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1.Who is a Stockbroker?
2. What is an Issuing House?
3. What are Securities?
4. What are Stocks and Share?
5. What are Bonds and Debentures?
6. Who is an investor?
7. How are stocks and shares bought on The Stock Exchange?
8. Who should buy shares?
9. With how much money should venture into the Stock
Market?
10. Can shares be transferred?
11. Which Stocks should I choose?
12. What are scrip or bonus shares?
13. What does “Xsc” mean?
14. How are any of these securities bought?
15. What is the evidence of the purchase of shares and
stocks?
16. What does a Stockbroker charge for his Services?
17. What does an investor gain by buying shares?
18. Can an investor come to buy and sell on The Stock
Exchange?
19. What other services do Stockbrokers provide?
20. How
are the activities of Stockbrokers controlled?
21. Why are Stockbrokers’ activities regulated?
22. How are the current prices of securities traded
on the Nigerian Stock Market known?
23. Who do I approach when I have problems with a share
certificate or dividend?
24. Who is a Registrar?
25. What are duties of a Com pany Registrar?
26. What is the Second Tier Securities Market (SSM)
and how is it different from other Securities Listed on The Stock
Exchange?
27. When was the SSM introduced to the Market?
28. How much can a company raise through the SSM?
29. What percentage of shareholding can an individual
own under the SSM?
30. How does a company get listed on the SSM?
31. What is the relationship between Investor and Stockbroker?
32. What is Short-Selling?
33. What is Buy-in Market?
34. What is Buy-In?
35. What is Over-Trading?
36. What is CHN?
37. How will a stockbroker’s bank make good any over-trading?
38. Can an investor withdraw his/her certificates before
or after trading?
39.When the stockbroker deposits the investor’s share
certificate with the Depository, what
does he
40. If the new investor wants to sell, what is the procedure?
41. Can an investor change from one stockbroker to another
under the CSCS operations?
42. Can a client (shareholder) take the CSCS statement
to another stockbroking firm?
43. Can a shareholder request for the statement
of his stock position directly from the CSCS?
44. What is the relationship between The NSE and CSCS?
45 . Will the benefit of using shares as collateral
for raising loan not be eroded under the system?
46. How can an investor use his stockholdings in CSCS
as collateral?
47. How do you intend to handle the issue of share certificates
for now to enable shareholders trade 48. When do you plan to go
completely certificateless?
49. What becomes of the intermediate buyers?
50. How do we process new issues in relation to certificates?
51. Will the company registrars be willing to disclose
shareholding information to The Nigerian Stock
52. How is the last transaction batch meant for the
closure of register handled?
53. What happens in respect of partial sale? Is it possible
for shareholders to get certificates for balance of shares?
54. What is the procedure to request for certificate?
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?
QUESTIONS
AND ANSWERS
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 Top
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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FREQUENTLY ASKED QUESTIONS