Efficiency of the Nigerian Stock Exchange

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It is a known fact that almost everything done by man involves the use of money or money surrogates. Indeed the world we live in today cannot survive in the absence of money. Money enhances capital accumulation which in turn promotes economic growth. This is essentially why the capital market was created- to make provisions for easier access to fund which is used for developmental purposes and other businesses. In fact, for a nation to develop there is a dire need for that nation to have a functional and efficient capital market of which the stock exchange is the hub.

A capital market, which is a part of the financial market, is constituted as soon as a network of financial institutions interact to mobilize and allocate long term funds into productive investment. The long term funds are exchanged for financial assets issued by borrowers or traded by holders of previously issued assets. Therefore, the capital market serves an important function of bringing together deficit and surplus units of an economy. The lack of this function renders the capital market useless as the opportunity for investment and production of goods and services for development is eliminated. This creates a gap where surplus units have idle funds and the deficit units are in search of funds for investment. The capital market thus provides services that are essential to a modern economy, mainly by contributing to capital formation through financial intermediation, financial advisory services and managerial skill development. It also promotes portfolio diversification which ensures savers can maximize returns on their assets and reduce risk to the barest minimum. Consequently, an efficient capital market optimizes the amount of savings that finances investment. (Odoko 2004)

Capital markets can indeed make or mar a nation. The surplus units are mostly made up of individuals and organizations. On the other hand, the deficit units consist of organizations and the government. The capital market makes it possible for large amounts of money to be collated from diverse sources. (Ekineh 1996)

Basically, the Nigerian capital market is divided into 2 separable, but closely related segments. These are;

1. The primary market

2. The secondary market

The primary market is one where new securities are issued and offered to the public. It also provides the means for government and corporate bodies to raise fresh capital. The securities traded here could be stocks, shares, bonds and debentures. (Udo 2002).

The secondary market, on the other hand, is one in which buyers and sellers trade on previously issued securities. It is often likened to a market for second hand goods. However, unlike the latter, in which values of goods are less than that of brand new, all securities sold or purchased in the secondary market rank pari passu with those issued in the primary market. Indeed the efficiency of the primary market rests on the efficiency of the secondary market. This follows from the fact that very few people will be willing to buy new securities if they do not have an assurance of being able to convert it to cash at any time they deem fit. The secondary market thus provides liquidity to investors. The ease of securities’ conversion into cash is an important determinant of the efficiency of the secondary market and indeed the capital market in general. Therefore the secondary market facilitates the savings and investment process, and ultimately, the growth and economic development of a nation.

The participants in the Nigerian capital market can be classified into two. These are;

1. The Regulators

2. The Operators

The regulators include;

I. The Securities and Exchange Commission (SEC)

II. The Nigerian Stock Exchange (NSE)

III. The Institute of Capital Market Registrars (ICMR)

The operators include;

I. Issuing houses

II. Registrars

III. Brokers/Dealers

IV. Investment managers/portfolio...
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