CAPITAL MARKET LAW & PRACTICE

(LWCM 505 1ST SEMESTER)

January 2024
 THE NIGERIAN ECONOMY.
All economies in the world are concern with maximization of opportunities in
their settings. The Nigerian economy is concerned with optimal resource
mobilization and allocation for the production of goods and services with a
view to generate wealth for the well-being of her people to make Nigeria
one of the largest economies.

The Nigerian economy is a mixed economy; whereas government can

participate in all facets of the economy, private individuals can also
participate in all aspects of the economy except in the few instances on the
negative list. The finance sector provides the enabling environment for
financial intermediation of economic resources. The financial system is
propelled by the activities of the economic units within the market
infrastructure in the system. Although the financial system is buoyed by the
short term money market and the long term capital market, sub markets
within the system provide generous funding from which the capital market
and money market benefit from to fund the economy. In this respect the
insurance industry regulated by the Insurance Act, 2003 is an important
aspect of the Nigerian economy. The pension industry regulated by the
Pension Reform Act, 2014 is an important source of funding for the economy.
The entire financial system is under the Ministry of Finance.

The Nigerian economy has undergone changes over the years largely
dictated by the needs of its chequered history. The changes were driven by
law and various policy considerations. In the 1960s, the emphasis was on
Nationalisation to complement the political autonomy following the grant of
independence in 1960 and republican status in 1963. See Chapter X,
Companies Act, 1968.

In the 1970s, the emphasis shifted to indigenization of the commanding

heights of economic activities in Nigerian. This is to further the dire need to
sustain home grown capital for national economic prosperity. The Nigerian
Enterprises Promotion Acts, 1972 and 1976 chauffeured this policy in that
era.

In the 1980s, the economic policy shifted to structural adjustment of the

base of the economy through privatization and commercialization. This policy
mainstreamed market forces of demand and supply as the main driver for
the provision of goods and services. In this era, government pulled back to
the role of providing enabling environment to usher in private capitalists to
run economic concerns. The Privatization and Commercialization Decree
No.25, 1988 backed this policy. (This Decree later gave way to the Bureau
of Public Enterprises Act,1993 which has now been replaced with the Public
Enterprises Act,LOFN,2004).

In the 1990s, concern shifted to deregulation. In this decade restrictions

against domestic and foreign investments were whittled down to encourage
capitalists with resources to patronize the economy. The enabling laws
include the Nigerian Enterprises Promotion (Repeal) Decree, 1995; Exchange
Control (Repeal) Decree,1995; Nigerian Investment Promotion Commission
Act,1995; Foreign Exchange (Monitoring and Miscellaneous provisions)
Decree,1995.
From year 2000, conscious liberalisation in the context of globalisation
became the vogue. The Investment and Securities Act 2007 had this
philosophical underpinning. The Central Bank Act, 2007 incorporated so
much of the Basle Consensus which advocates independence for regulators
of financial institutions. The Rules and Regulations pursuant to the
Companies and Allied Matters Act, 2020 were crafted in the context of the
reality of globalisation.

The Nigerian economy has covered some grounds. Nigeria is an endowed

nation with so many prospects of greatness. The country Nigeria is within
one time zone and has a total land area of 923,768 square kilometers. With
a population of over 200 million people, Nigeria is a multi-ethnic, multi-
religious and multi-lingual society. The main stay of the economy is oil, solid
mineral deposits, gas reserves and arable land for agriculture. Nigeria’s
population, land endowments and eco-system are potential strength for a
virile economy and a large market in the West African sub-region and a major
player in the global economy.

PRIMARY/SECONDARY MARKET.
Broadly, the capital market is classified into commodities market and
securities market. The commodities market is the market for tangible
products. This market is further subdivided into two. The market for soft
agricultural products falls into the classes of grains, oil and meals, livestock,
forest products, textile and foodstuffs. The markets for hard products are
the market for metallurgical products and soil endowments in the form of
metals and petroleum.
The securities markets are markets for intangible commodities that are
choses in action. Functionally, the securities market may be a primary market
or the secondary market. The primary market is first section or the original
point of call in the capital market for companies seeking to raise funds. This
market finds buyers for new shares, at the same price, funds raised go the
issuer of the securities and the market is hardly identifiable with any
particular location. Any transaction on shares purchased in this market
facilitates a secondary market transaction. The primary market essentially is
an economic framework embodying a network of financial institutions at
work to transmit economic resources from savers to users. The issuing house
is the main capital market intermediary for this market. When First Bank of
Nigeria PLC issues shares to raise funds it is said to have access the primary
market.
The secondary market is the second or latter section of the securities market.
It is a consequential market where securities as evidenced by share
certificate are sold and purchased. In this market, holders of instruments
from the primary market sell their securities to other holders or to completely
new investors. Here investors sell their holdings at different times and prices
depending on the market, proceeds of the sale go to holder and not the
company, securities sold are not new, and the market is largely identifiable
with a particular location. The Stock Exchange is an example of the
secondary market in Nigeria. For companies that are not quoted their shares
are marketed in the Over the Counter (OTC) Market. The stockbroker is the
main capital market intermediary in the secondary market.
 USERS OF THE MARKET
Duly incorporated companies or statutory corporations can access funds in
the capital market. Companies that have attained corporate status via
incorporation process enjoy the effect and powers under CAMA. At the stage
of formation, the authorized share capital of the company is to be divided
into shares of fixed amount to be held by the share holders. See Section 36
CAMA. Also by virtue of section 191 CAMA, companies can borrow for the
purpose of its business. This the company can do through the issuance of
debentures.
Sovereign authorities listed in Part 1 of the 1999 Constitution are persons
known to law and can access fund in the capital market for development.
The bodies contemplated are the Federal Government of Nigeria, the 36
States and 768 local Government Areas listed therein. These bodies can raise
funds in the market through the issuance of sovereign bonds. Part XV
ISA,2007 provides the regulatory framework for raising of funds by municipal
bodies through borrowing from the capital market.

CONCEPTUAL CLARIFICATION-THE NIGERIAN CAPITAL MARKET

The exact scope of capital market is as intangible as the blue sky, and this
fact remains regulators albatross. Regulation of this subject has never been
easy in any jurisdiction. This dilemma is not unconnected with the dynamic
nature of the subject.

CAPITAL MARKET
Capital has become the lifeline and creditworthiness of a company .It
now fixes the minimum value of the assets which must be raised initially,
and then, so far as possible, retained in the business. The capital of the
company is the creditors’ guarantee fund. Consequently, company law by its
capital maintenance doctrine progressively seeks to protect corporate
investors by ensuring that a company’s capital is raised and only employed
to generate wealth for the company which may trickle to the corporate
stakeholders.
`Market` in the most literal and immediate sense is a place where
things are bought and sold. In modern commerce, it has expanded to include
the whole geographical area in which sellers compete with each other for
customers. The advantages of choice and mobility have increasingly
positioned a market as a framework within which buyers and sellers transact
business.
According to Black’s Law Dictionary 1 , capital market is defined as
“financial markets in which long term securities are bought and sold”. This
definition throws up the pertinent question as to what period or time
constitutes long term. In what appears to be an improvement over this
definition, the Capital Market Glossary2 defines capital market as “financial
markets which trades in medium to long term financial instruments (stocks
and bonds) with maturity in excess of one year”.
Capital market exists solely for trading in securities. Market for the
purpose of securities trading is a peculiarity of the capital market. Broadly,
the capital market may be a securities market or commodities market.
SECURITIES MARKET
Securities by their legal nature are chooses in action which though do
not confer possession of physical things describe a mass of interest or rights
vested on their holders. Functionally, the securities market may be a primary
market or secondary market.

