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1.Who is a
Stockbroker?
2. What is an Issuing
House?
3. What are
Securities?
4. What are Stocks
and Share?
5. What are Bonds and
Debentures?
6. Who is an
investor?
7. How are stocks and
shares bought on The Stock Exchange?
8. Who should buy
shares?
9. With how much
money should venture into the Stock Market?
10. Can shares be
transferred?
11. Which Stocks
should I choose?
12. What are scrip
or bonus shares?
13. What does “Xsc”
mean?
14. How are any of
these securities bought?
15. What is the
evidence of the purchase of shares and stocks?
16. What does a
Stockbroker charge for his Services?
17. What does an
investor gain by buying shares?
18. Can an investor
come to buy and sell on The Stock Exchange?
19. What other
services do Stockbrokers provide?
20.
How are the activities of Stockbrokers controlled?
21. Why are
Stockbrokers’ activities regulated?
22. How are the
current prices of securities traded on the Nigerian Stock Market
known?
23. Who do I
approach when I have problems with a share certificate or
dividend?
24. Who is a
Registrar?
25. What are duties
of a Com pany Registrar?
26. What is the
Second Tier Securities Market (SSM) and how is it different from
other Securities Listed on The Stock Exchange?
27. When was the SSM
introduced to the Market?
28. How much can a
company raise through the SSM?
29. What percentage
of shareholding can an individual own under the SSM?
30. How does a
company get listed on the SSM?
31. What is the
relationship between Investor and Stockbroker?
32. What is
Short-Selling?
33. What is Buy-in
Market?
34. What is
Buy-In?
35. What is
Over-Trading?
36. What is
CHN?
37. How will a
stockbroker’s bank make good any over-trading?
38. Can an investor
withdraw his/her certificates before or after
trading?
39.When the
stockbroker deposits the investor’s share certificate with the
Depository, what does
he
40. If the new
investor wants to sell, what is the procedure?
41. Can an investor
change from one stockbroker to another under the CSCS
operations?
42. Can a client
(shareholder) take the CSCS statement to another stockbroking
firm?
43.
Can a shareholder request for the statement of his stock position
directly from the CSCS?
44. What is the
relationship between The NSE and CSCS?
45 . Will the
benefit of using shares as collateral for raising loan not be eroded
under the system?
46. How can an
investor use his stockholdings in CSCS as collateral?
47. How do you
intend to handle the issue of share certificates for now to enable
shareholders trade 48. When do you plan to go completely
certificateless?
49. What becomes of
the intermediate buyers?
50. How do we
process new issues in relation to certificates?
51. Will the company
registrars be willing to disclose shareholding information to The
Nigerian Stock
52. How is the last
transaction batch meant for the closure of register
handled?
53. What happens in
respect of partial sale? Is it possible for shareholders to get
certificates for balance of shares?
54. What is the
procedure to request for certificate?
55 . Why is there
disparity between the opening balances recorded on the Daily
Transaction Statement of The NSE back-office and that of the
Settlement Banks?
QUESTIONS AND
ANSWERS
1.Who is a
Stockbroker?
A firm or a person who buys and sells
securities on behalf of investors for a commission called
“brokerage”. The commission charged is regulated by The Stock
Exchange.
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2. What is an Issuing
House?
As a member of The Stock Exchange, it is a
merchant bank or a dealing member that helps to prepare
prospectuses, to sell new securities offered to the public by
companies and governments.
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3. What are
Securities?
Securities are written or printed financial
documents by which the claims of holders in specified property are
secured. They could be stocks, shares, bonds and debentures traded
on a Stock Exchange.
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4. What are Stocks and
Share?
Stocks and Shares represent ownership interest in
a business.
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5. What are Bonds and
Debentures?
They are other kinds of securities. They are
legal documents representing a promise by the company or by
Government (in case of a bond) to pay back a loan plus certain
amount of interest over a definite period of time.
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6. Who is an
investor?
A person or an institution who uses his
savings or borrowings to buy securities.
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7. How are stocks and
shares bought on The Stock Exchange?
Stock and Shares
are bought and sold on The Nigerian Stock Exchange through Dealing
Members known as Stockbrokers.
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8. Who should buy
shares?
Anyone who is 21 years and above qualifies to
buy shares in Nigeria. Parents who may want to buy shares for their
children are supposed to buy such shares in their own names and
later transfer them to the children when they attain the legal age
of 21 by nominal transfer.
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9. With how much money should
venture into the Stock Market?
Most income levels can
venture into stock market. Some wealthy people and institutions
invest thousands or even millions of naira but lower investors can
participate with as little as fifty naira.
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10. Can shares be
transferred?
