Nigerian Stock Exchange Financial Terms

May 1, 2019 by  
Filed under Nigeria Stock Exchange

Coupon – The interest rate stated on a bond when it’s issued. The coupon is typically paid semi-annually. This is also referred to as the “coupon rate” or “coupon
percent rate”.

Central Securities Clearing System Plc (CSCS) – CSCS is licensed by the SEC as a central securities depository (CSD). A CSD facilitates the delivery (transfer from seller to buyer) and settlement (payment) of traded securities. The CSCS enables securities transactions to be processed electronically. The company’s primary functions include:

  • Central depository for electronic share certificates of companies listed on the Exchange
  • Sub-registry for all listed securities (in conjunction with registrars of listed companies)
  • Issuer of central securities identification numbers to shareholders
  • Custodianship (in conjunction with custodians of local and foreign instruments)

CSCS offers investors online account access to view their securities portfolios. Investors must first select a broker before an account can be opened with the CSCS.

Custodian – Agent, such as a bank, a trust company or other organization, which holds and safeguards an individual’s, a mutual fund’s, or an investment company’s assets for them. They have the legal responsibility for their customers’ securities, which implies management and safekeeping. Custodians usually charge a fee for the service they provide.

Data vendor – Firms that provide data to financial market operators and investors. Distributed data is collected from an exchange’s live feeds, broker and dealer desks, and regulatory bodies. The types of data offered varies by vendor and most typically, covers information about entities (companies) and instruments (shares, bonds, etc.) which companies might issue.

Dealer – An individual or firm that buys and sells securities or “takes positions” for itself, or for its own account. Securities bought for the firm’s own account may be sold to clients or other firms, or become a part of the firm’s holdings.

Dealing member – Institution (stock broking firm) that is licensed by The Nigerian Stock Exchange and charges a fee or commission to buy or sell securities listed on the NSE’s platform (the exchange) on behalf of investors. The institution must be incorporated and registered under the Companies and Allied Matters Act, and must meet specific requirements set by the NSE to receive a dealing member license. As foreign investors are legally qualified to participate in the ownership of Nigerian stock broking firms, dealing members can also enter into any form of partnership with foreign stock broking firms.

Debenture – A medium- to long-term debt instrument used by large companies to borrow money. The term may be used interchangeably with bond, loan or note. A debenture is generally freely transferable by the holder who has no rights to vote in the company’s general meetings of shareholders, but who may have separate meetings; or votes, for example, on changes to the rights attached to the debentures. The interest paid to holders is a charge against profit in the company’s financial statements. A debenture may be convertible into equity shares of the issuing company after a predetermined period of time; it may also be non-convertible, and would usually carry a higher interest rate than a convertible debenture.

Debt security – A debt instrument that can be bought or sold between two parties and has basic terms defined, such as amount borrowed (nominal or notional amount), interest rate, and maturity/renewal date. Debt securities include government bonds, corporate bonds, certificates of deposit (CD), state and local bonds, collateralized securities (such as CDOs, CMOs, GNMAs) and zero-coupon securities. Most debt securities are traded over-the-counter. Debt securities get their measure of safety by having a principal amount that is returned to the lender (investor) at the maturity date or upon the sale of the security. They are typically classified and grouped by their level of default risk, the type of issuer and their income payment cycles.

Delisting – The removal of a listed security from the exchange on which it trades. Stock may be removed from an exchange because the company for which the stock is issued may (1) voluntarily or involuntarily not be in compliance with the listing requirements of the exchange; (2) choose, with the approval of its shareholders, to voluntarily delist; or (3) be acquired by another company. Delisting of a debt product such as a bond occurs on the maturity date (day of repayment) of the principal (loan amount) to investors.

Dematerialization – Indicates the conversion of shares/securities from a physical certificate to an electronic form. This allows for paperless trading via state-of-the-art technology, and these transactions of shares are done electronically, without relying on the traditional route of share certificates and transfer deeds. Electronic share certificates offer potential investors a way to get around the time-consuming task of transferring shares in their names; it also bypasses problems like delays in processing, bad deliveries via post or other conventional sources.

Demutualization – The process by which a member-owned organization (a mutual) changes its legal structure to a stock company. A mutual is a company created to provide a specific service at a low cost to benefit its members. Traditionally, a mutual raises capital from its members in order to provide them services, while a stock company raises capital from shareholders and other financial sources in order to provide services to its customers. Depending on the organization’s profit structure, a mutual may redistribute some profits to its members, whereas a stock company distributes profits to equity or debt investors. In a mutual, the legal roles of customer and owner are joined (members), and in a stock company the roles are distinctively divided. In demutualization, ownership of the company is separated from the exclusive right to use the services provided by the company.

Derivatives – A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties, and its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indices. Most derivatives are characterized by high leverage. Futures contracts, forward contracts, options and swaps are the most common types of derivatives.

Dividend – A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the naira amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.

Dividend per share (DPS) – The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.

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