The Nigerian Stock Exchange

The Nigerian Stock Exchange, NSE, is currently the only operational stock exchange in Nigeria. Though there has been a push to set up another stock exchange, that is yet to bear fruit. The Nigerian Stock Exchange consequently provides the only trading floor to transact in stocks in the Nigerian capital market. The NSE has, however, continued to expand its coverage of Nigeria's commercial centres, by opening branches in major cities.

Set up in 1960 as the Lagos Stock Exchange, a private sector entity, it metamorphosed into the Nigerian Stock Exchange in 1977. The Exchange has recorded impressive growth in several respects:

the number of listed securities on the stock exchange, which closed at 301 in 2008, after the de-listing of some inactive ones. Also the number of listed companies has risen to 201 by end of 2008.

the growth in overall market capitalisation, which rose to N13.30 trillion in 2007 before declining to N9.56 trillion in 2008 following the onset of the 2008-2009 bear market period.

the volume of transactions, which grew to 138.1 billion shares valued at N2.1 trillion in 2007 and to 193.14 billion shares valued at N2.4 trillion in 2008.

the spread of branches of the NSE across the nation

the number of licensed dealers (stockbrokers) operating on the Nigerian Stock Exchange

the number of investors participating in the market, which had risen sharply before the 2008-2009 market downturn.

Today, some of those statistics have taken a dip, because the Nigerian stock Exchange has been in a prolonged bear period that commenced in the first quarter of 2008. The NSE All-Share index, which had risen to a historic high of 66,371.20 by March 5, 2008, is, as we write, down to 19983.09. Market capitalisation has also taken a beating, dropping to N4.25 trillion (17/04/2009).

The Nigerian Stock Exchange has advanced, too, in terms of procedures and operational framework. From a manual call-over system, trading on the Nigerian Stock Exchange is today by an Automated Trading System (ATS). The computerized online trading system that is now in place means that stockbrokers can trade from computer terminals in their respective offices. The trading floor of the stock exchange is also operational, and many stockbrokers still want to use it each day. Obviously, that offers the advantage of physical interaction with other stockbrokers, an absolute necessity in an information-driven market.

Transaction processes on the Nigerian Stock Exchange have shortened and become more transparent, a development that has been facilitated by the establishment of the Central Securities Clearing System (CSCS). The CSCS is a subsidiary of the Nigerian Stock Exchange and the agent party for the clearing and settlement process for stock exchange transactions. Transaction time span has now been shortened to T+3, meaning that settlement and delivery are concluded on the fourth day. The procedures now also ensure that all stocks are deposited in the CSCS depository before being traded by the stockbroker, meaning that no sale is possible unless the stock is available to be promptly delivered to the buying party. Similarly, stockbrokers are required to fund their accounts with their Settlement Bank, ensuring that the funds to settle the selling party are in place. Additionally, a Trade Guarantee Fund (TGF), established by the dealing member firms of The Nigerian Stock Exchange, further ensures the financial settlement of stock transactions. This is because any default by a member would require that the trade guarantee fund be applied in settling the account, though penalties would arise against that defaulting party.

Only licensed dealing members, the stockbrokers, can trade on the floor of the Nigerian Stock Exchange. The implication is that an intending investor must initiate a relationship with one of them. Fortunately, there are many stockbrokers, spread across the major cities of the country, though the concentration remains in Lagos, where the main trading floor of the Nigerian Stock Exchange is. Opening an account with a stockbroker is relatively easy and their charges are regulated, with a ceiling set from time to time. Investors must still select carefully, as service quality and integrity issues are not uncommon (to read more on choosing a stockbroker, see what to look for when selecting a stockbroker).

The Nigerian Stock Exchange is in business each working day (Mondays - Fridays) except public holidays. Business hours on the floor of the exhcnage are 11am to 1pm.

While it was previously not open to foreign stockbrokers to trade on the Nigerian Stock Exchange, those rules have changed. Foreign stockbrokers can now apply to be members of the Nigerian Stock Exchange. In similar vein, a dealing member is now permitted to allow foreign equity interest in its capital or to have a partnership relationship with a foreign stockbroker. Still on that count, foreign investors now have no restriction to investing on the Nigerian Stock Exchange. A foreign investors can access any opportunity on the Nigerian Stock Exchange, using a local stockbroker and a designated Nigerian bank, through which capital importation is documented. Foreign investors can also freely export capital and earnings. To invest on the Nigerian Stock Exchange, a foreign investor only needs to identify a suitable stockbroker to work with. He will also need to choose a Nigerian bank throgh which to import the investment capital into Nigeria. Once funds are recieved and a Certificate of Capital Importation (CCI) is issued to the investor by the bank issues, funds can be applied in buying any stock he chooses.

It is also possible now for a foreign company to list on the Nigerian Stock Exchange. A foreign listings sector is now included in the Daily Official Listing of the Nigerian Stock Exchange and currently has Ecobank Transnational Incorporated on it. South Africa's satellite entertainment company, Multichoice, was once listed on the NSE, though it has now de-listed.

Companies listed on the exchange can also enjoy multiple listing by being on other exchanges. Guaranty Trust Bank Plc, for instance, is also listed on the London Stock Exchange. Oando Plc is also listed on the Johannesburg Exchange. It is not clear if such cross-border listing has proved very beneficial, though the standing of the company is obviously boosted.

Companies that wat to list on the Nigerian Stock Exchange must meet the requirements for listing. However, to accomodate smaller companies that may find some of the rules difficult to meet, there is a second tier listing on softer terms. A company listed in the second tier can always upgrade, if it's up to it.

The Nigerian Stock Exchange is a self-regulating institution, but is under the regulatory control of the Securities and Exchange Commission, SEC, Nigeria. The SEC also registers the issues some guidelines for market operation and ensures compliance with the requirements of the law by market operators.

While a lot more can be done to open up the market and the information process, that Nigerian Stock Exchange continued to strive to improve its operations. It has, till recently, provided a single market index, the Nigerian Stock Exchange All-Share Index. The NSE All-share Index is a total market (broad-base) index, reflecting a total picture of the behaviors of the common shares quoted on the Nigerian Stock Exchange. It is calculated on a daily basis and started in January 1984, the base year, with a value of 100.

The Nigerian Stock Exchange has, in 2009, introduced four new sectoral indices to complement the NSE All-share Index. NSE Banking Index mirrors the banking sector performance, just as the NSE Insurance Index captures the direction of the insurance sector. The others are the NSE Food/Beverage Index and the NSE Oil/Gas Index.

Transaction information on daily trading on the Nigerian Stock Exchange is issued each day. Such information is available from the web site of the Exchange and include the Daily Official Listing, share price information and other relevant reports. A subscription may be needed to access some.

Observers generally score the Nigerian Stock Exchange high on its performance. Those angling for other exchanges may also continue to press for a multiple stock exchange arrangement. The push to have a Stock Exchange of Nigeria (SEN), located at Abuja, gained much momentum at some point but finally appeared to have fizzled off. With the various branches the Nigerian Stock Exchange is establishing, it may prove difficult to advance an argument based on giving access to Nigerians in other parts of the country. The NSE is already achieving substantial progress in that direction and may only need to be strengthened, if multiplicity is not merely for its sake.

Whatever the case, the growth of the market has seen more Nigerian companies access the capital market for fund mobilisation and business development. It has also seen many more securities come into the market, just as the number of Nigerians investing in the stock market has had a quantum leap.

The Nigerian Stock Exchange - NSE

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