THE PRIMARY MARKET

This is the first section or the original point of call in the capital market.
It is regarded as primary, first or original market because; it involves the

1
Black, H.C., Black`s Law Dictionary (West Group,1990, 6th edn. Centennial edn.(1891-1991) ) P.209.
2
Securities and Exchange Commission; Capital Market Glossary( Capital Market Education Series,SEC) P.10
creation and marketing of completely new securities by the issuer; a
particular security is offered at the same price and time to the public; except
on rare occasions where there are more than one call, the offer is made
once; the proceeds of the offer go to the issuer; this market is not identifiable
with any particular location; and efforts to dispose of purchases in this
market facilitates activities in the secondary market.
The primary market essentially is an economic framework embodying
a network of financial institutions at work to transmit economic resources
from savers to users. Of the key financial institutions in the capital market,
the issuing house is the hub of the primary market. A consideration of the
activities of the issuing house is inevitable at this point.
Issuing Houses
Issuing Houses are firms of professionals and specialists registered
by the Securities and Exchange Commission as capital market operators.
The business of issuing house is mostly dominated by investment banks
involved in capital restructuring of companies for good financial leverage.
They assist corporate and government bodies to access long term
funds by packaging issues for subscription on their behalf. It is the
responsibility of these operators to inform prospective issuers on the most
appropriate instruments and the best method to raise funds depending on
the verified needs of their clients.
The issuing house assembles and coordinates the functions of all other
operators whose services are usually required in the issuing process. These
operators are usually referred to as “parties to issue”. In coordinating the
parties to the issue, the issuing houses ensure that statutory requirements
are met.

THE PROSPECTUS.
Companies can only make offers of their securities to raise funds in the
primary market and no other place. The prospectus is a constant feature of
the primary market and is the main instrument of regulation of public issue.
It must accompany any invitation to the public to subscribe or purchase
securities of any company. According to Section 67 ISA, 2007 it shall not be
lawful to issue any form of application for securities in a public company
unless the form is issued with a prospectus. The prospectus shall state the
matters specified in Part I of the Third schedule and set out the report
specified in Part II, Third schedule to the Act.
THE SECONDARY MARKET
This is the second or latter section of the securities market. It is a
consequential market where securities as evidence by share certificates are
exchanged for funds. In this market, holders of the instruments from the
primary market sell their securities to other holders or to completely new
investors in the secondary market. It is regarded as secondary market
because it cannot exist without the primary market. Here, different investors
sell their holdings of the same or different securities art different times and
possibly at different prices; the proceeds of sale go to the holder of the
instrument and not the company; the instruments traded in this market are
not new; and the market is largely identifiable with a particular site popularly
called trading floor of the stock exchange. There are two broad classifications
of the secondary market; the centralized auction market and the dealers
market.
The stock exchange is a centralized auction market with regulations
and procedures for the buying and selling of securities. It is called a Stock
Exchange not because an investor can exchange one security for another,
but because investors can exchange securities for cash or vice-versa.
The Stock Exchange regulates its own market as well as its members.
For the purpose of accessing the market, the Stock Exchange has listing
requirement which a company seeking quotation must meet. Once the stock
exchange is satisfied that all its requirements have been met, it grants listing
to the security and the stage is then set for secondary transaction on the
securities.
A stock exchange may have a single board or classes of markets. The
Nigerian Stock Exchange (NSE) now demutualised is known and called
Nigerian Exchange (NGX)
The dealers market is not centralized. Unlisted securities account for
the overwhelming majority of securities traded in the dealers market. These
are securities that are variously traded largely, at the counters/screens of
issuing houses or by brokers appointed by the issuer3.
The dealers market developed over the period from simple telephone
communication to sophisticated linkages through complex electronic
communication machines linking up investors and finance houses. In
developed markets, an association of securities dealers may obtain
incorporation to operate and regulate an over the counter (OTC) market and
any other sub markets in the dealers market. The National Association of
Securities Dealers Automated Quotation (NASDAQ) was established by the
National Association of Securities Dealers (NASD) in the United Stated of
America. It is the largest self-regulatory organization in the United States
securities market. This is a dealers’ market where transactions are carried
out through routing of orders using computers supported by telephones for
negotiations. Only equities of companies are listed on NASDAQ. In Nigeria,
the NASD and FMDQ are OTC markets and regulated by the SEC.
OTC market has no central meeting point, transactions are done
through telephones and computer screens. The gateway into the secondary
market is the stock broker. This is the main intermediary in the secondary
market.

STOCKBROKER
Stockbrokers are capital market operators licensed by Stock Exchanges
and registered by the apex regulatory agency of the capital market. They
buy and sell securities quoted on the Exchange on behalf of their client as
agents and at times on their own account as dealers. They are the major
players in the secondary market and offer for the secondary market what
the issuing houses facilitate for the primary market. As a secondary market
intermediary, stockbrokers transact business on the floor of the Stock
Exchange or in the OTC market.
Generally, a broker is an intermediary between two or more parties. In
commercial relations he is an agent of a principal and receives commission
for his services. Rowlatt, J., in Christopher Baker & Sons v

3
Ekiran, O., Basic Understanding of Capital Market Operations.(Deacon Oba Ekiran,Lagos,1999) P.34
Commissioner of Inland Revenue 4; captured his role in the following
words
“…what a stockbroker does is to buy and sell a
commodity on the market. It is true that he does not
expect to have to pay for it himself or to be responsible
ultimately to satisfy the contract himself, as he is a
buyer and seller for an undisclosed principal”
The stockbroker is the prime mover of the secondary market. He is on
the floor of the exchange or by the screen in the screen based market. He
is a member of the exchange or other recognized markets. On the whole,
the stockbroker is expected to display a high degree of professionalism and
probity in his operation so as to retain the confidence of the investors in the
capital market and indeed in the financial industry as a whole. The stock
broker’s motto is “my word is my bond”
The relationship between a broker and a client is deeply rooted in trust
and confidence. It is a fiduciary relationship of uberrimae fidei firmly
entrenched in Law and Equity. Flowing from this relationship, the stock
broker owes certain duties at law to his client.
The stockbroker is obliged to perform or execute the client’s mandate
as expressly or impliedly stipulated by the client. He is also bound to obey
all lawful instructions from the client.
No person shall practice the profession of stock brokerage unless
registered by the apex regulatory body and licensed by the Stock Exchange
where he shall ply his trade. He can only practice his trade under a
stockbrokerage firm.
To qualify to practice as a chartered stockbroker, an applicant must
satisfy requirements of the Chartered Institute of Stockbrokers (CIS) set up
by the Chartered Institute of Stockbrokers Act5. This Institute has the general
duty of determining from time to time what standards of knowledge and skill
are to be attained by persons seeking to become chartered members of the
profession. The CIS is a corporate body with perpetual succession and

4
(1893)AC 282 HL
5
Chapter 105, Laws of the Federation of Nigeria, 2004.
common seal. Administration and general management of the institute is
vested on the Governing Council6.

