Nigerian Stock Market frequently Asked Questions
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
Financial Terms
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
Whistle blowing – The act of reporting insider knowledge of illegal activities that occur in an organization that is publicly owned (listed on a securities exchange). A whistle blower can be an employee, investor, supplier, contractor, client or any individual who somehow becomes aware of illegal activities taking place in a business, either by witnessing the activity or by being told about it. Whistle blowing can typically by done anonymously, and whistle blowers are almost always protected from retaliation under various programs of securities exchanges or their regulators. The NSE’s X-Whistle (whistle blowing program) aims to rid the market of infractions and misconduct.
Financial Terms
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
Underwriter – A business entity
Unit trust – A collective investment scheme that pools money from investors to invest in a portfolio of assets to achieve the investment objectives of the unit trust. Investments in the trust are made by buying units in the trust. The investment fund is set up under a trust deed. The price of each unit is based on the market value of the underlying assets that the unit trust has invested in. The number of units investors receive depends on the amount of their investment less any sales charge they are required to pay. Investors are effectively the beneficiaries under the trust.
Financial Terms
May 1, 2019 by admin
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:
- Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends
- 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.
- Ticker Symbol – Specific codes used to identify publicly traded equities (or companies)
- 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.
Financial Terms for The Nigerian Economy
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
Real Estate Investment Trust (REIT) – A security that sells like a stock and invests in real estate directly, either through properties or mortgages. There are three types of REITs:
- Equity REITs: Invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents
- Mortgage REITs: Deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans
- Hybrid REITs: Combine the investment strategies of equity
REITs and mortgage REITs by investing in both properties and mortgages
Receiving agent – Banks and stock broking
firms appointed by the issuing houses to serve as centers for the
distribution of offer application forms, as well as
for the receipt of subscription monies, on behalf of an issuing
house. Receiving agents charge a fee for the service they offer.
Receiving bank – Banks designated by an issuer to receive proceeds.
Registrar – An institution, usually a bank or a
trust company that is responsible for keeping records of shareholders
and bondholders. They ensure that the
amount of shares outstanding in the market matches the amount of
shares authorized by the company. For bonds, the registrar also makes
sure that the company’s obligation from a bond issue is certified as
being an actual legal obligation. They perform corporate actions for the
companies they represent, arrange general and extraordinary meetings,
distribute annual reports and notices of shareholders’ meetings, and
verify/reconcile investors’ claims with the depository of the CSCS.
Reporting accountants – Accounting firms which
provide independent assessments of issuer accounts. They also examine
and review forecasts, and prepare the issuer’s statement of
indebtedness, among other things.
Return on assets (ROA) – An indicator of how
profitable a company is relative to its total assets. ROA tells
investors how much profit a company generated for each N1 in assets. It
measures how effectively a company is converting the money it has to
invest (shareholders’ capital plus short and long-term borrowed funds)
into net income. It is considered the most stringent test of return to
shareholders. Companies such as telecommunication providers, car
manufacturers and railroads are very asset intensive, meaning they
require big, expensive machinery or equipment to generate a profit. It a
company has no debt, the ROA and ROE figures will be the same. ROA is
a company’s annual earnings divided by its total assets. It is
expressed as a percentage. Sometimes this is referred to as “return on
investment”. ROA = Net Income / Total Assets
Return on equity (ROE) – The amount of net
income returned as a percentage of shareholder equity. Return on equity
measures a company’s profitability by revealing how much profit a
company generates with the money shareholders have invested. More
simply, it shows how well a company uses investment funds to generate
earnings growth; how efficiently it uses its assets to produce earnings.
ROE is expressed as a percentage. It may be more meaningful to look at
ROE over a period of five years rather than one year. ROE = Net Income
/ Shareholder Equity Reverse stock split – A reduction in the number
of a company’s shares outstanding that increases the par
value of its stock or earnings per share (EPS).
Rights (or subscription rights or share purchase rights)
– When a company wants to raise additional capital, it may give
stockholders entitlement to purchase new
shares at a predetermined price (normally less than the current
market price) in proportion to the number of shares already owned.
Rights are issued only for a
short period of time, after which they expire. Failure to
exercise or sell rights is an actual loss to the stockholder. Rights
are a basic form of derivatives.
Risk – The chance that an investment’s actual return will be different than the expected return. With all investments there is an element of risk, desirable or undesirable. The basic definition for investment risk is deviation from an expected outcome. This can be either positive or negative.
Nigerian Stock Market Financial Terms
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
Market capitalization (or market cap) –
The total market value of all of a company’s outstanding shares.
Market capitalization is calculated by multiplying a
company’s outstanding shares by the current market price
of one share. The investment community uses this figure to determine a
company’s size, as opposed to sales or total asset figures.
Market intermediary – A business entity
that acts as the middleman between two parties in a financial
transaction. Commercial banks and other financial
institutions, such as investment bank, broker-dealers,
mutual funds and pension funds, are all examples of intermediaries.
Market intermediaries offer a number
of services to the buy side and the sell side, and charge
investors advisory fees, broking commissions, proprietary trading fees,
etc. while providing other benefits such as safety,
liquidity and economies of scale.
Market maker – A broker-dealer firm that accepts the risk of holding a certain quantity of a particular security, in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of securities. If these prices are met, they will immediately buy for or sell from their own accounts. This process takes place in mere seconds. Market makers are very important for maintaining liquidity and efficiency for the securities they make markets in. Market makers are required to maintain a strict separation of the market-making side and the brokerage side of their business, to prevent their brokers from recommending a specific security simply because the firm makes a market in that security. A market maker makes money by buying stock at a lower rice than the price at which they sell it, or selling the stock at a higher price than they buy it back. Ordinarily they can make money in rising or falling markets, by taking advantage of the difference between “bid” and “offer” prices. There are different types of market makers:
- