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INTRODUCTION
In recent times there has been a remarkable increase in the number of public issues on offer in the market. The investing public has limited knowledge about the workability of the Capital Market, such as the reason (s) for investing in shares, what and when to buy, sell or stay action. This presentation seeks to enlighten and provide a general insight into the operations of the capital market.

FINANCIAL MARKETS:
Financial Markets are defined as a network of individuals, institutions and instruments working together in the process of mobilizing and transferring funds from the surplus to the deficit units of the economy. Financial markets are made up of the money, capital and insurance markets. The length of time money is invested /or raised determines the segment of the financial market to which it belongs.

THE MONEY MARKET:
Money market refers to the institutions where monies are bought and sold. It is the market for short term financing where cash is invested or borrowed for one year. This market meets the short-term financial needs of individuals, companies and government.

Institutions:
The Central Bank of Nigeria is the regulatory body that is charged with the responsibility of overseeing the activities of the money market while the Banks are the most popular players in that sector. Other institutions include the Discount houses, Community Banks, now Micro finance banks, Bureau de change, Primary Mortgage institutions, Finance houses, etc.

Instruments
Instruments are the commodities that are bought and sold in the money market. The instruments include:
Treasury bills
Treasury certificates
Commercial papers
Bankers’ acceptances
Etc.

The Capital Market
The capital market is the market where medium to long-term financial instruments are traded. It is a system where individuals invest their monies, while companies or the government borrow on long – term basis.

SEGMENTS OF THE CAPITAL MARKET
The capital market is made up of the primary and secondary markets.

Primary Market (New issues market): The primary market is the market for the issuance of new securities by companies and government to the public at large. It also serves as a major divestment channel by existing shareholders.

Secondary Market: This is a market where investors buy or sell existing Securities, which are quoted on a Securities Exchange. It is a market for existing securities. The secondary market encourage investors to invest in securities issued in the primary market because it provides the avenue to dispose off the shares or even buy additional ones.

OPERATORS IN THE CAPITAL MARKET
The Securities and Exchange Commission is the institution that regulates the activities of the Capital Market, while the Nigerian Stock Exchange regulates its members (Stockbrokers). Other operators include Issuing Houses, Stockbrokers, Registrar, Portfolio/Fund Managers, Investment Advisers, Trustees, Receiving Bankers etc.

INSTRUMENTS
Like the money market, instruments are the commodities traded in the Capital market. Such instruments are the common stock, the preferred stock, convertible securities, bond / debentures, etc.

METHOD OF ACCESSING THE CAPITAL MARKET
Fresh capital could be raised using one or more of the under mentioned
Methods:
(a) Offer for subscription: An invitation to the public to subscribe to new securities of a company. This enlarges the capital base of the company as fresh funds come in.

(b) Offer for sale – This is an invitation to the public to subscribe to existing securities in which a core investor is divesting, as in the case of privatized issues. In this case the proceeds of the offer goes to the seller and not the company.

(c) Rights Issues is an invitation to existing shareholders to subscribe to additional securities in proportion to their holdings and at a lower price than the current market price. For example a company could offer one new share for every three shares held to existing shareholders. A shareholder may decide to take up or sell his Rights on the secondary market.

(d) Private placements – This is a means through which public unquoted companies raise funds from the capital market. Securities are not offered to the general public but to select private individuals. The investment opportunities include:

- Investment in Equities
- Investment in Debentures
- Investment in Bonds
- Investment in Mortgage Backed Securities

- Investment in Collective Investment Schemes like Unit Trust Investment Trust (Real Estate Investment Trust)
- Community Savings Schemes
- Venture Capital

Securities offered during public issues could either be in the form of equity (shares) or debt – instrument (bonds). Equities give ownership rights in the company and entitle holders to dividends.

Companies or Government to borrow funds from the investing public uses debt instrument. Holders of bonds do not have ownership rights in the company. Interests are paid at intervals and the principal on expiration of the bonds. Debt- instrument have various features attached to them such as fixed/floating rates, secured/unsecured, convertible/non-convertible.

A company/government seeking long-term funds from the public to finance a project may decide to issue shares or corporate bonds or both. In the case of the Federal, State or Local Government they will issue development stocks, (bonds) which are usually packaged by the issuing house in accordance with the rules and regulations of the commission. A prospectus gives full details of the company’s activities. The issue when on offer is widely advertised in the media, stating the number of shares on offer/opening and closing dates, the offer prices etc.