CAPITAL TRADE POINTS

A novel concept in the Nigerian Capital Market is the Capital Trade
Point (CTP). It was conceived to provide market facilities for bringing
together purchasers and sellers of securities or for performing functions
commonly performed by a securities exchange.
According to Section 28(1) ISA, 2007, no Capital Trade Point shall
commence operation unless it is registered with the SEC. This provision re-
enforces Section 13(b) ISA, 2007 which obligates the SEC to register and
regulate CTPs.
THE COMMODITY EXCHANGE
A key component of the capital market is the Commodity Exchange
(Comex). This economic institution is conceived to provide facilities for
competitive marketing of particular commodities and contracts on them.
Increasingly the concept of Commodity Exchange has graduated from spot
market to forward and futures markets. This exchange is targeted at risk
management and capital formation.
The ISA, 2007 regulates the Nigerian commodity market. Specifically,
Section 13(b) empowers the SEC to register and regulate futures, options,
derivatives exchanges, commodities exchanges and any other recognized
investment exchanges.
A Comex performs three basic functions in any economy. This includes
market price discovery, investment mobilization and market risk
management. Currently registered are Nigeria Commodities Exchange
(NCX),AFEX Commodities Exchange Limited(AFEX), Lagos Commodities and
Futures Exchange ((LCFE) Gezawa Commodity Market Limited (Gezawa) and
Prime Commodity Exchange (Prime Exchange)

INSTRUMENTS

6
Ibid, Section 3.
Instruments in the capital market are also referred to as securities. They
represent the interest of investors in the issuer and determine the nature of
the legal relationship between the holder and the issuer of the securities.
These securities also measure the quantum of investors’ interest in the
issuer.
Traditionally, securities are classified into ownership and debt securities. By
their legal nature, while the ownership securities confer proprietary rights on
the holders, debt securities create debtor/creditor relationship between the
issuer and the holder of the debt securities.

OWNERSHIP SECURITY
Ownership security constitutes its holder a member of the enterprise. In
casual parlance a holder of an ownership security is considered part-owner
of the venture. In law such a holder has rights in the concern. A classic
example of ownership security is a ‘share’ in the authorized share capital of
a company.
Legally, a share is regarded as a chose in action. A perspective on the
definition of `share` was given thus by Lord Wrenbury in BRADBURY v
ENGLISH SEWING COTTON CO.LTD (1923) AC 744:
A share is …a fractional part of the capital. It confers upon
the holder certain right to a proportionate part of the assets
of the corporation whether by way of dividend or distribution
of assets in winding up. It forms, however, a separate right
of property .The capital is the property of the corporation.
The share, although it is a fraction of the capital is the
property of the corporator. The aggregate of all the fractions
if collected in two or three hands does not constitute the
corporators the owners of the capital-that remains the
property of the corporation. But nevertheless the share is a
property in a fractional part of the capital…
Much earlier, Farewell J in BORLAND TRUSTEE v. STEEL BROS & CO
LTD(1901) 1 Ch..279 gave a conceptual framework of the word as follows:
A share is the interest of a shareholder in the company
measured by a sum of money, for the purpose of liability
in the first place, and of interest in the second. But also
 consisting of a series of mutual covenants entered into
by all the shareholders inter se…The contract contained
in the Articles of Association is one of the original
incidents of the share. A share is not a sum of
money…but is an interest measured by a sum of money
and made up of various rights contained in the contract
including the right to sum of money of a more or less
account.
Today shares are recognized dejure and defacto as property in the nature of
personal estate7 which can be bought, sold, mortgaged and bequeathed.
Specifically Section 27(2) (a) CAMA provides
The memorandum shall also state the amount of the
minimum issued share capital which shall not be less than
N100,000 in the case of private company and N2,000,000
in the case of a public company with which the company
proposes to be registered, and the division thereof into
shares of a fixed amount.(underlining for emphasis.)
Under section 37, the statement of the initial issued share capital and
shareholding shall indicate the number and nominal value of each share held
by the member. The fixed amount of a share is its nominal value or par
value. Such shares are known as par value shares. On the other hand, shares
are described as no par value if the price at which a share is issued is not
permanently fixed at any nominal value but is in fact determined by market
consideration.

DEBT SECURITY
Debt securities create a legal relationship of debtor and creditor. A debt
security holder is in law not a member of the issuer having rights in it but a
creditor having rights against it. The debt securities markets have become
veritable channels of funding developments by municipal bodies’ globally.
A debt security may take the form of bond or debenture. A bond simply put
is a promise to pay whereby the lender holds the bond until his money is
completely paid with the agreed interest. Structurally, the investor lends the
issuer specified amount of money (principal) for a specified period. In
exchange, the investor receives fixed payment of interest (coupon) on a
regular schedule for the life of the bonds with the full principal returned at
an agreed date in future (maturity date).
Bonds have features that make them attractive to investors. Bonds provide
steady income at regular intervals, which comes in form of interest. A
corporate bond, usually offers higher yields than government bonds. The
higher yield potentials of corporate bonds is generally accompanied by
higher risks. Bonds provide dependable income. Investors, who want steady
income from their investments, while preserving their principal, include
bonds in their portfolios.
Safety and reliability are attractive qualities of bonds. Government bonds are
long dated and relatively risk free instruments. Corporate bonds are
evaluated and assigned rating based on credit history and the ability of the
issuer to repay obligations; the higher the rating, the safer the investment.
Debenture is specie of debt security. The expression `debenture` is applied
indiscriminately to the instrument creating or evidencing indebtedness and
to the debt and the bundle of rights vested in the holder to secure its
discharge. These rights may include a charge on all or some of the company’s
assets. In the absence of any charge, it may be described as a bond or loan
note.
The legal relationship between a company and its debenture holders is
simply the contractual relationship of debtor and creditor. In contrast with
shareholder, the debenture holder is in law not a member of the company
having rights in it, but creditor having rights against it.
According to Chitty J. in LEVY v ABERCORIS SLATE & SLAB CO (1887)
37 Ch. P.260,264 “ [it is] a document which either create debt or
acknowledges it”. The ISA does not define the word ‘debenture’ but admits
in section 315 that debenture is a security. According to Section 868 CAMA;
 “debentures” means a written acknowledgment of indebtedness
by the company, setting out the terms and conditions of the
indebtedness and includes debenture stock, bonds and any other
securities of a company whether constituting a charge on the
assets of the company, or not.
Specifically Section 191 CAMA provides:
A company may borrow money for the purpose of its business or
objects and may mortgage or charge its undertaking, property
and uncalled capital or any part thereof and issue debentures,
debenture stock and other securities whether outright or as
security for any debt, liability or obligation of the company or of
any third party.

