Financial Terms

May 1, 2019 by  
Filed under Nigeria Stock Exchange

Scrip issue – See Bonus issue.

Securities and Exchange Commission (SEC) – The SEC of Nigeria is the statutory regulatory agency of the Nigerian capital market. The SEC is a government agency mandated to regulate and develop the Nigerian capital market. The SEC derives its powers from the Investment and Securities Act (ISA). Visit www.sec.gov.ng for more information.

Security – See Investment product.

Securities lending – The act of loaning a stock, derivative, other security to an investor or firm. Securities lending requires the borrower to put up collateral, whether cash, security or a letter of credit, which the borrower is obliged to return at the end of the agreed upon loan period. When a security is loaned, the title and the ownership are temporarily transferred to the borrower. Borrowers looking to borrow a security would do this through a securities lending agent after entering into a global securities lending agreement (GSLA). The securities lending agent would, in turn, have a securities lending authorization agreement (SLAA) with the owner of the security before it can be loaned out. During the loan period, corporate actions, dividend payments, etc. are
retained by the owner.

Share price – The Naira value of a single share (stock) of a company’s tradable stocks.

Share value – See Nominal value.

Shareholders’ equity (or share capital or stockholders’ equity or book value) – The net worth of a company. It is derived by taking the company’s total assets and subtracting the total liabilities. Another way to calculate shareholder equity is share capital plus retained earnings minus treasury shares. It represents the amount by which a company is financed through common and preferred shares. The shareholders’ equity number is usually located on a company’s balance sheet.

Short selling – The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit. Short selling may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one. Since the risk of loss on a short sale is theoretically infinite, short selling should only be used by experienced traders who are familiar with the inherent risks associated with this type of transaction.

Solicitor – Law firm which represents an issue or the issuer. In practice, two solicitors are required for a public issue of securities—one solicitor for the issuer and one for the issue. On the issuer (the company) side, the solicitor ensures the Memorandum and Articles are in compliance with the legal requirements of a public company and also ensures the company, based on authorized capital, can accommodate the issue being proposed.

Stock (or common stock or share) – A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock:

  1. Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends
  2. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than common shares

Stock broker (or stockbroker) – See Broker.

Stock exchange (or securities exchange or bourse) – Organized and regulated financial market where securities (stocks, bonds, notes, options, etc.) are bought and sold at prices governed by the forces of demand and supply. Stock exchanges serve as (1) primary markets where corporations, governments, municipalities, and other incorporated bodies can raise capital by channeling savings of the investors into productive ventures; and (2) secondary markets where investors can sell their securities to other investors for cash, thus reducing the risk of investment, and maintaining liquidity in the system. Stock exchanges impose stringent rules, listing requirements, and statutory requirements that are binding on all listed and trading parties.

Stock split – See Bonus shares.

Structured products – A pre-packaged investment strategy based on derivatives, such as a single security, a basket of securities, indices, commodities, debt issuance, options and/or foreign currencies. They are specially created to meet specific needs that cannot be met from standard financial instruments available in the market. They are designed to facilitate highly customized risk-return objectives. This is accomplished by taking a traditional security, such as a bond, and replacing the usual payment features (e.g., periodic coupons and final principal) with non-traditional payoffs derived from the performance of one or more underlying assets, not from the issuer’s own cash flow. Structured products can be used as an alternative to a direct investment, as part of the asset allocation process to reduce risk exposure of a portfolio, or to utilize a current market trend.

Subscription period – The span of time during with investors may by a new issue of securities. Subscription periods have definitive end dates, after which the rights to subscribe will expire.

Ticker – The meaning is dependent on the context in which the term is used.

  1. Ticker Symbol – Specific codes used to identify publicly traded equities (or companies)
  2. Stock Market Ticker – Appears on any electronic surface. Relays stock market data, including stock prices, net change, updates to key indices, and more. Information is provided in real time or with a slight delay

Trustee – A firm which participates in debt and collective investment schemes, including unit trusts. They protect the interest of investors by monitoring and ensuring the terms of a trust deed are fulfilled.

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