As stated above, an investor may transfer
part or all of his shareholding to a relation, wife, son, daughter
or brother etc. Where they all bar the same surname the transfer is
known as Nominal transfer. However, it is also possible for an
investor to transfer some or all his shareholding to a daughter who
has got married or even his son-in-law. To effect this transfer, the
investor should contact a stockbroker. Even in the case of a dead
shareholder his shares can be transferred to his children or sold as
the case may be.
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11. Which Stocks should I
choose?
That depends on what you want from your
investments. The stocks quoted (or listed) on The Nigerian Stock
Exchange range from Government stocks to ordinary shares and their
dividends vary from low to high. The important thing is to determine
your own objectives first, discuss with a stockbroker and then
invest accordingly.
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12. What are scrip or bonus
shares?
These are new shares made fully-paid by the
capitalization of reserves and allotted free of charge to ordinary
shareholders in proportion to their existing holdings. In this
process, fractions of shares sometimes arise and are often
aggregated and sold, after which a cash payment in respect of the
fraction is made to every shareholder entitled to it.
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13. What does “Xsc”
mean?
It is a financial expression for “without the
scrip”. A stock that is purchased during the without the scrip
period will not earn a scrip declared in that period for its new
owner.
14. How are any of these
securities bought?
By filling an application form
contained in a prospectus or through a Stockbroker.
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15. What is the evidence of
the purchase of shares and stocks?
If purchased through
a prospectus receipts are seldom issued, but cheque stubs and
counterfoil of Postal Orders can serve the purpose. If bought
through a Stockbroker, a contract note in lieu of receipt is
issued.
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16. What does a Stockbroker
charge for his Services?
A Stockbroker charges a
commission called “Brokerage”. TTo Top
16. What does a Stockbroker charge for his
Services?
A Stockbroker charges a commission called
“Brokerage”. The charges vary, depending on the kind of services
provided: however, charges by Stockbrokers are controlled by the
Council of The Nigerian Stock Exchange.
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17. What does an investor gain
by buying shares?
* dividend which is part of company’s
profit
* bonus shares - i.e. extra shares fully paid out of
reserve which are distributed to existing holders.
* capital
appreciation as market prices of shares increase.
* right to
attend meeting of share holders and participate in its deliberation
as voting members.
* use of share certificate as collateral for
bank borrowing.
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18. Can an investor come to
buy and sell on The Stock Exchange?
No. He can only do
so through Stockbrokers who are licensed to represent investors and
trade daily on The Stock Exchange.
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19. What other services do
Stockbrokers provide?
* provide professional advice on
the selection and management of investments.
* act as Issuing
Houses and Portfolio Managers.
* assist project sponsors to raise
money on the Capital Market.
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20. How are the activities of
Stockbrokers controlled?
As members of The Nigerian
Stock Exchange, they agree to and are regulated by a body of Rules
and Regulations which dictate their relationship with The Stock
Exchange, their clients and other members.
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21. Why are Stockbrokers’
activities regulated?
The regulating of Stockbrokers
activities is done to protect the investing public and maintain
public confidence in the buying and selling of securities.
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22. How are the current prices
of securities traded on the Nigerian Stock Market
known?
The Nigerian Stock Exchange publishes a “Daily
Office List” which gives full information on the changes in the
prices and earnings of the Listed Securities.
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23. Who do I approach when I
have problems with a share certificate or dividend?
The
Registrar of the Company.
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24. Who is a
Registrar?
A registrar in common parlance is a keeper of
records in respect of quoted stocks and shares.
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25. What are duties of a Com
pany Registrar?
* act as Agents to the Companies who
appoint them.
* register the shares and the names of the owners
in the members’ (shareholders) register.
* prepare share
certificates and send them to the shareholders.
* pay-out
approved dividend to shareholders.
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26. What is the Second Tier
Securities Market (SSM) and how is it different from other
Securities Listed on The Stock Exchange?
All Securities
traded on the Stock Exchange are listed Securities. The SSM was
introduced to assist small and medium sized companies that are
unable to meet the requirements of the first-tier market in raising
long-term capital.
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27. When was the SSM
introduced to the Market?
The SSM was introduced in
April, 1985.
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28. How much can a company
raise through the SSM?
The amount that a company can
raise through the SSM may not exceed N20 million.
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29. What percentage of
shareholding can an individual own under the SSM?
An
individual can not have more than 75% of the total shares under the
SSM requirements directly or indirectly.
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30. How does a company get
listed on the SSM?
By approaching one of the Dealing
Members (Stockbrokers) or Issuing Houses of The Stock
Exchange.
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31. What is the relationship
between Investor and Stockbroker?
For the Capital Market
to be vibrant, effective and Investor-friendly, the relationship
between the Investor and Stockbroker cannot be over-emphasized. In
this context, the Stockbroker must know his Client/Investor very
well because great reliance and trust will be placed on the
decisions he takes on behalf of his Client/Investor. It cannot be
gainsaid, therefore, that the Stockbroker must of necessity command
the confidence of his client. On this foundation, rest the success
and growth of any Capital Market.
