The Nigeria Capital Market has passed through transformation, challenges in the last 60 years. AMAKA IFEAKANDU in this report writes that despite all the challenges, the nation’s bourse has recorded commendable growth within the period of its existence.
In the last sixty years the nation’s capital market has witnessed series of transformation in its operations.
The market was established in 1960, the same year Nigeria got independence, known as Lagos Stock Exchange (LSE) under the memorandum and articles of association. It started operations officially on August 25 1961 with 19 securities listed for trading.
The LSE was later renamed Nigerian Stock Exchange (NSE) on December 1977 after 17 years. The NSE -incorporated as a company limited by guarantee on December 1990. As a company limited by guarantee not-for-profit organisation, the NSE thrives on the goodwill, reputation and integrity of its members.
Early days of stock market
The Nigerian Capital market (NCM) started operations with only four firms as market dealers. The trading of the NSE for many years conducted under the call-over system. At the initial stages of the call over system, a clerk used a white chalk to indicate buyer and seller position.
However, as more securities got listed and more operators entered the market, the system changed from a black board to a round table. Under the round table call-over method, a call over clerk would shout out and match bidding and selling orders.
In order to encourage foreign investment into the country, the government abolished regislation preventing the flow of foreign capital into the nation’s economy. This government singular policy offers opportunity for foreign brokers to enlist as dealers on the Nigerian Stock Exchange and investors of any nationality are free to invest. This also gave rise for Nigerian companies to engage in multiple and cross boarder listing on foreign market.
Interestingly, the market represented by the NSE has undergone what historians call renaissance in the last 60 years in the legal structure, trading system, clearing, delivery and settlement system, quantum of listed companies and securities, corporate governance and upward trend in deployment of Information and Communication Technology ( ICT).
The year 1997 was a turning point when the market joined the global trend by transiting from manual clearing, delivery and settlement to electronic system with the commencement of its central depository called Central Securities Clearing System (CSCS).
In 1999, the exchange also transited from manual system of trading called Open Outcry or Call-Over to the Automated Trading System (ATS), the use of computers to execute transactions on the market.
The Exchange was also highly instrumental to the success of the first phase of privatisation programme of the federal government. Besides, many States and Local Government Councils had at different periods utilised the market to mobilise long-term fund to execute landmark development projects.
The NSE and present day trading
The process of transformation at the market has brought new shape today which has given hope that with more efforts by regulators, favourable economic policies push, the market will get to its desired level.
The NSE in a bid to promote transparency and trust in the market constituted the investors protection funds in 2012. The fund was mandated to compensate investors who suffered pecuniary loss arising from the revocation or cancellation of the registration of a dealing member, insolvency, bankruptcy or negligence of a dealing member, or defalcation committed by a dealing member or any of its directors, officers, employee or representatives.
Although the NCM experienced a lot of challanges ranging from lack of capital market friendly economic policies, ignorance on the part of many people, policy Summersault and political instability, insecurity, power, lack of infrastructure, multiple taxation among others, available data showed that the market has done fairly well considering the environment under which it operates.
But despite these challenges, the NSE has recorded improved performance within the period of establishment. For instances at the commencement of operations, the market started trading with 0.3 million shares worth N1.5 million in 334 deals and the value continued to grow steadily to N16.6million in 634 deals by 1970.
New issues
Available data also show that total number of new issues before 1989 was below N1 billion but increased to N10 billion and crossed the N10 billion mark in 1997.
Between 1996 and 2001, a total of 172 new issues (securities of public companies amounting to N56.40 billion) were floated in the capital market. The total of new issues was valued at N5.85 billion in 1996 but it rose by about 532 per cent to N37.198 billion in 2001. This improved to N61.284 billion in 2002, N180.079 billion in 2003 ,while 2004 and 2005 accounted for N195.418 billion and N552.782 billion respectively before it crossed the trillion naira mark to hit N1.935 trillion in 2007 when the market was at its peak.
In terms of number of securities on the NSE, it grew from eight in 1961 to 60 in 1971 and increased to 194 in 1981, 239 in 1990. The number of securities improved to 264 in 2010 but reduced to 161 as at November 2019 due to delisting of some companies.
In the case of market capitalisation, which is the most widely used indicator in assessing the size of a capital market to an economy, it stood between N10 billion and N57 billion in 1988 and 1994. It improved to N1. 3593 trillion in 2003, N2.1125 trillion in 2004 and N5.12 trillion in 2006. The market capitalisation recorded the highest value of N13.2294 trillion in 2007 before falling to N9.562 trillion in 2008 due to the global financial meltdown. The market which closed at N12.958 trillion December 2019 stands at N14.027 trillion on September 30, 2020.
SEC reforms
The Securities and Exchange Commission, the apex regulator of the capital market originated from the ad hoc, non statutory capital issue committee established in 1962 as an arm of the Central Bank of Nigeria. The committee became SEC in 1973 and was chartered under SEC decree no 71 of 1978. But the commission today chartered by the investment and securities Act number 45 of 1999.
The apex regulatory body for the capital market, the SEC has over the years strived to make the market attractive. For instance, the coming on board of FMDQ and NASD further widened participation. The commission equally made sure that the market integrity was restored by considerably enforcing rules. SEC also strengthened disclosure requirements and led the implementation of international financial reporting values for listed companies. However, the game changer was the 10-year Capital Market Master-plan, which is currently being implemented to transform the market.
Operators said the policies and initiatives so far introduced by SEC in line with the master plan, are capable of making the market investors’ haven once the external challenges subside.
For instance, the strengthening of capital market operators (CMOs) with the successful completion of the recapitalisation last two years is a good development that has helped to reposition them for better competition.
Boosting economic growth
No doubt, the Nigeria capital market is yet to fully reflect the performance of the economy due to limited representations of all sectors.
But the market has to some extent contributed significantly to the growth of the economy.
Apart from government that has raised several billions of naira from the market through bonds, States and corporate have equally raised funds that run into trillions of naira in the past 60 years.
Challenges
Just like other sectors operating in the nation’s economy, capital market has not fully maximised its potential due to some challenges. Considering the population of the country, the market is witnessing low patronage. The market within the period of existence appeared to be operating efficiently, but it was depressed by low personal incomes in Nigeria and a lot of political instability deterring foreign direct investment. The market also witnessed policy summersault, lack of capital market-friendly economic policies, ignorance on the part of Nigerians, insecurity among others.
On the other hand, the financial economic meltdown which hit the financial system in 2008/2009 has had adverse effect in the market. A lot of investors who got their fingers burnt during the period have lost interest and confidence in the market.