1.Who is a Stockbroker?
A firm or a person who buys and sells securities on behalf of investors
for a commission called “brokerage”. The commission charged
is regulated by The Stock Exchange.
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2. What is an Issuing House?
As a member of The Stock Exchange, it is a merchant bank or a dealing
member that helps to prepare prospectuses, to sell new securities offered
to the public by companies and governments.
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3. What are Securities?
Securities are written or printed financial documents by which the claims
of holders in specified property are secured. They could be stocks, shares,
bonds and debentures traded on a Stock Exchange.
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4. What are Stocks and Share?
Stocks and Shares represent ownership interest in a business.
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5. What are Bonds and Debentures?
They are other kinds of securities. They are legal documents representing
a promise by the company or by Government (in case of a bond) to pay back
a loan plus certain amount of interest over a definite period of time.
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6. Who is an investor?
A person or an institution who uses his savings or borrowings to buy securities.
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7. How are stocks and shares bought on The Stock Exchange?
Stock and Shares are bought and sold on The Nigerian Stock Exchange through
Dealing Members known as Stockbrokers.
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8. Who should buy shares?
Anyone who is 21 years and above qualifies to buy shares in Nigeria. Parents
who may want to buy shares for their children are supposed to buy such
shares in their own names and later transfer them to the children when
they attain the legal age of 21 by nominal transfer.
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9. With how much money should venture into the Stock Market?
Most income levels can venture into stock market. Some wealthy people
and institutions invest thousands or even millions of naira but lower
investors can participate with as little as fifty naira.
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10. Can shares be transferred?
As stated above, an investor may transfer part or all of his shareholding
to a relation, wife, son, daughter or brother etc. Where they all bar
the same surname the transfer is known as Nominal transfer. However, it
is also possible for an investor to transfer some or all his shareholding
to a daughter who has got married or even his son-in-law. To effect this
transfer, the investor should contact a stockbroker. Even in the case
of a dead shareholder his shares can be transferred to his children or
sold as the case may be.
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11. Which Stocks should I choose?
That depends on what you want from your investments. The stocks quoted
(or listed) on The Nigerian Stock Exchange range from Government stocks
to ordinary shares and their dividends vary from low to high. The important
thing is to determine your own objectives first, discuss with a stockbroker
and then invest accordingly.
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12. What are scrip or bonus shares?
These are new shares made fully-paid by the capitalization of reserves
and allotted free of charge to ordinary shareholders in proportion to
their existing holdings. 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.
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13. What does “Xsc” mean?
It is a financial expression for “without the scrip”. A stock
that is purchased during the without the scrip period will not earn a
scrip declared in that period for its new owner.
14. How are any of these securities bought?
By filling an application form contained in a prospectus or through a
Stockbroker.
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15. What is the evidence of the purchase of shares and stocks?
If purchased through a prospectus receipts are seldom issued, but cheque
stubs and
counterfoil of Postal Orders can serve the purpose. If bought through
a Stockbroker, a contract note in lieu of receipt is issued.
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16. What does a Stockbroker charge for his Services?
A Stockbroker charges a commission called “Brokerage”. The
charges vary, depending on the kind of services provided: however, charges
by Stockbrokers are controlled by the Council of The Nigerian Stock Exchange.
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17. What does an investor gain by buying shares?
* dividend which is part of company’s profit
* bonus shares - i.e. extra shares fully paid out of reserve which are
distributed to existing holders.
* capital appreciation as market prices of shares increase.
* right to attend meeting of share holders and participate in its deliberation
as voting members.
* use of share certificate as collateral for bank borrowing.
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18. 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 daily on The Stock Exchange.
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19. What other services do Stockbrokers provide?
* provide professional advice on the selection and management of investments.
* act as Issuing Houses and Portfolio Managers.
* assist project sponsors to raise money on the Capital Market.
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20. How are the activities of Stockbrokers controlled?
As members of The Nigerian Stock Exchange, they agree to and are regulated
by a body of Rules and Regulations which dictate their relationship with
The Stock Ex change, their clients and other members.
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21. Why are Stockbrokers’ activities regulated?
The regulating of Stockbrokers activities is done to protect the investing
public and maintain public confidence in the buying and selling of securities.
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22. How are the current prices of securities traded on the Nigerian
Stock Market known?
The Nigerian Stock Exchange publishes a “Daily Office List”
which gives full information on the changes in the prices and earnings
of the Listed Securities.
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23. Who do I approach when I have problems with a share certificate
or dividend?
The Registrar of the Company.