Debentures are covered under Chapter 9 CAMA and may be perpetual,

convertible, secured, naked or redeemable.
There is no gainsaying the fact that Nigeria is undoubtedly one of the most
endowed nations in the world, with huge deposits of natural resources, good
agrarian environment and a large entrepreneurial population. Paradoxically,
Nigeria has been unable to fully harness her resources to place it among the
league of industrialized nations and improve the well being of its population.
To many states of the federation, financial constraint has remained a major
hindrance to the provision of infrastructural facilities and public utilities and
even to rehabilitate existing ones for meaningful socio economic
development. The inability of states to generate adequate financial resources
has equally created strong dependence on the Federal Government for
sustenance. While the Federal Government as well as State Governments
provide economic and social infrastructure, State governments are
principally responsible for the provision of certain facilities in their
jurisdiction. These include roads, sewers, portable water, public
transportation, housing, education and health care facilities. Added to this is
the fact that State Governments are the main employers of labour in their
jurisdiction.
Bond is a debt security and creates the legal relation of debtor/creditor in
favour of the bondholders. Until the security (principal) is redeemed, the
issuer must service the relationship by a periodic payment of fee (interest)
to the holders. A bond may be a general obligation bond or a revenue bond
Part XV ISA, 2007 provides the legal framework for States/Local Government
Bond.
The interest and principal obligations shall be charged on and retired out of
general revenue and assets of the body concerned and of the assets of the
appropriate authority or project which is the beneficiary of the proceeds of
the loan. The issuer must establish a sinking fund for each loan raised into
which periodic contributions shall be made for the purpose of meeting the
loan obligation. Indeed any amount deducted from the statutory allocation
by the Accountant-General shall also be paid into the sinking fund account.
To protect creditors, the issuer must lodge with the SEC along with other
documents, an irrevocable letter of authority. This instrument must vest on
the Accountant General of the Federation the authority to deduct funds at
source from the statutory allocations due to the issuer, to retire its payment
obligations under the terms of the loan and the trust deed. This will arise in
the event of default by the issuer in meeting its repayment obligations. Copy
of the same instrument shall be in possession and custody of the trustees.
A constant feature of debt security is the interpose between the investor and
the borrower of a capital market intermediary called the trustee(s). This
character is a creation of the trust deed which defines and sets out the terms
and obligations of the issuer, the security holders and the trustees.
There is no gainsaying that public utilities are not in their best of form in
Nigeria. Services like power supply by Power Holding Company of Nigeria,
good roads by the Federal Road Maintenance Agency, water services are
services that statutory bodies provide in Nigeria albeit poorly. Very often, the
reason adduced for poor performance is cash constraint. The capital market
could provide the much needed funding. Part XV, ISA, 2007 now provides
the enabling environment.

DERIVATIVE SECURITY
This class of securities is emerging in the capital market. They derive their
being from the two traditional securities and have sometimes been called
shadow instruments. Examples of this include futures, options, rights offer.
COLLECTIVE INVESTMENT SCHEME
LEGAL FRAMEWORK FOR REGULATING THE NIGERIAN CAPITAL
MARKET
INVESTMENT AND SECURITIES ACT, NO.29, 2007

Five years of the implementation of the Investment and Securities Act 1999,
the Securities and Exchange Commission (SEC) observed areas in the ISA
requiring review. The review was considered necessary to strengthen its
provisions, remove ambiguities, and enhance the Federal Government
economic reform initiatives as well as the international competitiveness of
the Nigerian Capital market.
Generally, the ISA, 2007 regulates all the basic features of a capital market.
Specifically, the tripod of every capital market; operators, markets and
instruments are clearly regulated.
All securities to be offered to the public through the medium of offer for
subscription, offer for sale, rights offer, bonus issue, offer by introduction,
private placement by public companies must first be registered with the SEC.
Debenture/loan stock, State and Local Government bond must also be
registered with the SEC before issuance for public participation.
A person who contravenes these requirements commits an offence and liable
on conviction to a fine of one million naira or to a term of imprisonment of
three years or to both such fines and imprisonment. The Commission may,
in lieu of prosecution impose a penalty of one million naira and a further fine
of five thousand naira for everyday of the violation.
If as a result of any such contravention any person acquires or disposes of
any securities he shall be entitled to proceed against the defaulter. He may
rescind such transaction and or recover compensation for any loss sustained
by him from any person who is liable.
The SEC is empowered to halt the circulation of any unregistered securities
offered to the public. This is to prevent issuers unduly leveraging on the
knowledge disparity in the market to induce unsuspecting investors to invest
their resources in worthless securities.
No Securities Exchange or Capital Trade Point shall commence operation
unless it is registered with the SEC. The Securities Exchange may be a Stock
Exchange, Commodity Exchange, Over the Counter Market, Metal Exchange,
Petroleum Exchange, Option, Futures and Derivative Exchange or Capital
Trade Point. These are user regulatory organizations providing market
facilities for stakeholders.
What constitutes a forum a Securities Exchange is registration with the SEC.
Section 30 ISA, 2007 empowers the SEC to revoke the certificate of
registration of a Securities Exchange when the need arises. This will
necessarily arise if the body ceases to operate as Securities Exchange or
Capital Trade Point; or is undergoing process of winding up or operating in
a manner detrimental to public interest.
The SEC is at liberty in the public interest to issue directives with respect to
trading on or pertaining to any listed security or with respect to the manner
in which the Securities Exchange carries on business or any other matter
necessary for the effective administration of the law. The Securities
Exchange shall comply with any such directives. Failure to comply with such
directives attracts a penalty of one million naira and to a further penalty of
fifty thousand naira for every day of default. Where an executive officer of a
Securities Exchange willfully contravenes or without reasonable justification
failed to enforce compliance with directives issued by the SEC, the
Commission may remove such officer or direct the Exchange in writing to
remove such officer. No action before any Court of law with regard to any
such directive by the SEC shall be competent unless the SEC is joined as a
party to such action.
Furthermore, Section 36 ISA, 2007 authorizes the SEC to prohibit trading on
the securities of a company where it thinks it is necessary for the protection
of the public.
The operators of the market are also subject to a regime of strict regulation.
Securities dealer, stockbrokers, share transfer agents, bankers to issue,
market trustee(s) of a trust deed, registrars to an issue, merchant bankers,
issuing houses, underwriters, portfolio managers, investment advisers are
intermediaries in the securities industry. These are the experts in the capital
market that facilitate the search, mobilization and allocation of resources
between the surplus and deficit ends in the economy.
According to Section 38(1) ISA, 2007, no person shall operate in the Nigerian
Capital Market as an expert or professional or in any other capacity as may
be determined by the Commission; or carry on investment and securities
business unless the person is registered in accordance with the Act.
Specifically, the SEC shall register and regulate corporate and individual
capital market operator as defined by the Act.
The reason for supervising the activities of these persons is not far-fetched.
In reaching investment decisions, investors usually rely on information about
an issuer and or issue supplied by its management. The information provided
are verified by professionals such as auditors, reporting accountants,
registrars, issuing houses, stock brokers, trustees, solicitors to the issuer and
to the issue. It is necessary that those saddled with verification, dutifully
and responsibly ensure that the information supplied to the investing public
is true and accurate, free from any material misstatement, concealment of
facts or deliberate misrepresentation of facts about the issuer.

