition, the colonial government set up the Professor Barback committee to examine the ways and means of fostering a stock market in Nigeria. This committee recommended, among others, the creation of facilities for dealing in shares, the establishment of rules regulating share transfer and measures for encouraging savings and issues of securities of government and other organizations. The recommendations of this committee led to the promulgation of the General Loan and Stock Act and the Local Loan (Registered Stock and Securities) Act by the colonial administration at the end of the year 1957 (Osaze, 2007). The purpose of these legislations was to establish the legal and infrastructural framework for the take-off of a viable capital market in Nigeria.

In May 1958, the Federal Government of Nigeria through its ministry of industries set up the Barback committee to fashion out ways and means of promoting a stock market in Nigeria. Prior to this period, financial operators in Nigeria comprised mainly of foreign owned commercial banks that provided short-term commercial trade credits for the overseas companies with offices in Nigeria. Upon the recommendation of the Barback committee, the Nigerian capital market first came into existence on September 15, 1960 with the establishment of the Lagos Stock Exchange to provide a market place in which long-term capital could be raised and in which stocks could be traded. The Lagos Stock Exchange was

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incorporated as a private limited liability company under the provisions of the Lagos Stock Exchange Act 1960. The Exchange commenced business on June 5, 1961 with 19 listed securities made up of 3 equities, 6 Federal Government Bonds and 10 industrial loans. The Exchange was given initial financial backing by the CBN in the form of annual subventions (Soyode, 1991; Nwankwo, 1991; Yohannes, 1999; CBN, 2010).

In 1977, the Lagos Stock Exchange was renamed and reconstituted into the NSE by the Indigenization decree of 1977 following the recommendations of the Industrial Enterprises Panel (Adeosun Panel) of 1975 that branch exchanges should be established. As a result, additional branches were opened in Kaduna (1978), Port Harcourt (1980), Kano (1989), Onitsha (1990) and Yola (2002). Each branch has a trading floor, which creates opportunities for buying and selling securities. On April 1, 1978, the Securities and Exchange Decree was promulgated to replace the Capital Issues Commission and expand the scope of its activities following the recommendations of the Financial System Review Committee (Okigbo Committee) of 1976. The Committee also recommended the establishment of multiple exchanges and the approval of share allotments by the SEC. The defunct Bendel State of Nigeria floated the N20 million 7% first Bendel State Loan as the first state government revenue bond in 1978, to finance the state government’s housing development programme (Osaze, 2007).

In Nigeria, the growth and development of the capital market was influenced by series of government policies (Nwankwo, 1980). First, the government gave the impetus for the growth and development of a stock exchange through the Stock Exchange Act of 1961. The government also instituted a number of positive measures aimed at stimulating the growth of the capital market. A good example of such measure was the indigenization of the credit base objective (Ogege and Ezike, 2012). Also, the huge investments in second and third development loan stock issues in 1961 and 1962 are a ready case in point (Nyong, 1996). Second, the government through the Income Tax Management Act No. 21, 1961 mandated all existing pension and provident funds in the country to invest at least one-third of their funds in Nigerian government stocks at the penalty of forfeiting valuable tax concessions. Furthermore, pension and provident funds established after 1961 were required under the Act to invest at least a half of their funds in these stocks. This explains the consistently huge investment of these funds in government stocks (Nzotta, 2004). Finally, the insurance of

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Miscellaneous Provision Act, 1964 also stimulated capital market growth in Nigeria in that the Act mandated all insurance companies operating in the country to invest locally at least forty per cent of the premium received on locally insured risks in the financial year (Nzotta, 2004).

In order to be at par with the developed nations, the Nigerian capital market regulators have recently initiated a number of reforms aimed at making the market attractive and vibrant to both domestic investors and operators and their foreign counterparts alike. The market recently introduced an Automated Trading System (ATS) for transactions in phase with international standard. The system is aimed at facilitating speedy trading and clearing at the capital market. The ATS which is an online, screen based integrated system is capable of performing multiple functions, being equipped with equity, debt and depository modules (CBN, 2000; Onoh, 2002). This system interfaces with the Central Security Clearing System (CSCS) which was also introduced in 1998 to reduce the time it takes to transact and deliver shares to investors. The CSCS, an automated clearing, settlement and delivery system was aimed at easing transactions and fostering investors’ confidence. The introduction of both the ATS and the CSCS is aimed at improving the efficiency of trading, transparency in capital market, realistic pricing of securities, and generation of new opportunities for dealing members. Moreover, another important reform is the linking of performance information on the NSE to Reuters International System in order to disseminate relevant market information to subscribers.

To further deepen the Nigerian capital market, Decree No. 45 of 1999 was promulgated to restructure and widen the functions and powers of the Nigerian Stock Exchange Commission (NSEC). With the promulgation of the Decree, the NSEC was then saddled with the responsibility for establishing a commodity exchange, future markets, derivatives and any other exchanges which the commission considers desirable. The exchange has various benefits for members. Onoh (2002) noted that members of the exchange can deal on the floor of the exchange or with the clients of the exchange, who deal through brokers registered with the exchange. However, the Nigerian capital market is still characterised by illiquidity which deters foreign investors from investing in the market. Oluwatosin et al.

(2013) noted that illiquidity and high transactions costs hinder the capital raising efforts of larger domestic enterprises and may push them to foreign markets.

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In summary, the Nigerian capital market is saddled with the responsibility for the mobilization and efficient allocation of capital for investment purposes. The market puts in place structures for the mobilization of savings from surplus economic units and channels these resources to the deficit economic units for the purpose of stimulating the industrial and economic development of Nigeria. The market has been bedevilled with lots of problems which affected its performance. Some of these problems include stringent listing conditions, lack of awareness by investing public, poor economic conditions and loss of confidence by investors in the institutions operating in the market. These problems have resulted to divestment of funds to some other areas outside the capital market, where appropriate returns are envisaged. It is hoped that with the reforms put in place by the capital market regulators, the market can be revitalised to perform its duty of stimulating the growth and development of the country.

2.5.2. Major Participants in the Market