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24. Who is a Registrar?
A registrar in common parlance is a keeper of records in respect of quoted
stocks and shares.
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25. What are duties of a Com pany Registrar?
* act as Agents to the Companies who appoint them.
* register the shares and the names of the owners in the members’
(shareholders) register.
* prepare share certificates and send them to the shareholders.
* pay-out approved dividend to shareholders.
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26. What is the Second Tier Securities Market (SSM) and how is
it different from other Securities Listed on The Stock Exchange?
All Securities traded on the Stock Exchange are listed Securities. The
SSM was introduced to assist small and medium sized companies that are
unable to meet the requirements of the first-tier market in raising long-term
capital.
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27. When was the SSM introduced to the Market?
The SSM was introduced in April, 1985.
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28. How much can a company raise through the
SSM?
The amount that a company can raise through the SSM may not exceed N20
million.
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29. What percentage of shareholding can an individual own under
the SSM?
An individual can not have more than 75% of the total shares under the
SSM requirements directly or indirectly.
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30. How does a company get listed on the SSM?
By approaching one of the Dealing Members (Stockbrokers) or Issuing Houses
of The Stock Exchange.
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31. What is the relationship between Investor and Stockbroker?
For the Capital Market to be vibrant, effective and Investor-friendly,
the relationship between the Investor and Stockbroker cannot be over-emphasized.
In this context, the Stockbroker must know his Client/Investor very well
because great reliance and trust will be placed on the decisions he takes
on behalf of his Client/Investor. It cannot be gainsaid, therefore, that
the Stockbroker must of necessity command the confidence of his client.
On this foundation, rest the success and growth of any Capital Market.
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32. What is Short-Selling?
Short-Selling occurs when a stockbroking firm sells a quantity of a particular
security on the Trading Floor in excess of the quantity deposited with
the CSCS Depository. However, the tightly coupled interface between the
ATS and the CSCS does not allow for this possibility any more. Dealers
can only sell what they have.
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33. What is Buy-in Market?
This is a forum where short-sold securities are offered by stockbrokers
and sold at a premium. It is moderated by The Stock Exchange. Note that
the premium price will in no way affect the price and volume of the Security
on the Trading Day during which the default occurred and thereafter. However,
the defaulting stockbroking firm has the opportunity to supply the short-fall
before the regular call-over session on the working day following the
Transaction Day.
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34. What is Buy-In?
This is the process by which The NSE causes the defaulting stockbroker
to buy the short-sold security from the Buy-in Market at a premium. Note
that The NSE is at liberty to debit the Premium amount of the securities
from the Security Deposit Account of the stockbroking firm with The NSE.
This sanction notwithstanding, The NSE is not precluded from applying
other sanctions it deems fit to apply in the circumstances. Any deal
therefrom,
must be concluded within the settlement period of T+3.
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35. What is Over-Trading?
This occurs where a stockbroker buys securities in excess of funds in
its Trading Account with the Settlement Bank. When this occurs, the difference
is settled from the Trade Guarantee Fund.
Sanction: Over-Trading will attract sanctions from The NSE.
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36.(a) What is CHN?
*CHN represents Clearing House Number assigned to every shareholder at
the first point of entry into CSCS system by completing CSCS - R005 shareholders
particulars.
(b)How many times are shareholders required to complete the share holders
particulars form?
*Shareholders are required to complete the form only once. They are to
provide the same CHN to all subsequent stockbroking firms they have transactions
with for ease of reference.
(c)What are account numbers and how are they obtained?
*This is CSCS computer generated account number allocated to a new shareholder.
It is unique to each stockbroking firm. A shareholder can have as many
accounts as the number of stockbroking firms he uses but one account per
house.
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37. How will a stockbroker’s bank make good any over-trading?
Before settlement is effected, the over-trading if it ever occurs will
be cancelled. Where the stockbroker short sold, The NSE will cause the
defaulting stockbroker to buy the Short-Sold security from a Buy-In Market
at a premium before the settlement day. The stockbrokers’ bank is
not affected by Over-Trading.
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38. Can an investor withdraw his/her certificates before or after
trading?
Once a certificate is deposited with the Depository, it is immobilised
and can therefore not be withdrawn.
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39.When the stockbroker deposits the investor’s share certificate
with the Depository, what does he get in return as evidence of
the lodgement?
He gets a receipt/acknowledgment.
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40. If the new investor wants to sell, what is the procedure?
He/she instructs his/her stockbroker to sell from the stockholdings in
CSCS system. He/she executes a transfer form which his/her stockbroker
will forward to the CSCS along with the allotment forms after trading.