Furthermore, pursuant to the provisions of Sections 13(g), 38 and 313 ISA,

2007 the SEC made Rule 178 to regulate capital market experts. According
to this Rule, the following Professionals whose opinion directly impact on
capital market transactions are subject to registration by the Commission:
a. Legal Practitioners
b. Accountants
c. Auditors
d. Engineers
e. Estate Valuers
f. Property managers
g. Any other expert/professional that may be
determined by the Commission from time to
time.
Thus a capital market operator may be an intermediary or a capital market
expert.
To ensure that dishonest people are kept at bay, a prospective capital market
operator shall undergo police clearance and submit a police clearance
certificate alongside his application for registration. A professional indemnity
insurance policy shall also be forwarded by the applicant .The applicant must
attach a copy of evidence of payment of professional annual practicing fee.
Generally, all operators are required to obtain a fidelity bond against fraud
or defalcation by their personnel.
In brief, securities market, operators and market facilities are prime targets
of securities regulation. This is achieved by a system of registration which
compels disclosure of material information by registrants. It is for this reason
that registration is the hallmark of regulation.

COMPANIES AND ALLIED MATTERS ACT 2020

All companies in the Nigerian Capital Market have dealt with the Nigerian
Company Law. Incorporation, management, and winding up of companies
are the exclusive preserve of company law.
The Companies and Allied Matters Act is made up of 7 parts. Part A deals
with Corporate Affairs Commission, Part B is on incorporation of companies
and related matters; Part C deals with the Limited Liability Partnership, Part
D deals with the Limited Partnership, Part E is concerned with Business
names, Part F dwells on incorporated trustees. Part G is on the Administrative
Proceedings Committee. The CAMA established the Corporate Affairs
Commission8 as an ens legis and charged with the administration of the Act.
All public companies in Nigeria, quoted or unquoted have gone through the
process of incorporation. The privilege of incorporation is granted by the
CAMA. All the securities issuing companies in Nigeria have met the
requirement of this law or its predecessor to be called a company in the first
place.
Upon registration of the memorandum and articles of association, the
company stands incorporated. The CAC shall certify under its seal that the
company is incorporated and the certificate of incorporation shall be prima
facie evidence that requirements of the CAMA in respect of registration have
been complied with.`
From the date of incorporation mentioned in the certificate of incorporation,
the subscribers of the memorandum and articles of association shall be a
body corporate by the name contained in the memorandum of association.
The body shall be capable forthwith of exercising all the powers and
functions of an incorporated company.

8. Ibid, Section 1
The privilege of limited liability is the most pervasive incident of
incorporation. This has made the corporate form of enterprise the
functionally dominant mode of carrying on business in Nigeria, and indeed
the capitalist commercial system. It is this limitation of liability that has
encouraged the phenomenal growth of the modern company in its
unfettered spirit of adventure.
The economic advantage of limitation of liability is that it defines the
extent of investment risk and loss. It thereby provides the means of
escape from risk of loss or even ruin to big and small traders which they
would otherwise be exposed to. This insulation from the burden of
indeterminate liability has made corporate enterprise a necessary
instrument of commercial progress.

NIGERIAN INVESTMENT PROMOTION COMMISSION ACT CAP N117 LFN

2004
With the advancement along the frontiers of information technology and
transportation facilities, global competition has shifted from arms race to
development finance. The attraction of foreign investment into national
economies has become for so many countries, a national priority.
Foreign investment can be in the nature of foreign portfolio investment (FPI)
or foreign direct investment (FDI). FPI are investments by foreign capitalists
in securities of companies in a domestic market. Such investments boost
capital market activities and the economy. FPIs are however unstable and
prone to capital flight at the slightest sign of economic down turn. FDI, on
the other hand, are investment by foreign capitalist by way of establishing
domestic enterprises in which they may participate directly. Usually, FDIs are
more stable and likely to contribute to economic growth and transfer of
expertise. Because of these advantages, Government consciously provides
incentives to lure them.
The incentives include lowering or dismantling protective barriers of
economic nationalization and indigenization. A step in this direction in 1995
was the enactment of the NIPC Act.
In the main this law established the Nigerian Investment Promotion
Commission (NIPC). This agency is empowered inter-alia to co-ordinate,
monitor, encourage and provide necessary assistance and guidance for the
establishment and operation of enterprises in Nigeria. It is to create a
conducive environment for foreign and local investment in Nigeria.
Specifically, Section 1 established the NIPC. It is a body corporate with
perpetual succession and a common seal and may sue and be sued in its
corporate name. According to Section 4, the Commission shall encourage,
promote and co-ordinate investment in the Nigerian economy.
A person who intends to establish an enterprise subject to regulation by the
NIPC shall incorporate the enterprise under CAMA and apply to the NIPC for
registration. The NIPC shall after fourteen working days from date of the
receipt of completed registration form register the enterprise. No such
enterprise shall commence business unless duly incorporated at the CAC and
registered with the NIPC.
The NIPC, to all intents and purposes is intended to be a one-stop agency
for pre and post investment approvals. According to Section 4 NIPC Act, the
body shall encourage, promote and co-ordinate, and monitor all investment
promotion activities to which the Act relates. However, the law is yet to give
the NIPC that full legal backing.