The issuing house prepares a prospectus of the issue, which discloses full information of the company to enable the investor make, a well –informed investment decision. Forms are usually available from listed receiving agents’ i.e. stockbrokers, banks, registrars and other marketing outlets. Investors fill in the forms and send in accompanying payments for securities they wish to purchase back through the receiving agents. At the close of the offer and at the conclusion of the allotment exercise, Share certificates are sent by registered post no later than 15 working days or two weeks after allotment, to successful subscribers. Return monies of rejected applicants or partly successful applications are also returned to applicants by registered post within 5 working days after allotment.
Investors may also participate in the Capital Market by buying/selling shares in the secondary market through registered and licensed stockbrokers at the Stock Exchange. The stock exchange is a secondary market place for trading in securities that were initially issued in the primary market. Stockbrokers buy and sell securities at the Nigerian Stock Exchange on behalf of investors for a commission. The Nigerian stock exchange is regulated by the Securities and Exchange Commission, as well as being a Self- Regulatory Organization - SRO (i.e. Members regulate their conduct through laid down rules and regulations of the Exchange).

Investors, who may not have been opportune to buy securities during an initial offer in the primary market and wish to invest in securities may approach a stockbroker registered by the Commission and licensed by the Stock Exchange to buy securities on their behalf. You either give them a mandate of the stock you would like to buy/sell and the preferred price, or you give the stockbroker an open mandate to buy and sell on your behalf. It is expected that the stockbroker will open an account for you at the Central Securities Clearing System, (CSCS) (where all securities are cleared for trading). Transactions at the stock exchange are finalized in T+3 days i.e. the day traded and three extra working days. Thereafter the stockbroker issues a statement that shows the number of shares or amount of loan stock an investor has in the system. (Certificates are no longer issued at the secondary market, except on special request). In the case of an investor who sold his shares, the stockbroker delivers proceeds of the sale after deducting his commission and other fees, to the selling investor.

Unit trust schemes: Investors may also participate indirectly in the capital market by investing in Collective investment schemes such as Units Trusts (Open ended funds) or Investment trusts (Closed ended funds) the unit trusts schemes are collective investment schemes which pool savings of several small investors for investment in securities. These schemes are managed by the fund manager who invests the funds on behalf of investors, in accordance with the trust deed governing the fund. He may invest the money in either money or capital market instruments. Units Trusts are broken down into units which investors may purchase or sell whenever they wish to, after the initial period of offer. They are registered and regulated by the SEC, and are not traded on the stock exchange but may have a memorandum listing. There are currently thirty- one (31) Unit Trust Schemes registered with the Commission. You can get a list of duly registered unit trust schemes from SEC.

BENEFITS TO THE INVESTOR OF INVESTING IN THE CAPITAL MARKET
a. Investors get the benefit of dividend, which is paid to shareholders out of declared profit in proportion to shareholding in the company.
b. Capital appreciation (share price movements) - Share prices of securities have the potential for appreciating in reaction to market developments etc. Investors will thus benefit from the appreciation in prices, if they decide to sell off their Securities at the premium price above which they purchased the securities
c) Bonus shares: Companies may decide give their shareholders bonus issues, which are additional shares offered free to investors in proportion to their holdings. Bonus shares are usually issued out of the companies Reserves
d. Long term growth potential - Companies may have growth plans in place to bring about steady increases in profits, and subsequently reinvest those profits. As such there may be no plans to pay dividends in the near future but such companies have a capacity for growth. They would be attractive to investors who have a long-term investment growth goal.
e. Other benefits: Attendance at the company’s annual general meetings, with the opportunity of participating in the decision making process of the company, and the 0portunity of being voted as member of the Audit committee of the company.

VENTURE CAPITAL FINANCING
This is an evolving business concept in Nigeria, which involves mobilization of savings and surplus funds on a long-term basis to finance industrial or commercial businesses. Venture Capital finance refers to the initial funding or acquisition of equity in ownership in start-up or already existing business. It is a form of high risk and high return investment in new companies/enterprises by venture capital firms.

Investment is usually in the form of equity capital and management expertise. Upon maturity the venture capital firms may decide to exit the business. As potential investors you could invest in equity of start up companies through a venture capital firm. As at June 2006 the Commission has registered 11 venture capital companies, out of which 7 are active.

Mary Uduk
Deputy Director, SEC
October, 2007