Financial Terms for Nigeria Stock Exchange

Income stock – A stock that pays regular dividends, and offers a high yield that may generate the majority of overall returns. Income stocks may require a lower level of ongoing capital investment, thus, profits can be directed back to investors on a regular basis. In the US, income stocks are most commonly companies operating within real estate (e.g., real estate investment trusts—REITs), energy sectors, utilities, natural resources and financial institutions. Currently in Nigeria, a company with a 5-year average dividend payout of = 30% of earnings is classified as an income stock.

Index – A way of measuring the value of a section of the stock market. An index is an imaginary portfolio of securities representing a particular market or a portion of the market. It is used by investors and financial managers to describe the market, and to compare the return on specific investments. Each index has its own calculation methodology – computed from the prices of selected stocks. As an index is a mathematical construct, it may not be invested in directly, so it may be used to construct index mutual funds and ETFs whose portfolios mirror the components of the index.

Indices (or indexes) – The plural of Index.

Institutional investor – A non-bank entity with large amounts to invest, such as investment companies, mutual funds, insurance companies, pension funds, investment banks and endowment funds. They usually trade securities in large share quantities or large monetary amounts. Investment adviser (or investment advisor or financial adviser or financial advisor) – Institutions or individuals in the business of providing advice to others about investment securities, for a fee. This service is usually a supplementary service of a stock broking or issuing house business. Investment advisers are registered by the statutory regulatory agency, the Securities and Exchange Commission (SEC) of Nigeria.

Investment bank – An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities. Investment banks also have a large role in facilitating mergers and acquisitions, private equity placements, and corporate restructuring. Unlike traditional banks, investment banks do not accept deposits from or provide loans to individuals. The two main lines of business in investment banking are (1) trading securities for cash or for other securities (i.e., facilitating transactions, market-making) or the promotion of securities (i.e., underwriting, research, etc.), known as the “sell side”; and (2) dealing with pension funds, mutual funds, hedge funds and the investing public (i.e., consumers of the products and services of the sell-side), known as the “buy side”.

Investment fund – Collective funds managed by an investment trust company (a company established with the purpose of investing in other companies) or a management team. Collect investments include unit trusts and closed end funds. See Unit trust, Closed-end fund.

Investment product (or security or investment instrument) – An instrument (contract) that can be assigned a value and traded. It represents ownership (stocks), a debt agreement (bonds) or the rights to ownership (derivatives). The purpose of owning an investment product (security) is usually to get your money back, or to get more money in the form of interest, capital appreciation or both . The two main types of securities are equity and debt. Examples of investment products include notes, stocks, preference stock, bonds, debentures, options, futures, swaps, rights, warrants, or virtually any other financial asset.

Investor – Person or entity that purchases assets with the objective of receiving a financial return. The assets an investor may buy vary widely, but include stocks, bonds, real estate, commodities and collectibles (e. g., art). The portfolio of an investor commonly includes a variety of assets that balance the rewards and risks of each investment. See Private investor, Institutional investor, Professional investor, Foreign investor.

Issuer– A legal entity that develops, registers and sells securities for the purpose of financing its operations. Issuers may be corporations, domestic or foreign governments, or investment trusts. Issuers are legally responsible for the obligations of the issue, and for reporting financial conditions, material developments and any other operational activities, as required by the regulations. The most common types of securities issued are common and preference stocks, bonds, notes, debentures, bills and derivatives.

Issuing house – A financial institution that engages in finding capital for established companies, for private firms wishing to convert to public companies, or for governments, by issuing shares on their behalf. They are responsible for packaging new issues for subscription and for bringing them to the market, including assembling the team for a new issue, e.g., solicitors, registrars, brokers, etc., preparing the prospectus, and successfully working with the broker to obtain approval from the exchange to list the issue. An issuing house may also be a dealing member, but cannot play the role of issuing house and broker for the same issue.