Capital markets provide funds to
industries and governments to meet their medium and long-term capital requirements,
such as financing of fixed investments like buildings, plants and machinery, it
mobilize long-term capital efficiently by attracting resources from a large
number of savers in a cost-efficient manner and by converting the funds of
short-term investors into long-term capital.A capital market is the financial
market where long term securities are bought and sold.
Therefore, the capital
market plays a vital role in stimulating industrial as well as economic growth
and development. In the absence of a capital market, industrial growth would be
hampered as the money market which provides short-term funds is not designed to
provide such funds. An efficient capital market mobilizes savings and allocates
a greater proportion to those companies with the highest prospective rates of
return after giving due allowance for risk. A capital market that is not
sufficiently developed will fail to perform financial intermediation
efficiently as it may either fall short of not receiving all potential savings
from investors or divert savings away from productive investment.[1]
The capital market exists largely to
deal with the securities of companies and therefore, is an important and, in
modern economies, a crucial tool for national economic development.[2] Every economy in the world
targets optimal resources channelization for growth. Finance is the key to
investment and hence the growth. Efficient financial systems help countries to
grow partly by mobilizing additional financial systems resources to best uses.
As countries develop, so must the financial system serve them. There is
therefore a two relationship between a well-functioning economy and a
well-functioning financial system.[3]
The capital market is divided into two
segments – the primary marketis for raising funds through the issuance of new
securities, while the secondary market segment provides facilities for trading
in already issued securities. In the primary market the funds raised from
investors go the issuing entity while in the secondary market the proceeds from
the transactions go to the investors. The two levels of the market complement
each other as the success of new issues depends to a large extent on the
favourable response in the secondary market and also on the level of liquidity
in the secondary market. The availability of a liquid secondary market is a
very important aspect of the capital market. This is because investors are more
willing to place their funds in the primary market if they know that holdings
are easily convertible to cash. Thus the efficient functioning of a capital
market is important not only to investors who supply funds and trade frequently
but also to listed companies and corporations who issue their securities on the
market to obtain funds.
The financial system is served by two
sub-sectors, the money market sub-sector and the capital market sub-sector.
These are also called the financial market because of the nature of the
financial services rendered. The capital market occupies a place of pride in
all economies of the world. In its nature, the capital market is a complex of
institutions and mechanism through which intermediate and long- term funds are
pooled and made available to business and government.[4] The money market provides
facilities for raising short term funds and regulated mainly by the provisions
of the Central Bank Act.[5] And the bank and other
financial institutions Act.[6]
Functionally, the market in any economy
develops at the behest of two major imperatives. Firstly, the expansion of
industries and commerce, and the increasing social responsibilities of
government necessitated discovery of new sources of funds outside the commercial
banking sector; secondly, it enables the liquidation of securities.[7]
The Nigerian capital market came into
formal existence through the establishment of the Nigerian Stock Exchange (NSE)
in 1961 primarily to provide the machinery for mobilizing private and public
savings and making them available for productive investment through stocks and
shares.The Nigerian capital market from inception has experienced a number of
problems, for example, its inability to generate more securities from
companies, paucity of tradable shares, the global financial crisis and more
recently, the falling oil prices which have scared many foreign investors from
the market.[8] The
Nigerian capital market is still faced with a number of problems. The number of
listed companies is still low compared to those of the emerging markets. Also
the level of liquidity is still low. It has been reported that the cost of
transaction is also high relative to other emerging markets. These problems, no
doubt will have serious consequences for the efficient functioning of the
market and efficient mobilization of savings for productive investment.
Notwithstanding all these problems however, the Nigerian Capital Market
witnessed significant growth after these reforms and financial sector
deregulation, albeit with occasional fluctuations. The Nigeria capital hit its
peak in 2007 when it recorded a market capitalization of ₦13.29 trillion.[9]
The Nigerian capital market is composed
of a lot of players forming various functions. The participants are categorized
into the four major groups below:
Major Participant in the Nigerian
Capital Market, The Securities and Exchange Commission (SEC) is responsible for
the overall regulation of the entire market. The Nigerian Stock Exchange (NSE)
is self-regulatory organization that supervises the operations of the formal
quoted market. Market Operators; consisting of the Issuing Houses (Merchant
Banks and Stock broking firms), Stockbrokers, Trustees, Registrars, etc.
Investors, Individuals, Insurance Companies, Pension Fund, and Unit Trusts
(Institutional Investors).[10]
[1] Ikeobi, N.R., ‘Challenges Faced
by Individual Investors in the Nigerian Capital Market’: European Journal of Business and Management, 2015, retrieved from <https://www.iiste.org> on 25/02/2018.
[2] Orojo, op cit. p. 361.
[3] Agom, A. R, ‘A History of the
Nigerian Capital Market Regulation in Nigeria’ 2002, (1): Ahmadu Bello University (A.B.U) Journal of Commercial Law, p.18.
[4] Ibid.
[5] No. 29 of 2007.
[6] Cap. B3 LFN 2004.
[7] Ajayi, O. Financial and Legal Implications of the Nigerian Capital Market
Regulation in Nigeria, (Ibadan, Evans Brothers, 1984), p. 26.
[8] Ikeobi, op cit.
[9] Ibid.
[10]<https://www.nigerianstockexchange.com/Does-Stock-Market-Promote-Economics-Growth-In-Nigeria?> Retrieved on 20/02/2018.
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