Frequently Asked Questions About the Nigerian Stock Exchange (ii)
(Over 20 years investing experience in Nigeria’s financial markets)
Which stocks should I choose?
That depends on what you want from your investments. About 300 securities are quoted or listed on the Nigerian Stock Exchange; they range from government stocks to ordinary shares and their coupons or dividends vary from low to high. The important thing is to first determine your own objectives, discuss with a stockbroker and then invest accordingly.
What does “XD” mean?
It is a financial expression for “without dividend”. A stock that is purchased during the “without dividend” period will not earn a dividend declared in that period for its new owner.
What are scrip or bonus shares?
These are new shares made fully-paid by the capitalisation of reserve and allotted free of charge to ordinary shareholders in proportion to their existing holding. 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.
What is right issue?
When a company requires additional funds, it may obtain these either from the public at large or from its existing shareholders. In the case of right issue, such funds are obtained by an issue of share for cash to ordinary shareholders in proportion to their existing holdings unless shareholders in General Meeting agree otherwise. Such shares are usually bought at less than the current market price. “Right Issue.” Therefore refers to the entitlement of the existing shareholders to participate in a new issue.
What is the proof of the ownership of shares or stocks?
A certificate of stockholding or share certificate with the owner’s name, the number of shares, his account number, etc written on it. Also, in an automated securities market as now obtains in Nigeria, a statement of shareholding issued to shareholders by the Clearing House is evidence of shareholding.
What does a stockbroker charge for his services?
A stockbroker charges a commission called brokerage. The charges vary, depending on the kind of service provided, however charges by stockbrokers for secondary market transactions are negotiable within a range approved by the Council of The Nigerian Stock Exchange.
What does an investor gain by buying shares?
- Dividends, which are part of a company’s profit.
- Bonus shares i.e. extra shares fully paid out of reserves which are distributed to existing shareholders in proportion to their existing holding.
- Capital appreciation as market prices of shares increase.
- Right to attend meetings of shareholders and participate in its deliberations as voting members.
- Use of shares as collateral to obtain loan.
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 on the Stock Exchange.
How are the current prices of securities traded on the Nigerian Stock Exchange known?
The Nigerian Stock exchange publishes a “Daily Official List” which gives full information on the changes in prices and earnings of the listed companies. Besides, The Nigerian Stock Exchange publishes Daily Trading Summary. Information about current prices of traded securities can be found on the internet.
Who do I approach when I have problems with a share certificate or dividend?
Get in touch with the registrar of the company.
What are the duties of a company registrar?
- Act as agent to the companies who appoint them.
- Registers the shares and names of the owners in the shareholders’ register.
- Prepares share certificates, dividend warrants, notice of meetings and send them to the shareholders.
What is a reverse takeover?
A reverse takeover occurs when a company that is not listed buys over a quoted company. The quoted company is usually a dormant company; the unlisted company that buys the listed company merges the operation of the two companies while retaining the listing status of the quoted company.
What is a blue-chip company?
A blue-chip company is a company that is well managed with consistent track record of return on investment.
What is Central Securities Clearing System Limited?
The Central Securities Clearing System (CSCS) Limited, otherwise known as central Securities Depository, is the Clearing House of the Nigerian Stock Exchange.
What are the benefits of CSCS to the operation of The Nigerian Stock Exchange?
- Reduced settlement cycle; increased liquidity and reduced risk.
- Increases efficiency by eliminating errors and lowering costs.
- The automated system is able to handle surges in demand.
- Centralisation of depository functions reduces cost and increases efficiency.
- Attracts foreign investment.
- Information can be easily retrieved and verified.
- It allows investors to take advantage of capital appreciation.
- It allows comprehensive audit trail.
- Eliminates cases of lost share certificates.
- Eliminates fraudulent request for replacement of missing share certificates.
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References
- A Dictionary of Finance by Omotayo Gbede (2003)
- Questions and Answers on the Nigerian Stock Exchange by the Council of the Nigerian Stock Exchange (2002)
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Did you know?
That the investments made by foreign investors in FGN bonds and State government bonds in 2013 is valued at over N864 billion.
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Memorable investment quotes
If you can actually count your money then you are not really a rich man.
– Paul Getty.
Editor’s Note: This article should have been published on INVESTMENT TALK last week Tuesday but due to some mix-up, it wasn’t it. Now you have it!
I want to know all the enlisted stock exchanges existing in Nigeria with year of establishment and volume of trade and location. Thank you