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”. TTo
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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 Exchange, 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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