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32. What is
Short-Selling?
Short-Selling occurs when a stockbroking
firm sells a quantity of a particular security on the Trading Floor
in excess of the quantity deposited with the CSCS Depository.
However, the tightly coupled interface between the ATS and the CSCS
does not allow for this possibility any more. Dealers can only sell
what they have.
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33. What is Buy-in
Market?
This is a forum where short-sold securities are
offered by stockbrokers and sold at a premium. It is moderated by
The Stock Exchange. Note that the premium price will in no way
affect the price and volume of the Security on the Trading Day
during which the default occurred and thereafter. However, the
defaulting stockbroking firm has the opportunity to supply the
short-fall before the regular call-over session on the working day
following the Transaction Day.
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34. What is
Buy-In?
This is the process by which The NSE causes the
defaulting stockbroker to buy the short-sold security from the
Buy-in Market at a premium. Note that The NSE is at liberty to debit
the Premium amount of the securities from the Security Deposit
Account of the stockbroking firm with The NSE. This sanction
notwithstanding, The NSE is not precluded from applying other
sanctions it deems fit to apply in the circumstances. Any deal
therefrom, must be concluded within the settlement period of
T+3.
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35. What is
Over-Trading?
This occurs where a stockbroker buys
securities in excess of funds in its Trading Account with the
Settlement Bank. When this occurs, the difference is settled from
the Trade Guarantee Fund.
Sanction: Over-Trading will attract
sanctions from The NSE.
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36.(a) What is
CHN?
*CHN represents Clearing House Number assigned to
every shareholder at the first point of entry into CSCS system by
completing CSCS - R005 shareholders
particulars.
(b)How many times are shareholders
required to complete the share holders particulars form?
*Shareholders are required to complete the form only
once. They are to provide the same CHN to all subsequent
stockbroking firms they have transactions with for ease of
reference.
(c)What are account numbers and how are
they obtained?
*This is CSCS computer generated account
number allocated to a new shareholder. It is unique to each
stockbroking firm. A shareholder can have as many accounts as the
number of stockbroking firms he uses but one account per
house.
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37. How will a stockbroker’s
bank make good any over-trading?
Before settlement is
effected, the over-trading if it ever occurs will be cancelled.
Where the stockbroker short sold, The NSE will cause the defaulting
stockbroker to buy the Short-Sold security from a Buy-In Market at a
premium before the settlement day. The stockbrokers’ bank is not
affected by Over-Trading.
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38. Can an investor withdraw
his/her certificates before or after trading?
Once a
certificate is deposited with the Depository, it is immobilised and
can therefore not be withdrawn.
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39.When the stockbroker
deposits the investor’s share certificate with the Depository, what does he get in return as evidence of the
lodgement?
He gets a receipt/acknowledgment.
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40. If the new investor wants
to sell, what is the procedure?
He/she instructs his/her
stockbroker to sell from the stockholdings in CSCS system. He/she
executes a transfer form which his/her stockbroker will forward to
the CSCS along with the allotment forms after trading.
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41. Can an investor change
from one stockbroker to another under the CSCS
operations?
Yes. The investor is free to change from one
stockbroking firm to another. A stockbroker should ask his/her
client if he/she has bought shares through CSCS before completing
shareholders particulars which should be completed only once. The
shareholder should give subsequent Houses he deals with the Clearing
House Number (CHN) assigned to him at the first point of entry into
CSCS system.
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42 . (a) Can a client
(shareholder) take the CSCS statement to another stockbroking
firm?
Yes, he can.
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(b) How frequent will the statement of stock
position from CSCS be issued?
Statement of stockholdings
is issued every quarter to all shareholders free of charge. Any
request for statement outside the quarterly statement which attracts
a fee of N100.00 can be obtained as and when requested.
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43 . Can a shareholder request
for the statement of his stock position directly from the
CSCS?
The stockbrokers are expected to request for their
clients’ stock position. However, since transparency is one of the
cardinal focus of CSCS, a shareholder can request for his statement
of stockholding from CSCS in writing by attaching a fee of N100. The
shareholder’s name and account number must be specified in the
letter. At the point of collecting the statement of stock position,
the shareholder will be required to show proof of
ownership.
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44. (a) What is the
relationship between The NSE and CSCS?
CSCS is a
subsidiary of The NSE, but an independent company. All shares to be
traded on The NSE floors must be deposited with the CSCS while CSCS
does clearing and settlements of trades for The
NSE.
(b) Will the Nigerian environment not impact on
the effective functioning of the CSCS system?
Measures
have been taken to ensure effective performance of CSCS system.
There is computer back up system, also there are 4 lines of power; -
NEPA, The Nigerian Stock Exchange, Anchor Technologies Limited
(Premises Managers) and CSCS power generating
plants.