FOREIGN EXCHANGE (MONITORING AND MISCELLANEOUS) PROVISIONS

ACT, CAP F34, LFN, 2004.
The realities of comparative advantage, comparative cost, international
resource endowment differential and imbalance have fostered cross boarder
investment. International finance has become the target of conscious
government policies.
The Nigerian economy has taken great strides towards internationalization.
Some of the steps include the repeal of the Exchange Control Act 1962 and
the promulgation of the FOREX Act in 1995.
The FOREX Act permit any person resident in or outside Nigeria, whether a
citizen of Nigeria or not, to deal in, invest in, acquire or dispose of securities
traded in the Nigerian Capital Market. Any person may invest in any
enterprise or security with foreign currency or capital imported into Nigeria
through an authorized dealer either by telegraphic transfer, cheques or other
negotiable instruments and converted into Naira in the market.
The authorized dealer through whom the foreign currency or capital
for the investment is imported shall within twenty four hours of the
importation issue certificate of capital importation to the investor. The
authorized dealer shall within forty eight hours thereafter make necessary
returns thereof to the CBN which shall in turn furnish detail report of the
returns to the Minister of Finance.
Foreign currency imported into Nigeria and invested in any enterprise
shall be guaranteed unconditional transferability of funds through an
authorized dealer in freely convertible currency relating to
(a) Dividend or profits attributable to the investment.
(b) Payments in respect of the loan servicing where foreign loan has
been obtained
(c) The remittance of proceeds and other obligations in the event of
sale or liquidation of the enterprise or any interest attributable
to the investment.
Any repatriation of funds shall be communicated by authorized dealers to
the CBN within fourteen days. The CBN shall furnish the same information
to the Minister on a monthly basis not only for information but also for
statistical purposes.
As regards importation and exportation of foreign currencies, no person shall
be required to declare at any port of entry an amount of five thousand dollars
or less. In excess of that, shall be declared in the prescribed form for
statistical reasons only.
Subject to any other enactment, no person shall make or accept cash
payment denominated in foreign currency for the purchase or acquisition of
landed property, securities including stocks, shares, debentures and all forms
of negotiable instruments and motor cars, including other vehicles of any
description whatsoever. Payments for these items shall be made by means
of bank transfers or cheques drawn on banks in Nigeria only.
For the purpose of determining and monitoring the flow of foreign exchange
into Nigeria, an authorized dealer shall notify the CBN of any cash transfer
to or from a foreign country of a sum greater that ten thousand dollars or
its equivalent. The CBN shall similarly furnish such returns to the Minister of
Finance on a quarterly basis.

THE CHARTERED INSTITUTE OF STOCK BROKERS ACT, CAP C105 LFN,

2004.
No person shall practice the profession of stock brokerage unless registered
by the apex regulatory body and licensed by the Stock Exchange where he
shall ply his trade. He can only practice his trade under a stockbrokerage
firm.
To qualify to practice as a chartered stockbroker, an applicant must satisfy
requirements of the Chartered Institute of Stockbrokers (CIS) set up by the
Chartered Institute of Stockbrokers Act. This Institute has the general duty
of determining from time to time what standards of knowledge and skill are
to be attained by persons seeking to become chartered members of the
profession. The CIS is a corporate body with perpetual succession and
common seal. Administration and general management of the institute is
vested on the Governing Council.
A person shall be entitled to be registered as a member of the profession if
he passes the qualifying examination for registration recognized or
conducted by the Governing Council and completes the prescribed practical
training. A person who holds a qualification for the time being accepted by
the Institute and satisfies the council that he has had sufficient practical
experience as a member of the profession may also obtain registration. An
applicant who holds a qualification granted outside Nigeria and for the time
being accepted by the Institute and is entitled to practice for all purposes as
professional stockbroker in the country in which the qualification was
granted, may also be admitted into the profession.
In addition, the applicant must be of good character attained the age of
twenty-one and has not been convicted in Nigeria or elsewhere of an offence
involving fraud or dishonesty. Members admitted into the profession by the
Institute shall be enrolled as members in any of the categories of Fellow,
Member, Associate, Honorary Member or Honorary Fellow.
The CIS is statutorily charged with the powers of discipline and even
expulsion of erring members.
INSTITUTIONAL REGULATION OF THE NIGERIAN CAPITAL
MARKET
SECURITIES AND EXCHANGE COMMISSION
Specifically Section 1, ISA establishes the SEC as a body corporate with
perpetual succession and a common seal. Its headquarters shall be situated
in the Federal Capital Territory, Abuja and may establish zonal offices in
States of the Federation. The Commission shall consist of:-
1) a chairman
2) a person not below the rank of Director representing Ministry of
Finance
3) a person not below the rank of Director to represent CBN
4) two full-time commissioners who shall be persons with ability,
experience and specialized knowledge in capital market matters
5) the Director General
6) five part-time Commissioners of proven ability and expertise in
corporate matters generally.
The Chairman, Commissioners and the Director-General shall be appointed
by the Head of State for a fixed term of not more than two terms. All
members of the Commission shall subscribe to and be bound by a code of
ethics approved by the Minister of Finance for the Commission. The high
profile of the members of the board strategically positions the SEC to realize
its new mandate.
The powers of the SEC are covered under Section 13 1SA. Under this section,
the SEC is empowered to regulate through the registration window:
▪ Securities Exchanges, Capital Trade Points, Futures, Options and
Derivatives Exchanges, Commodity Exchanges and any other
recognized investment exchanges;
▪ securities to be offered for subscription or sale to the public;
▪ corporate and individual capital market operators;
▪ the working of venture capital funds and collective investments
schemes including mutual funds;
 ▪ central depository companies and settlement companies
custodians of securities, credit rating agencies and such other
agencies and intermediaries;
▪ mergers, acquisitions and all forms of business combinations;
▪ Unit Trust Scheme;
▪ community savings scheme, Esusu;
▪ Real Estate Investment Schemes;
▪ Borrowing by States, Local Governments and other Government
agencies.
The Commission’s regulatory machinery is structured to prevent unfit
persons and investments, detect abusive acts such as market manipulations,
untrue statements in the prospectus and other vices that could undermine
the integrity of the capital market. Registration, monitoring, investigation,
enforcement, and rule making are the SEC’s tools for effective regulation.
Registration is the hallmark of regulation. It is the entry point to the capital
market and it is through it that the fitness and propriety of applicants as well
as the worthiness of instruments to be offered in the market are examined.
For registration of Capital Market Operators the SEC insists on integrity
check, financial suitability, professionalism and competence of applicants.
For registration of securities, the SEC insists on full disclosure of all relevant
information about the security being issued to the public. The SEC does not
in any way guarantee the accuracy of the information disclosed in the
prospectus or rights circular. However, the Directors and experts whose
names appear on the offer documents are culpable for any untrue statement
or omission in offer documents.
The essence of monitoring and inspection is to ensure that market operators
comply with the provisions of the ISA and Rules and Regulations made there
under. The SEC is empowered to monitor and ensure that capital market
operators comply with market and global best practices. Effective monitoring
can presumptuously forestall deviant practices in the market. Improprieties
discovered from monitoring can become the subject of investigation.
The Commission does not prosecute criminal offences. Where in the course
of investigation, it discovers allegation of crime, it is obliged to pass such
information to the appropriate prosecuting authorities. For other infractions,
it has the responsibility to ensure that the erring party is appropriately
sanctioned after an opportunity of being fairly heard.
Section 313 ISA authorises the SEC, to make rules and regulations for the
purpose of giving effect to the provisions of the ISA. Rule making is a
dynamic tool of regulation to meet the changing situations in the market.
The SEC in July 2003, created the Rule Making Division in the Secretariat
and Rule Making Department. This Division reviews and updates the Rules
from time to time as the need arises.
The Commission is saddled with the responsibility of developing the capital
market. A developed market will deepen the market and facilitate economic
growth and development.
In its developmental role, the SEC undertakes public enlightenment
programmes targeted at creating awareness with a view to attracting greater
participation and developing local investment attitude. The enlightenment
activities have targeted States, Local Government Areas and various arms of
government, professional groups and associations. The SEC shall furnish to
the President of Nigeria reports pertaining to activities for the promotion and
development of the securities industry. The Commission established the
Capital Market Training Institute to meet the capacity building requirement
in the market. The institute has been conducting various courses to enhance
professional competence in the market for regulators and operators.
The SEC is empowered to establish specialised departments to enable it
achieve its set goals and objectives. Pursuant thereto, the Commission has
created some key departments to handle different aspect of market
regulation.

