Financial Term for Nigeria Stock Market

May 1, 2019 by  
Filed under Nigeria Stock Exchange

Listing – The process whereby a security is admitted to a trading in a market or on a board of a stock exchange. Upon listing, the security becomes tradable. All exchanges have specific requirements which issuers must satisfy in order for their securities to be listed and remain listed. There are different ways a security can be admitted to trade on an exchange:

  1. Initial Public Offering (IPO) – The first sale of a security by a company to the public. When the securities are listed on a public exchange such as the NSE, the money paid by investors for the newly issued equities goes directly to the issuer. An IPO allows an issuer to tap a wide pool of investors that provide capital for future growth, repayment of debt or working capital. A company selling common shares is never required to repay the capital to investors. IPOs usually involve one or more investment banks (i.e., underwriters) with whom the issuer enters into a contractual agreement to sell its securities to the public. Public offerings are sold to both institutional investors and retail clients of underwriters. IPOs also involve one or more law firms specializing in securities law
  2. Secondary Offering – A subsequent listing of securities already in issue. This can be new securities for public sale from a company that has already done an IPO. It is known as a Listing by Introduction. In many cases, this type of offering is made by companies looking to refinance or raise capital for growth. This type of listing increases outstanding shares, and spreads a company’s market capitalization (value) over a greater number of shares. It also dilutes the positions of shareholders owning previously issued shares. Another type of secondary listing is the sale of securities owned by major shareholders in a company. They may choose to sell all or a large portion of their holdings. This is known as a Placement. In such cases, the offering is triggered by founders of a business (or the original financiers) wanting to decrease their positions in a company. This kind of offering does not increase the number of outstanding shares. It usually happens gradually to ensure no negative effects on the price of the equity, and it does not dilute the positions of shareholders owning previously issued shares
  3. Merger/Acquisition – A company may be listed as a result of a merger with or an acquisition by an already listed company

Liquidity – The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

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