(c) What are the measures put in place to
ensure the success of the T+3?
The banks carry out
settlement through Nigerian Interbank Settlement System (NIBSS) and
Managers’ cheque. There is a trrade guarantee fund from which trades
would be settled in the event of overtrading, and Clearing and
delivery are done by means of book entry after securities are
deposited and traded on.
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45 . Will the benefit of using
shares as collateral for raising loan not be eroded under the
system?
No. The lender can make enquiry from the
Depository as to be shareholding of the investor and upon the grant
of loan, advise that a lien be put on the affected security. Indeed,
many shareholders have taken advantage of using stockholdings in
CSCS as collateral for loans.
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46. How can an investor use
his stockholdings in CSCS as collateral?
An investor
should note the following procedure for obtaining
loan:-
A) 1. The lender can confirm from CSCS
the statement of stockholding issued to a shareholder/prospective
borrower or write CSCS for a status report of a prospective
borrower’s shareholdings in CSCS system. For a fee of N100.00, the
confirmation of the statement or the issuance of a status report
will be done and communicated by CSCS to the lender.
2(a) A
memorandum jointly signed by the parties requesting CSCS to place
lien on a specific quantity of the holdings should be forwarded to
CSCS Limited. Also, a signed transfer form by the borrower stating
the units and the securities affected by the lien and undated letter
signed by the borrower authorising the lender to sell in the event
of default, must be given to the lender.
(b) It is essential
that the memorandum be registered at the Stamp Duty
Office.
3. Upon the receipt of the memorandum referred to in
two (2) above , the shareholding would be moved into a CSCS Reserved
Lien Account with the interest of the lender NOTED. This will be
communicated to the parties.
4. Where the borrower defaults
or fails to discharge his obligations under the contract, the lender
at the expiration of the loan due-date shall:-
a) Inform the
borrower of his default and the lender’s intention to proceed to
execute the transfer form to realise the benefit of the
contract.
b) The lender will write CSCS to remove the lien to
enable sale to be effected and attach evidence of (a) above.
c)
CSCS will be obliged to remove the lien on the holdings upon such
instruction from the lender after the expiration of the loan
due-date and inform the parties accordingly.
d) The lender after
(a-c) above can then give a copy of the undated letter and the
transfer form completed by the borrower to a stockbroker for the
purpose of sale of the specific quantity of the
holdings.
B) OBTAINING FACILITY TO
PURCHASE SHARES
An investor can approach a lender to
obtain loan to purchase shares
(a) A memorandum jointly signed by
the parties requesting CSCS to place a lien on the shares purchased
with the facility should be forwarded to CSCS Ltd.
(b) The
memorandum must spell out the terms and conditions of the
contract
(c) The memorandum should be registered at the Stamp
Duty Office.
(d) Upon receipt of the memorandum, CSCS will place
a lien on the shares with the interest of the lender Noted.
(e)
The lender, at the expiration of the contract, should write CSCS to
remove the lien on the shares with evidence that the borrower has
been duly notified.
(f) CSCS will remove the lien and advise the
parties accordingly.
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47 . How do you intend to
handle the issue of share certificates for now to enable
shareholders trade with them without any inhibition or
apprehension?
Investors are to give certificates to
stockbroking firms for verification and then deposit them in CSCS
Depository at least 24 hours before Trading. Stockbrokers will be
issued acknowledgment as evidence of the deposit in CSCS.
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48. When do you plan to go
completely certificateless?
Immobilisation of
certificates is scheduled to take about 2 years and
Dematerialisation about 5 years at the end of which there will be no
certificates. However, regulatory bodies like SEC and The NSE will
have final say on this.
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49. What becomes of the
intermediate buyers?
The Inter-mediate buyers like other
shareholders are free to request for certificates (at the point of
purchase) which for administrative reasons are issued once a year
usually at the closure of registers.
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50. How do we process new
issues in relation to certificates?
New issues, bonus
and script issues will continue to have certificates until the
sections of Companies and Allied Matters Act, 1990 are
amended.
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51. Will the company
registrars be willing to disclose shareholding information to The
Nigerian Stock Exchange? Have they been carried
along?
The Nigerian Stock Exchange is empowered to call
for the authentic register of members from registrars of Quoted
Companies. Furthermore, the registrars are represented in the review
of CSCS Operations and are therefore carried along in the
developmental process. The registrars and CSCS complement each
other.
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52. How is the last
transaction batch meant for the closure of register
handled?
The NSE marks securities on their closure
dates.
*Once again, settlement cycle is T+3 (Transaction day plus
three working days). ONLY settled transactions are forwarded to the
registrars for processing.
An Example:
If a quoted
company, say NIGERIA PLC is to close on June 19, 1998 it follows
that:-
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