THE CORPORATE AFFAIRS COMMISSION

Legal personality gives a company the vires to issue securities, avail or
access funds in the Capital Market. To participate in the Capital Market
therefore a company must come into existence and remain in existence.
The Corporate Affairs Commission, obliged to confer legal personality,
midwifes companies into existence and regulates their continued
existence.
 Section 1 of the Companies and Allied Matters Act establishes the
Corporate Affair Commission (CAC). It is a body corporate with perpetual
succession and a common seal. The headquarters of the Commission is
at Abuja but offices are to be established in each state of the Federation.
The Commission has a membership of sixteen representing a variety of
interest.
The functions of the CAC are spelt out in the CAMA. According to section 8,
the Commission shall:
(a) administer this Act including the registration, regulation and
supervision of
(i) the formation, incorporation, management, striking off and
winding up of companies,
(ii) business names, management and removal of names from
the register, and
(iii) the formation, incorporation, management and dissolution
of incorporated trustees;
(b.) establish and maintain a company’s registry and office in each
State of the Federation suitably and adequately equipped to perform
its functions under this Act or any other law;
(c.) arrange or conduct an investigation into the affairs of any
company incorporated trustees or business names where the
interest of shareholders, members, partners or public so
demands.
(d.) ensure compliance by companies, business names and
incorporated trustees with the provisions of this Act and such
other regulations as may be made by the Commission;
(e) undertake such other activities as are necessary or expedient to
give full effect to the provisions of this Act.
In carrying out these functions, the CAC registers companies, receives and
registers statutorily prescribed documents and resolutions delivered to it. It
gives certain approvals, directions and extension of time for taking specified
steps, registers charges created by companies.
Only prosperous or promising companies can be of any use to the Capital
Market and the larger economy. It is not only public policy but also the
demand of the law that companies be properly conducted. The CAC is
empowered to intervene in corporate administration to ensure a profitable
balance of power in the system to enable the realization of stakeholders’
legitimate expectations.

INVESTMENT AND SECURITIES TRIBUNAL

One of the far reaching innovations of the ISA is the creation of the
Investment and Securities Tribunal (IST). It is the main dispute resolution
mechanism established by the ISA. Grievance redress machinery in the
Nigerian Capital Market had a history which was anything but satisfactory.
Section 274 ISA established the Investments and Securities Tribunal to
exercise the jurisdiction conferred on it by the Act. The Minister of Finance
shall specify the matters and places in relation to which the Tribunal may
exercise jurisdiction.
The Tribunal shall consist of nine members to be appointed by the Minister
one of whom shall be the chairman. The chairman shall be a legal
practitioner of not less than fifteen years post call with cognate experience
in corporate matters. The members shall be persons knowledgeable about
the laws, regulations, norms, practices and operations of the capital market.
The chairman presides at every sitting of the tribunal and in his absence; a
members shall be appointed to be chairman.
Section 284 ISA prescribes the jurisdiction of this body. According to this
Section, the Tribunal shall have power to adjudicate on dispute and
controversies arising under this Act and shall in particular adjudicate on
matters relating to:-
(a) the interpretation of any law, enactment or regulations to
which this Act applies.
(b) disputes between the Commission and Securities Exchange
or Capital Trade point.
(c) disputes between the Capital Market operators and the
Securities Exchanges or Capital Trade points.
(d) disputes between Capital Market operators and their
clients; and
 (e) disputes between quoted Companies and the regulators or
the Securities Exchanges.
The IST is also vested with the power to hear disputes arising from the
application of the Pension Reform Act. It is imbued with original and
appellate jurisdiction.
Section 284 and 294 ISA confer exclusive jurisdiction in respect of these
matters on the Tribunal to the exclusion of any other Court. Furthermore no
injunction shall be granted by any Court or other authority in respect of any
action taken in pursuance of any power conferred on the Tribunal by ISA.
The onus of proving any complaint shall be on the complainant or appellant
as the case may be. Every litigant before the Tribunal shall be entitled to be
represented at the hearing by a merchant bank, a stock broker, a solicitor or
chartered accountant or financial adviser. Judgment in any matter before the
IST shall be concluded within three months from the date of commencement
of hearing.
The Tribunal may in its judgment impose sanctions such as fines,
suspensions, withdrawal of licenses, specific performance, and restitution
among others as it deems fit. An award or judgment of the IST shall be
enforced as if it were a judgment of the Federal High Court.
Decision of the IST can be appeal against on point of law to the Court of
Appeal. A further appeal against a decision of the Court of Appeal lies to the
Supreme Court9. Clearly it is intended that the IST shall be of equal status
or of co-ordinate jurisdiction with the States and Federal High Court.
The conduct of cases before the IST is regulated by the Investment and
Securities Tribunal (Procedure) Rules 2014 now 2022 Rules.
Any person dissatisfied with a decision of the Tribunal may appeal against
such decision on points of law to the Court of Appeal.
Some aspects of the IST have generated controversies among stakeholders
of the Nigerian Capital Market. The first serious controversy centered on the
constitutional place of the IST. Scholars have opined that the establishment
of the IST is unconstitutional. The proponents of this view hold tenaciously
to Section 6(5) Constitution of the Federal Republic of Nigeria, 1999, which

9
Ibid, Section 243
provides the list of superior Courts of record in Nigeria. Although Section
6(4)(a) of the Constitution empowers the National Assembly or State Houses
of Assembly to establish other Courts, such Courts however shall be of
subordinate jurisdiction to the High Court. It is canvassed that the said
Section 6(5), as it stand, has closed the gate to the creation of any superior
court of record in Nigeria. To the extent that the ISA seeks to establish the
IST as a Court of coordinate jurisdiction with the Federal High Court, and
thus a superior Court of record, it is inconsistent with the Constitution. To
the extent of this inconsistency, the Sections concerned stand null and void.
On the other hand, a careful digest of Section 6(5)(J) of the same
Constitution shows that the judicial powers of the Federation shall also vest
on such other Courts as may be authorized by law to exercise jurisdiction on
matters to which the National Assembly may make laws. The ISA which
came into effect on the 26/05/1999, before the enactment of the 1999
Constitution on the 29/05/1999 is an existing law deemed passed by the
National Assembly. Fully aware of its provisions before the promulgation of
the 1999 Constitution, ISA is deemed to convey the legislature’s intention
otherwise steps would have been taken to abrogate or amend the ISA in the
Constitution which came subsequently. Afortiori, Section 240 of the
Constitution contemplates appeals from the Tribunal being heard by the
Court of Appeal.
The establishment and jurisdiction of the Investments and Securities
Tribunal have been the subject of intense debate and conflicting judgment
of the courts in Nigeria.
See Augustine Robert Agom (2022) “Case Law and Commentaries on
Nigerian Capital Market” Chapter 5
Augustine Robert Agom 30/09/2023 “Capital Market Adjudication: Judging
Judicially and Judiciously”

