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.
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.
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.
4. What are Stocks and Share?
Stocks and Shares represent ownership interest in a business.
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.
6. Who is an investor?
A person or an institution who uses his savings or borrowings to buy securities.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
23. Who do I approach when I have problems with a share certificate or dividend?
The Registrar of the Company.
24. Who is a Registrar?
A registrar in common parlance is a keeper of records in respect of quoted stocks and shares.
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.
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.
27. When was the SSM introduced to the Market?
The SSM was introduced in April, 1985.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
42 . (a) Can a client (shareholder) take the CSCS statement to another stockbroking firm?
Yes, he can.
(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.
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.
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.
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.
46. How can an investor use his stockholdings in CSCS as collateral?
An investor should note the following procedure for obtaining loan:-
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.
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.
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.
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.
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.
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.
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.
If a quoted company, say NIGERIA PLC is to close on June 19, 1998 it follows that:-
*The NSE will mark the security on June 19, 1998
*The last Cum-Div/SCRIP transaction day will be June 18, 1998.
*Settlement day for the last CUM-DIV/SCRIP transaction becomes June 18 plus 3 working days. This translates to June 25, 1998.
*The earliest time the transaction can get to the registrar for processing is June 26, 1998.
From the above analysis, the company secretaries/registrars are advised to accommodate the transaction advice by ensuring that the registers are closed for at least eight (8) days. Indeed, secretaries/registrars have been advised to allow for 10 working days after closure of regsiter before paying dividends.
53. What happens in respect of partial sale? Is it possible for shareholders to get certificates for balance of shares?
(a) Where partial sale occurs, the balance is recorded in electronic book- form in CSCS system. The shareholder can give instruction to his stockbroker to sell. Until such instruction is given, the balance will continue to reflect in CSCS statements issued quarterly to all shareholders free of charge or at the instance of the shareholder which attracts a fee of N100.00.
(b) It is possible for a shareholder to get a certificate not only for the balance but for any holding in the CSCS system. Indeed, CSCS de-emphasises the issuance of certificate through gradual immobilisation ofcertificates(2years)and Dematerialisation scheduled for a period of about 5 years.