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THE ROLE OF STOCK BROKERS IN THE
ECONOMIC DEVELOPMENT OF NIGERIA
CHAPTER ONE
1.0 INTRODUCTION
In any
economy there is a financial system that
is responsible for regulating the
financial environment of the society determining the types and use of funds to be issued, source of
funds to be put. The financial system is really made up of two major markets, namely money and
capital stock market. The many market is the market for short term funds and
securities including treasury bills, treasury certificate negligence of
deposits, commercial paper and other funds of
which are less than a year duration.
Thus
the aim of the regulating bodies
composed of Nigerian stock exchange
commission (SEC) is to promote development of
orderly capital market to have
authority over its members (stock broking firms) to whom it set rules of ethics are made to guide their professional behaviour in the course of
carrying out its functions and create
awareness of the general public. Stocks exist to enable companies in need of
long term financing to sell pieces of the business stock equity securities in
exchange for cash. This is the principal method of raising business capital
other than issuing bonds. When the
stocks of these corporations, which all which corporations must issue, are owned by the public at large,
including both private investors and institutions, they are said to be publicly
held. These publicly held shares can be easily traded (sold) to other investors
in the stock market and are thus said to be liquid, or
readily conversed to cash. Stock breakage firms usually, serve as
intermediaries in the transactions, buying the new securities at wholesale
prices from the issuer and then reselling them to the investing public at retail prices
1.1 HISTORICAL
DEVELOPMENT OF CASE STUDY IN NIGERIA STOCK
EXCHANGE
The dealing
members of the Nigeria
stock exchange are institutions who are licensed by the exchange as stockbrokers to buy
and sell securities quoted on the exchange on behalf of the investing public.
In 1960, Nigeria stock Exchange was established with
branch in Kaduna in 1978. Prior to the establishment of
the Nigeria
stock exchange the were not equipped enough with the information of stock
broking and its importance to an individual, groups, organizations and global
economic development.
In essence
the awareness was low but from 1936 to
date a considerable number of stock broking firms sprang up in Nigeria and
in Kaduna particularly the first stock
broking firm served as an eye opener to
investors and the potential ones, with a highly experienced board and a crop of
seasoned and dedicated professionals positioned to tackle the
challenges of this new millennium. The branch is situated in Kaduna
to exploit the immense untapped natural resources and economic potentials of
the country in general.
There are
today 226 dealing members of the Nigeria stock
exchange. Many of them are affiliates of bank and other reportable financials
institutions. Dealing members of Nigeria stock
exchange can now accommodate foreign
shareholders in their equity capital or go into any form of partnership with
foreign stock brokerage firms.
Application
from foreign stock brokers as members of the
nigeran stock exchange can now be
enter anted within the rules and
regulations of the inorganic stock exhcnage, as well as registration with securities and
exchange commission and corporate afiars
commission following the abrogation of the exchange control Act 1962 and
Nigeria promotion Decree of 1982 as
stated in the Nigerian stock exchange fact exchange book 2004 page 334.
Finally,
the existence of stock broking firms as members of
Nigeria
stock exchange has helped to create a wealthy tomorrow for clients and
increase the wealth of shareholders and
job creation for the unemployed.
1.2 STATEMENT
OF PROBLEM.
Capital
market are generally expected to produce the institutional arrangement through
which funds from the surplus sector of the economy. The allocation of funds are
mainly for industrial, commercial and agricultural development. The capital
market growth rate is very slow and not
developing to meet the international standard. There is lack of awareness on
the part of the public and
potential investors.
Poor
management for the operation and affairs of a business is one the major
factors leading to incompetence,
inefficiency and dishonesty in managing organization in Nigeria and in
the global which has not been in the
best interest of the shareholders and the general public. However, the need in
that over-centralization of the
stock exchange which might not bring the
benefit of market operation nearer to a greater section of the country’s citizenry and this will not enhance the particularly of the
market function.
Dishonesty
from both the stock broking firms and the investors are among the
general problems facing stock shares investment in the country and the world at large.
However, the need in that of over
centralization of stock exchange which might not bring the benefit of
market operation nearer to a greater
section of the country citizenry and this will not enhance the
performance of the market functions.
1.3 HYPOTHESIS
TESTED
Hypothesis
is a tentative proposition suggested as a solution to a problem or an
explanation of phenomenon. It is also a set of generalized statement concerning
the problem under study.
The
formulation of which led to the structuring of questionnaires to
assess the validity of the hypothesis by sampling various of stock brokers and
customers of firms in Kaduna
stock exchange.
The
hypothesis is given below (1) Ho that there are inefficient stock marketing
services from stock broking firms to
the development of a meaningful economy (2) Hi that there are efficient stock marketing services from stock
broking firms to the development of a meaningful economy.
1.4 AIMS
AND OBJECTIVES OF THE STUDY
The aim of
this research is to undertake incentive investigation and to highlight the role
stock broking firms have played in the development of Nigerian economy. To
determine whether or not there are lapses in their contributions to the economy
growth, however, in the event of any lapses suggestion which be made. The
primary objectives of the research are to a basis for contribution to the
development of Nigerian economy. And to provide a material for further studies.
1.5 SIGNIFICANCE
OF THE STUDY
The
significance of this study less in the benefit that the findings would provide
to any individual group and organizations. Considering the importance of capital markets in the development of the
Nigerian economy and the role of stock
broking firms and both the Nigerian stock exchange commission in regulation the
operational activities in the market, this research, this research work is
intended to bring to line light the contribution
of the bodies to assist the capital
markets for it to achieve the desire optimum results. Also this study is in
practical fulfillment for the award of
diploma in accountancy.
1.6 SCOPE
AND LIMITATIONS OF THE STUDY
Due to
financial constraints and limited time
at the researchers disposal, the researcher should limit this study in the
following areas.
1.
Buying and selling of shares
2.
Portfolio management
3.
The regulatory bodies i.e. Nigerian stock exchange and
securities and exchange commission.
4.
The functions of stock broking firms
1.7 DEFINITIONS
OF TERMS
Securities: these are stock and share that
are traded in stock exhcnage market.
Portfolio: The adimixture of shares and
bonds laid by an individual or
institutions.
Regulation: Transaction on the exchange are
regulated by the Nigerian stock exchange as a self regulatory organization
(SRO), and the securities and exchange commission (SEC) which administers the
investment and securities Act 1999.
Pricing: prices of new issues are determines
by issuing houses/stock brokers which on the secondary market prices are made
stock broker only.
Intermediaries: the intermediaries are the
financial institutions and dealers that
facilitates the borrowing and lending
of short term money.
Bond: Government stick/bonds are long
dated loans stocks, issued by the federal government of Nigeria and state
governments, the federal government e.g. treasury bill are usually regarded as
gilt-edge securities with no attendant risks. Because of the superior risk
rating, their yields are usually lower than other similar securities.
Preference Stock: Stock on which dividend payment must be made before
profits are distributed to holders of ordinary stock.
Dividend: Payment of share of profit, to shareholders in a business company, or assets to creditors (e.g. of an investment
company) or to a policy
holder in a mutual insurance company, to pa a dividend of
10 percent, dividend warrant, order on a bank to pay a dividend.
Bonus: An extra dividend to stock holders
of a shareholders.
Brokerage: Brokers commission for services.
Equity stock: ordinary stocks and shares not
bearing fixed interest.
Capital gains: when a stock is purchased at a
given price. Then subsequently at a higher price, the resultant profit is known
as a capital gain.
Speculative activity: trying for such “buy low,
Sell high” profits over a short time span known as short term trading.
Long term: When stocks that have been held
for more than a year are sold at a profit.
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