CHAPTER ONE

1.0     INTRODUCTION

In any economy there is a financial system  that is responsible for regulating  the financial environment of the society determining the types  and use of funds to be issued, source of funds to be put. The financial system is really made  up of two major markets, namely money and capital stock market. The many market is the market for short term funds and securities including treasury bills, treasury certificate negligence of deposits, commercial paper and other funds of   which are less than a year duration.

Thus the  aim of the regulating bodies composed of Nigerian stock  exchange commission (SEC) is to promote development of  orderly capital  market to have authority over its members (stock broking firms) to whom it set  rules of ethics are made to guide their  professional behaviour in the course of carrying  out its functions and create awareness of the general public. Stocks exist to enable companies in need of long term financing to sell pieces of the business stock equity securities in exchange for cash. This is the principal method of raising business capital other than  issuing bonds. When the stocks of these corporations, which all which corporations  must issue, are owned by the public at large, including both private investors and institutions, they are said to be publicly held. These publicly held shares can be easily traded (sold) to other investors in the stock market and are  thus  said to be liquid,  or  readily conversed to cash. Stock breakage firms usually, serve as intermediaries in the transactions, buying the new securities at wholesale prices from the issuer and then reselling them to  the investing public at retail prices                                                                                                                                                                                                              

1.1     HISTORICAL DEVELOPMENT OF CASE STUDY   IN NIGERIA STOCK EXCHANGE

The dealing members of the Nigeria stock exchange are institutions who are licensed  by the exchange as stockbrokers to buy and  sell securities quoted on the  exchange on behalf of the investing public.

In 1960, Nigeria stock Exchange was established with branch  in Kaduna in 1978. Prior to the establishment of the Nigeria stock exchange the were not equipped enough with the information of stock broking and its importance to an individual, groups, organizations and global economic development.

In essence the awareness  was low but from 1936 to date a considerable number of stock broking firms sprang up in Nigeria and in  Kaduna particularly the first stock broking  firm served as an eye opener to investors and the potential ones, with a highly experienced board and a crop of seasoned and   dedicated  professionals positioned to tackle the challenges of this new millennium. The branch is situated  in Kaduna to exploit the immense untapped natural resources and economic potentials of the country in general.

There are today 226 dealing  members of the Nigeria stock exchange. Many of them are affiliates of bank and other reportable financials institutions. Dealing members of   Nigeria stock exchange  can now accommodate foreign shareholders in their equity capital or go into any form of partnership with foreign stock brokerage firms.

Application from foreign stock brokers as members of the   nigeran stock exchange can  now be  enter anted within the  rules and regulations of the inorganic stock exhcnage, as well as  registration with securities and exchange  commission and corporate afiars commission following the abrogation of the exchange control Act 1962 and Nigeria promotion Decree of  1982 as stated in the Nigerian stock exchange fact exchange book 2004 page 334.

Finally, the  existence of stock  broking firms as  members of  Nigeria stock exchange  has  helped to create a  wealthy tomorrow for clients and increase  the wealth of shareholders and job creation for the  unemployed.

1.2     STATEMENT OF PROBLEM.

Capital market are generally expected to produce the institutional arrangement through which funds from the surplus sector of the economy. The allocation of funds are mainly for industrial, commercial and agricultural development. The capital market growth  rate is very slow and not developing to meet the international standard. There is lack of awareness on the  part of the public and potential  investors.

Poor management for the operation and affairs of a business is one the major factors  leading to incompetence, inefficiency and dishonesty in managing organization in Nigeria and in the global which has not  been in the best interest  of the shareholders  and the general public. However, the need in that  over-centralization of the stock  exchange which might not bring the benefit of market operation nearer to a greater section of the country’s  citizenry and this  will not enhance the particularly of the market function.

Dishonesty from both  the stock  broking firms and the investors are among the general problems facing  stock  shares investment  in the country and the world at large. However, the need in that of over  centralization of stock exchange which might not bring the benefit of market operation nearer  to  a greater  section of the country citizenry and this will not enhance the performance of the market functions.

1.3     HYPOTHESIS TESTED

Hypothesis is a tentative proposition suggested as a solution to a problem or an explanation of phenomenon. It is also a set of generalized statement concerning the problem under study.

The formulation  of which  led to the structuring of questionnaires to assess the validity of the hypothesis by sampling various of stock brokers and customers of firms in Kaduna stock  exchange.

The hypothesis is given below (1) Ho that there are inefficient stock marketing services   from stock broking firms to the development of a meaningful economy (2) Hi that there are  efficient stock marketing services from stock broking firms to the development of a meaningful economy.

1.4     AIMS AND OBJECTIVES OF THE STUDY

The aim of this research is to undertake incentive investigation and to highlight the role stock broking firms have played in the development of Nigerian economy. To determine whether or not there are lapses in their contributions to the economy growth, however, in the event of any lapses suggestion which be made. The primary objectives of the research are to a basis for contribution to the development of Nigerian economy. And to provide a material for further studies.

1.5     SIGNIFICANCE OF THE STUDY

The significance of this study less in the benefit that the findings would provide to any individual group and organizations. Considering the importance   of capital markets in the development of the Nigerian economy and the role of stock  broking firms and both the Nigerian stock  exchange commission in regulation the operational activities in the market, this research, this research work is intended to bring to line  light the contribution of the  bodies to assist the capital markets for it to achieve the desire optimum results. Also this study is in practical  fulfillment for the award of diploma in accountancy.

1.6     SCOPE AND LIMITATIONS OF THE STUDY

Due to financial constraints and limited  time at the researchers disposal, the researcher should limit this study in the following areas.

1.                 Buying and selling of shares

2.                 Portfolio management

3.                 The regulatory bodies i.e. Nigerian stock exchange and securities and exchange commission.

4.                 The functions of stock broking  firms

1.7     DEFINITIONS OF TERMS

Securities: these are stock and share that are  traded in stock exhcnage market.

Portfolio: The adimixture of shares and bonds  laid by an individual or institutions.

Regulation: Transaction on the exchange are regulated by the Nigerian stock exchange as a self regulatory organization (SRO), and the securities and exchange commission (SEC) which administers the investment and securities Act 1999. 

Pricing: prices of new issues are determines by issuing houses/stock brokers which on the secondary market prices are made stock broker only.

Intermediaries: the intermediaries are the financial institutions and dealers  that facilitates the borrowing and   lending of  short term money.

Bond: Government stick/bonds are long dated loans stocks, issued by the federal government of Nigeria and state governments, the federal government e.g. treasury bill are usually regarded as gilt-edge securities with no attendant risks. Because of the superior risk rating, their yields are usually lower than other similar securities.

Preference Stock: Stock  on which dividend payment must be made before profits are distributed to holders of ordinary stock.

Dividend: Payment of share of profit, to  shareholders in a business company, or  assets to creditors (e.g. of an investment company)  or  to a policy  holder in a  mutual  insurance company, to pa a dividend of 10  percent, dividend warrant, order  on a bank to pay a dividend.

Bonus: An extra dividend to stock holders of a shareholders.

Brokerage: Brokers commission for services.

Equity stock: ordinary stocks and shares not bearing fixed interest.

Capital gains: when a stock is purchased at a given price. Then subsequently at a higher price, the resultant profit is known as a capital gain.

Speculative activity: trying for such “buy low, Sell high” profits over a short time span known as short term trading.

Long term: When stocks that have been held for more than a year are sold at a profit.      

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