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41. Can an investor change from one stockbroker to another under
the CSCS operations?
Yes. The investor is free to change from one stockbroking firm to another.
A stockbroker should ask his/her client if he/she has bought shares through
CSCS before completing shareholders particulars which should be completed
only once. The shareholder should give subsequent Houses he deals with
the Clearing House Number (CHN) assigned to him at the first point of
entry into CSCS system.
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42 . (a) Can a client (shareholder) take the CSCS statement to another
stockbroking firm?
Yes, he can.
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(b) How frequent will the statement of stock position from CSCS
be issued?
Statement of stockholdings is issued every quarter to all shareholders
free of charge. Any request for statement outside the quarterly statement
which attracts a fee of N100.00 can be obtained as and when requested.
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43 . Can a shareholder request for the statement of his stock position
directly from the CSCS?
The stockbrokers are expected to request for their clients’ stock
position. However, since transparency is one of the cardinal focus of
CSCS, a shareholder can request for his statement of stockholding from
CSCS in writing by attaching a fee of N100. The shareholder’s name
and account number must be specified in the letter. At the point of collecting
the statement of stock position, the shareholder will be required to show
proof of ownership.
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44. (a) What is the relationship between The NSE and
CSCS?
CSCS is a subsidiary of The NSE, but an independent company. All shares
to be traded on The NSE floors must be deposited with the CSCS while CSCS
does clearing and settlements of trades for The NSE.
(b) Will the Nigerian environment not impact on the effective functioning
of the CSCS system?
Measures have been taken to ensure effective performance of CSCS system.
There is computer back up system, also there are 4 lines of power; -
NEPA,
The Nigerian Stock Exchange, Anchor Technologies Limited (Premises Managers)
and CSCS power generating plants.
(c) What are the measures put in place to ensure the success of
the T+3?
The banks carry out settlement through Nigerian Interbank Settlement System
(NIBSS) and Managers’ cheque. There is a trrade guarantee fund from
which trades would be settled in the event of overtrading, and Clearing
and delivery are done by means of book entry after securities are deposited
and traded on.
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45 . Will the benefit of using shares as collateral for raising loan not
be eroded under the system?
No. The lender can make enquiry from the Depository as to be shareholding
of the investor and upon the grant of loan, advise that a lien be put
on the affected security. Indeed, many shareholders have taken advantage
of using stockholdings in CSCS as collateral for loans.
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46. How can an investor use his stockholdings in CSCS as collateral?
An investor should note the following procedure for obtaining loan:-
A)
1. The lender can confirm from CSCS the statement of stockholding issued
to a shareholder/prospective borrower or write CSCS for a status report
of a prospective borrower’s shareholdings in CSCS system. For a
fee of N100.00, the confirmation of the statement or the issuance of a
status report will be done and communicated by CSCS to the lender.
2(a) A memorandum jointly signed by the parties requesting CSCS to place
lien on a specific quantity of the holdings should be forwarded to CSCS
Limited. Also, a signed transfer form by the borrower stating the units
and the securities affected by the lien and undated letter signed by the
borrower authorising the lender to sell in the event of default, must
be given to the lender.
(b) It is essential that the memorandum be registered at the Stamp Duty
Office.
3. Upon the receipt of the memorandum referred to in two (2) above , the
shareholding would be moved into a CSCS Reserved Lien Account with the
interest of the lender NOTED. This will be communicated to the parties.
4. Where the borrower defaults or fails to discharge his obligations under
the contract, the lender at the expiration of the loan due-date shall:-
a) Inform the borrower of his default and the lender’s intention
to proceed to execute the transfer form to realise the benefit of the
contract.
b) The lender will write CSCS to remove the lien to enable sale to be
effected and attach evidence of (a) above.
c) CSCS will be obliged to remove the lien on the holdings upon such instruction
from the lender after the expiration of the loan due-date and inform the
parties accordingly.
d) The lender after (a-c) above can then give a copy of the undated letter
and the transfer form completed by the borrower to a stockbroker for the
purpose of sale of the specific quantity of the holdings.
B) OBTAINING FACILITY TO PURCHASE SHARES
An investor can approach a lender to obtain loan to purchase shares
(a) A memorandum jointly signed by the parties requesting CSCS to place
a lien on the shares purchased with the facility should be forwarded to
CSCS Ltd.
(b) The memorandum must spell out the terms and conditions of the contract
(c) The memorandum should be registered at the Stamp Duty Office.
