THE NIGERIAN CAPITAL MARKET – AIMS,OBEJECTIVES, ROLES AND INSTRUMENTS

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Every economy has a capital market, and Nigeria is no exception.

The Nigerian capital market is the part of the Nigerian financial market where long-term financial instruments are bought and sold.

The Nigeria capital market began on 15, September 1960 when the Lagos Stock exchange was established. However, the Lagos stock exchange started operation a year later in 1961.

In 1962, the Central bank of Nigeria established the Capital issues committee (CIC) to regulate the timing of public issues.

In 1979, following recommendations by the Financial Systems review committee headed by Dr Pius Okigbo, the securities and exchange commission was established to supervise, oversee and regulate the stock exchange markets

Aims And Objectives For The Establishment Of The Nigerian Capital Market

1. To enable the government to raise the long-term capital required for economic growth and development

2. To provide domestic borrowing and lending opportunities for long-term purposes

3. To provide facilities for foreign enterprises to offer their shares, as well as a possibility for the Nigerian people to engage in and participate in the ownership of overseas businesses.

4. To provide an opportunity where both indigenous and expatriate capital can be utilized in the development of the Nigeria economy

5. To provide marketability services for shares, stocks and other long-term instruments 

Roles Of the Nigerian Capital Market

1. It promotes the speedy formation of capital in Nigeria

2. Provide long-term credit required for industrial development

3. Ensures that the financial system has operational efficiency as well as allocative efficiency

4. It mobilizes savings and investments for economic development and growth

5. It provides an alternative source of funding other than tax to the Nigerian Government

6. It provides investors with essential liquidity through a formal market for debt and equities securities

7. Encourage efficient distribution of specified amount of tangible wealth through changes in asset ownership and composition

Instruments Traded In The Nigerian Capital Market

1. Ordinary shares: These are shares that grant ownership rights to the holder. In other words, ordinary shareholders are owners of the business. 

Therefore, ordinary shareholders enjoy the benefits of the business in the form of dividends and bear all risks associated with the business.

2. Preference shares: This is similar to ordinary shares, except that preference shareholders are entitled to a fixed percentage of dividends before preference shareholders are paid any dividends.

To put it in another way, preference shareholders are paid dividends before ordinary shareholders are paid any dividends.

It is important to note that a preference shareholder is only paid when there are sufficient amounts of distributable profits.

3. Federal government development stocks: These are long-term, interest-bearing securities of the federal government that are traded on the Nigerian stock exchange.

They are usually issued by the federal government of Nigeria annually and have a maturity of 6 to 25 years.

4. Bonds: These are essentially debt instruments mostly issued by the government.

Bondholders usually received a fixed amount of income for a specific period

5. Debentures: These are issued by corporate entities to raise capital for long-term projects.

Holders of debentures are entitled to a fixed rate of interest, which must be paid whether profit is earned or not by the issuing.

This is what distinguishes debenture holders from shareholders because shareholders are only paid when profit is earned.

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