THE ROLE OF STOCK BROKERS IN THE ECONOMIC DEVELOPMENT OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.0   BACKGROUND OF THE STUDY

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 markets are 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 (stockbroking firms) to whom it set  rules of ethics are made to guide their  professional behavior 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 NIGERIA STOCK EXCHANGE

The dealing members of the Nigeria stock exchange are institutions that 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 a branch  in Kaduna in 1978. Prior to the establishment of the Nigeria stock exchange, they were not equipped enough with the information of stockbroking 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 stockbroking firms sprang up in Nigeria and in  Kaduna particularly the first stockbroking  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 banks and other reportable financial 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 form foreign stockbrokers as members of the   nigeran stock exchange can  now be  enter anted within the  rules and regulations of the inorganic stock exchange, as well as  registration with securities and exchange  commission and corporate affairs 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 stockbroking firms as members of the 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

The capital market is generally expected to produce the institutional arrangement through which funds from the surplus sector of the economy. The allocation of funds is 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 a lack of awareness on the part of the public and potential investors. Poor management for the operation and affairs of a business is one of the major factors leading to incompetence, inefficiency, and dishonesty in managing an 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 stockbroking firms and the investors are among the general problems facing stock shares investment in the country and the world at large. However, the need for that of over-centralization of the 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       RESEARCH HYPOTHESIS

The hypothesis is a tentative proposition suggested as a solution to a problem or an explanation of the phenomenon. It is also a set of generalized statements 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 stockbrokers and customers of firms in the Kaduna stock exchange. The hypothesis is given below (1) Ho that there are inefficient stock marketing services from stockbroking firms to the development of a meaningful economy (2) Hi that there are efficient stock marketing services from stockbroking firms to the development of a meaningful economy.

1.4       AIMS AND OBJECTIVES OF THE STUDY

The aim of this research is to undertake an incentive investigation and to highlight the role stockbroking firms have played in the development of the Nigerian economy. To determine whether or not there are lapses in their contributions to the economic growth, however, in the event of any lapses suggestion which is made. The primary objectives of the research are to a basis for contribution to the development of the Nigerian economy. And to provide 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 organization. Considering the importance   of capital markets in the development of the Nigerian economy and the role of stockbroking 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 desired 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 researcher’s disposal, the researcher should limit this study in the following areas. Buying and selling of shares, Portfolio management

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

The functions of stockbroking firms.

1.7       DEFINITIONS OF TERMS

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

Portfolio: The admixture of shares and bonds laid by an individual or institution.

Regulation: Transaction on the exchange is 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 determined by issuing houses/stockbrokers which on the secondary market prices are made stock broker only.

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

Bond: Government stick/bonds are long-dated loan stocks, issued by the federal government of Nigeria and state governments, the federal government e.g. treasury bills 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 policyholder in a mutual insurance company, to a dividend of 10  percent, dividend warrant, order on a bank to pay a dividend.

Bonus: An extra dividend to stockholders 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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