1.1 BACKGROUND OF THE STUDY
According to A.R and H.I Alile (1986:5), the Nigerian economy in the 1960s was economically and politically dominated by imperialists, Nigerians have since after independence assumed responsibility of piloting the affairs of the economy towards the attainment of high level of economic growth. This has required greater needs for efficient financial markets, providing medium of exchange which promotes specialization and mobilization of savings from the surplus unit (original lenders, this includes depositors) and channeling them into the deficit unit (the borrowers) of the economy for productive investment which would enhance the productive capacity, overall output and employment.
Towards this end, there is a grater need for growth and development not only politically but also economically, but the resources to attain such desired objective are not readily available. It is in recognition of these obvious problems that Nigerian Stock Exchange (hereafter referred to as ‘NSE’ or ‘the Exchange) has just emerged to complement the effort of the government in mobilizing the long-term investment funds for the nations growing companies and creation of investment out-lets.
Chuks Okongwu (1986:3) in his book ‘the Nigerian Economy’ defined Stock Exchange as a place where securities such as bonds stocks and shares of varying types are traded openly. It deals on “Existing” rather than “New” securities. Securities are documentary evidence of ownership or entitlement to claim upon the assets of the issuing entity, or quasi- government institution.
Olawale Adedipe (2006:21) also stipulated that the Stock Exchange may also be described as an institution which is responsible for efficient allocation of available capital funds to the diverse users in the economy. The ready marketability feature which the stock exchange bestows on listed securities minimizes any problem which the prospective investor would have had, thus facilitating a free flow of funds into productive uses. Such marketability has great impact for the individual saver, the investor, or fund user as well as the nation as a whole, thus, the relevance of the stock exchange to the capital formation and investment process and ultimately to the promotion of individual and national well being leads to its Obvious recognition as a vital strategy for promoting economic development.
According to information’s from Nigerian Stock Exchange website http//www.nigerianstockexchange.com/listing.jsp, the Nigerian stock exchange has been in operations for over five decades and precisely it is 50 years of age this year. This length of time is ample enough to critically asses its operations in terms of achievements and failures towards the economic development of the nation (Nigeria). The Nigerian Stock
Exchange was established in 1960 as the Lagos Stock Exchange. In December 1977 it became The Nigerian Stock Exchange, with branches established in some of the major commercial cities of the country. At present, there are six branches of The Nigerian Stock Exchange. Each branch has a trading floor. The branch in Lagos was opened in 1961; Kaduna, 1978; Port Harcourt, 1980; Kano, 1989; Onitsha, February 1990; and Ibadan August 1990; Abuja, October 1999 and Yola, April 2002. Lagos is the Head Office of The Exchange. An office has just been opened in Abuja.
The Exchange started operations in 1961 with 19 securities listed for trading. In 1999 there are 262 securities listed on the Exchange, made up of 11 Government Stocks, 49 Industrial loan (Debenture/Preference) Stocks and 194 Equity / ordinary Shares of Companies.
According to THE PUNCH newspaper (10th Jan. 2011), Nigerian Stock Exchange has a total market capitalization of approximately N8.361 trillion, as at January 10, 2011. Most of the listed companies have foreign/multinational affiliations and represent a cross-section of the economy, ranging from agriculture, manufacturing to services. The market has in place a tested network of Stockbrokerage Firms, Issuing Houses (commercial banks), practicing corporate law firms and over 50 quality firms of auditors and reporting accountants (most with international links). The Stock Exchange and most of the nation’s stock broking firms and issuing houses are staffed with creative financial engineers that can compete anywhere in the World. Therefore, the market has in place a network of intermediating organizations that can effectively and creditably meet the challenges and growing needs of investors in Nigerian.
Integrity: is the watchword of The Stock Exchange. Market operators subscribe to the code “Our word is our bond”. Thus, public trust in the Nigerian stock market has grown tremendously, with about three million individual investors and hundreds of institutional investors (including foreigners who own about 47% of the quoted companies) using the facilities of The Exchange. The Stock Exchange’s 50-year history is not devoid of fraud, shocks, scandals or insider dealings.
Trading: The call over trading system was recently replaced with the Automated Trading System (ATS), with bids and offers now matched by stockbrokers on the Trading Floors of The Stock Exchange through a network of computers. This is done every business day from 11.00 a.m. till all bids and offers have been executed (about 1.30 p.m. on the average).