(d) Upon receipt of the memorandum, CSCS will place a lien on the shares
with the interest of the lender Noted.
(e) The lender, at the expiration of the contract, should write CSCS to
remove the lien on the shares with evidence that the borrower has been
duly notified.
(f) CSCS will remove the lien and advise the parties accordingly.
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47 . How do you intend to handle the issue of share certificates for now
to enable shareholders trade with them without any inhibition or apprehension?
Investors are to give certificates to stockbroking firms for verification
and then deposit them in CSCS Depository at least 24 hours before Trading.
Stockbrokers will be issued acknowledgment as evidence of the deposit
in CSCS.
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48. When do you plan to go completely
certificateless?
Immobilisation of certificates is scheduled to take about 2 years and
Dematerialisation about 5 years at the end of which there will be no certificates.
However, regulatory bodies like SEC and The NSE will have final say on
this.
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49. What becomes of the intermediate buyers?
The Inter-mediate buyers like other shareholders are free to request for
certificates (at the point of purchase) which for administrative reasons
are issued once a year usually at the closure of registers.
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50. How do we process new issues in relation to certificates?
New issues, bonus and script issues will continue to have certificates
until the sections of Companies and Allied Matters Act, 1990 are amended.
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51. Will the company registrars be willing to disclose shareholding information
to The Nigerian Stock Exchange? Have they been carried along?
The Nigerian Stock Exchange is empowered to call for the authentic register
of members from registrars of Quoted Companies. Furthermore, the registrars
are represented in the review of CSCS Operations and are therefore carried
along in the developmental process. The registrars and CSCS complement
each other.
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52. How is the last transaction batch meant for the closure of
register handled?
The NSE marks securities on their closure dates.
*Once again, settlement cycle is T+3 (Transaction day plus three working
days). ONLY settled transactions are forwarded to the registrars for processing.
An Example:
If a quoted company, say NIGERIA PLC is to close on June 19, 1998 it follows
that:-
*The NSE will mark the security on June 19, 1998
*The last Cum-Div/SCRIP transaction day will be June 18, 1998.
*Settlement day for the last CUM-DIV/SCRIP transaction becomes June 18
plus 3 working days. This translates to June 25, 1998.
*The earliest time the transaction can get to the registrar for processing
is June 26, 1998.
From the above analysis, the company secretaries/registrars are advised
to accommodate the transaction advice by ensuring that the registers are
closed for at least eight (8) days. Indeed, secretaries/registrars have
been advised to allow for 10 working days after closure of regsiter before
paying dividends.
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53. What happens in respect of partial sale? Is it possible for shareholders
to get certificates for balance of shares?
(a) Where partial sale occurs, the balance is recorded in electronic book-
form in CSCS system. The shareholder can give instruction to his stockbroker
to sell. Until such instruction is given, the balance will continue to
reflect in CSCS statements issued quarterly to all shareholders free of
charge or at the instance of the shareholder which attracts a fee of N100.00.
(b) It is possible for a shareholder to get a certificate not only for
the balance but for any holding in the CSCS system. Indeed, CSCS de-emphasises
the issuance of certificate through gradual immobilisation ofcertificates(2years)and
Dematerialisation scheduled for a period of about 5 years.
CSCS for administrative reasons emphasises the issuance of certificates
once a year i.e. after the opening of register usually after AGM for those
who specifically request for them. However, if a shareholder wants a certificate
before the close of company register, CSCS will communicate the instruction
to the registrar with the relevant information. It is pertinent to emphasise
that no trading on shareholding in CSCS system is allowed a shareholder
who has specifically requested for a certificate until the shareholder
brings a certificate issued by the relevant registrar to back the book
entry in the CSCS system. To allow trading will lead to distortion in
the shareholder’s stockholdings.
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54. What is the procedure to request for certificate?
The shareholder fills out Certificate Request Form (CSCS CRF1) through
his stockbroker requesting for a certificate which will be passed on to
the registrar with relevant details such as CSCS Clearing House Number (CHN) stockholders system generated account number. These are distinct
features which must be on the certificate.
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55 . Why is there disparity between the opening balances recorded on the
Daily Transaction Statement of The NSE back-office and that of the Settlement
Banks?
The Daily Transaction statements of The NSE give instant debits and credits
on transaction date. Credits are only reflected on the settlement banks
opening balances on T+3 as agreed. In effect, the different opening balances
are not expected to be the same daily. The balances reflected on the daily
transaction statements of The NSE are at best, to help the stockbroking
firms to reconcile the opening balances stated by the settlement banks.
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