THE ROLE OF REGULATORY BODIES IN THE CAPITAL MARKET DEVELOPMENT IN NIGERIA
TABLE OF CONTENT
TABLE OF CONTENT VI-VIII
1.0 INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1 – 3
1.2 STATEMENT OF THE PROBLEM 3 – 4
1.3 RESEARCH QUESTION/ HYPOTHESIS 4
1.4 OBJECTIVE OF THE STUDY 4
1.5 JUSTIFICATION OF THE STUDY 4 – 5
1.6 SCOPE OF THE STUDY 5
1.7 LIMITATION OF THE STUDY 5
1.8 ORGANIZATION OF THE STUDY 5
1.9 DEFINITION OF TERMS 6 – 7
2.0 LITERATURE REVIEW 8
2.1 INTRODUCTION 8
2.2 FUNCTIONS OF CAPITAL MARKET 8
2.3 OPERATION OF THE CAPITAL MARKET 8 – 9
2.4 CLASSIFICATION OF CAPITAL MARKET 9 – 10
2.5 THE ROLE OF THE SECURITIES AND EXCHANGE COMMISSION 10 – 11
2.6 THE ROLE OF NIGERIAN STOCK EXCHANGE IN
DEVELOPMENT ECONOMY 11 – 13
2.7 THE NIGERIAN STOCK EXCHANGE PERFORMANCE
INDICATION 13 – 16
2.8 OTHER ISSUES RELATED TO THE TOPIC 16
3.0 RESEARCH METHODOLOGY 17
3.1 INTRODUCTION 17
3.2 RESEARCH QUESTION AND HYPOTHESIS 17
3.3 RESEARCH DESIGN 17
3.4 STUDY POPULATION 18
3.5 RESEARCH INSTRUMENT 18
3.6 METHOD OF DATA ANALYSIS 18
4.0 DATA ANALYSIS AND PRESENTATION 19
4.1 INTRODUCTION 19
4.2 INTERPRETATION OF THE DATA 19
4.3 TESTING AND INTERPRETATION OF HYPOTHESIS 19 – 26
4.4 GENERAL COMMENTS 26 – 30
5.0 SUMMARY, CONCLUSION AND RECOMMENDATION 31
5.1 SUMMARY 31 – 32
5.2 CONCLUSION 32
5.3 RECOMMENDATION 33 – 34
APPENDIX 35 – 37
1.1 BACKGROUND OF THE STUDY
The malfunctioning in the economy system brought about the birth of the Structural Adjustment Programme (SAP) in 1986.
The policy package in the Structural Adjustment Programme includes among other things which are deregulation of interest rate structure and dividend policy. With this new wave of market liberation, capital market has now become a more viable option for capital formation. More companies now use the market the market facilities for strengthening the balance sheet and growth in the process, there has been a flurry of right issue offer for subscription for equity and debentures stock.
The rapid economies development of any economy depends, among other things, on ready access of adequate financial resources (Alile and annao, 1990). The desire to develop financial market in an economy is intimately connected with the objective of accelerating industrial and agricultural development. Among this financial market is the Stock Exchange, while deals with the mobilization of both medium and long term funds (Sule and Momoh, 2009).
The total amount of capital raised on the market between 1989 and 1991 was about N3.8 billion which represent the half of the entire capital raised over the year, while capital raised on the market from 1992 to date is about N5.2 billion which shows the increment in the capital raised by companies in companies in the previous years.
The need for capital market regulation is motivated by the desire to protect the investing public from malpractice. Having instill confidence in the system and ensure financial market been stable for the growth and development of the capital. Regulatory bodies are therefore to police activities in the market with the ultimate aim of preventing and minimizing the abuse which might affect the investor’s confidence. The need for regulatory mechanism in the market brought about the birth of Security and Exchange Commission in 1960.
Moreover, in the recent time before the horrible occurrence of the Global Economy Meltdown, there is effectiveness and efficiency in the operation and activities of the capital market, which shown in an increase in the numbers of trading floors of the Nigeria Stock Exchange and as well the so-call over trading system was replaced with the Automated Trading System (ATS) with bids and offer now matched by stockbrokers on the trading floor of the Stock Exchange through network of computers.
The development of the Nigerian capital market has some other reasons too. A number of Nigerian banks are investing in the Nigerian stock market so that they can roll the money and can earn some good profit from the market. The recently introduced minimum capital requirements for the bank have encouraged the banks to choose the stock markets. The Nigerian capital market is still gaining depth and so that it was a bit risky for the banks to take the decision but they took the risk and the results are very positive. It not only encouraged the individual investors but at the same time provided some good support to the growth of the Nigerian capital market.
It is true that the Nigerian capital market is performing well and the country is experiencing some historical public offers by the banks like the Zenith Bank. But at the same time, it is also true that the market has to go a long way to because still now the NSE’s market capitalization is, much lower than the GDP. According to the ongoing trends, the market capitalization should be nearer to the GDP or in certain cases it is more than the GDP as in the case of Johannesburg that recorded 239% of GDP. The turnover ratio of Nigeria stock exchange was 12.4% in 2005. The Nigerian bond market is also passing through a developing phase.
But in the middle of 2007 down through 2008, due to the Global Financial Crisis that started in United States (USA) and United Kingdom (UK), has crippled the operations and activities of the Financial Institutions globally which included Nigeria Capital Market and Nigerian economy as whole.
This incident has hindered the confidence and discourage of the investor from investing in the capital market, which made most of the investors to preferred investing in real sector of the economy i.e. buying of properties e.g. Land, Building houses e.t.c. rather than investing in financial sector of the economy e.g. Stock, Bonds etc. This situation leads to the huge withdrawals of capital in the market. Also, resulted to losses in equity markets, and volume of activities of the Nigeria Stock Exchange (NSE) has dropped drastically, which slowed down investment activities in the secondary market.
However, the regulatory bodies (authorities) have being making every effort to resurrect and restore the confidence of the investors in the market. According to Director-General of NSE, Ms. Arunma Oteh in the Business and Finance News (dated Tuesday, 24th of July, 2010), stated that The Nigeria Capital Market is undergoing a metamorphosis, while change is an inevitable effect of growth. Meanwhile, it’s clearly known that capital market is a barometer of the Nigeria economy. So, the regulatory authorities have begun to take some steps by implementation of the Chief Compliance Officer Certificate Programme on corporate governance.