THE STOCK EXCHANGE IN NIGERIA

Broadly a Stock Exchange is a competitive and regulated market for the
purchase and sale of financial assets in the nature of corporate securities. In
a popular sense, it is a market for trading in existing securities. It is the hub
of every Capital Market and the barometer for measuring the pulse of any
 economy. It is not possible to deal with any aspect of the Capital Market
without giving prominence to the stock exchange.
The Capital Market Glossary defines a Stock Exchange as an
organization which provides facilities for trading in securities by its members
and also set rules for the admission and trading of existing securities as well
as rules to guide the business conduct of members. According to section 315
of the Investment and Securities Act, Securities Exchange means an
exchange or an approved trading facility such as Commodity Exchange,
Metal Exchange, Petroleum Exchange, Options, Futures, Over the Counter
Market and other Derivative Exchanges. The Stock Exchange is not a market
where one security is exchanged for another as the name appears to
suggest. It is a market where stock can be liquidated for cash or stock bought
with cash.
In Nigeria, the birth of a Stock Exchange was compelled by so many factors.
See Ogechukwu Onyema (2021) “The Promise of the Nigerian Stock
Exchange Demutualisation”, A paper delivered on the occasion of the second
quarter distinguished Guest Lecture of the Association of Capital Market
Academics of Nigeria held virtually on 6/8/2021.

Benefits of quotation
Quotation is the formal listing of a company on a Stock Exchange. This
enables the securities of the company to be traded on the floor of the
Exchange. The benefits of listing are immense.
1. Quotation increases marketability of securities.
2. A company quoted on the Stock Exchange enjoys greater confidence
from investors and creditors.
3. Quotation gives opportunity to existing shareholders to share part of
their investment risks (and yet retain control of the company if so
desired). Effectively, this broadens ownership base of assets and
creates a buoyant private sector.
4. Quotation provides acquisition opportunities.
5. Quotation attracts quality personnel.
6. In Nigeria for companies seeking quotation on the emerging market,
the cost of quotation is tax deductible.
 7. Quoted companies enjoy free advertisement.
8. The Stock Exchange has become a market for corporate control.

THE CENTRAL SECURITIES CLEARING SYSTEM LTD

A critical component of every Capital Market operations is the clearing and
settlement process. Without it the transfer of ownership of securities to
buyers and the payment of funds to seller may be put at risk or result in
unnecessary cost for market participants.
With this system in place, market participants can determine accurately
their payment and delivery obligations and discharge them predictably,
safety and in a, low cost manner. The mechanism for holding securities,
clearing transactions and settling obligations is essential for every market.
Depository facilities, clearance machinery and payment system are the
tripod on which an efficient stock market rest.
It was in obvious realization of this, that the Federation of International
Stock Exchanges (FIBV) endorsed the recommendations of a Study Group
of Thirty (G.30) in 1989. This private sector organization studied the global
capital market problems and recommended inter-alia the establishment of
a Central Securities Depository as a vital component of every efficient
Capital Market.
In Nigeria before the advent of the Central Securities Clearing System
securities market transactions took an average of six months to conclude
and for share certificates to be sent out to investors. In this situation
investors could not readily take advantage of capital appreciation in the
interim. The system was characterized by some capital market operators
selling shares they did not have, while some bought securities they could
not pay for. Investment risk was very high.
With the endorsement of the G.30 recommendation, the CSCS was
incorporated on the 29th of July 1992 as a company limited by shares. The
company is governed by a board of directors headed by a Chairman. The
day to day management is vested on the Managing Director and his Heads
of Departments. The Company is to operate a central securities depository
that is efficient, investor friendly and transparent with a dynamic integration
of the needs of the domestic and foreign investors in the Nigeria Capital
Market.
As a self regulatory organization, the CSCS has framed rules to regulate the
activities of member participants.
Compositely, the CSCS performs three distinct functions. It is a central
depository, operates a central clearing house and provides a settlement
system. In some jurisdictions, these functions are undertaken by different
bodies. Even the ISA contemplates the performance of these functions by
different body. According to section 13(1), ISA, the SEC shall register and
regulate central depository companies and clearing and settlement
companies, custodians of securities, credit rating agencies and such other
agencies and intermediaries.
In an effort to address the fundamental difficulty of share transfer, the CSCS
established a depository constructed to international standard for all shares
listed on the Stock Exchange. The system receives certificates of securities
in the name of shareholders at least twenty four hours before transactions
on them on the floor of the NSE. Upon ascertaining the authenticity of the
certificates, the Depository issues receipt to the depositor and an account is
opened for the certificate owner. The certificate now marked “for sale” are
immobilized and finally dematerialized. Furthermore, in conjunction with
custodian members, it can accept for safe custody or for use of securities in
the depository as collateral for loans from financial institutions.
At the close of transactions on the NSE the record is sent to the CSCS for
clearing activities. This process involves comparison, confirmation of trades,
matching and netting of obligations to facilitate settlement of obligations. To
protect against intruders, the CSCS issues central identification numbers to
identify users of the system.
 SELF ASSESSMENT

1. In relation to investment, give four (4) concrete reasons why any one
of the three under mentioned literatures is truly a classic.

Who Moved My Cheese- Spencer Johnson MD

The Richest Man in Babylon-George Clason
Rich Dad Poor Dad-Robert Kiyosaki
After they Left-Edify Yakusak

2. Prepare a presentation to the Governing Council, Ahmadu University,

Zaria on the difference between the primary market and the secondary
market.

3. The Vice-chancellor Kogi State University must raise funds to construct

an ultra modern lecture theatre for the law programme in the
University. The Council of Legal Education and the National Universities
Commission have given the school six years to construct this project
or risk losing accreditation for the programme. The Governor of the
State is not interested in government funding of tertiary institutions
and currently owes the State workers twenty months wages. The Vice-
chancellor is considering the option of approaching the Ebira
 Microfinance Bank Limited for a loan of N50,000,000 for this project.
It is intended that the facility will be repaid from students fees paid for
the programme within five years. He seeks your advice on this line of
action. Advise him.

4. Discuss the tools of regulation available to the apex regulator of the

Nigerian capital market.

5. ‘The Investments and Securities Tribunal is mired in controversies’

Discuss, giving your advice on the way forward.

6. The Vice-Chancellor, Ahmadu Bello University, Zaria, a visionary leader

has decided to call the bluff of the Power Holding Company of Nigeria.
The company threatens to cut off the University from the public power
supply unless the University commits to pay N100 million to the
company monthly. Following diagnostic study commissioned by the
University, with N6trillion Ahmadu Bello University can own and
manage its own power supply outfit that can cater to the needs of the
University and its environs. The Vice-Chancellor’s worry is to how to
raise N6trillion for this project. Explain to Mr. Vice-Chancellor if and
how this is feasible.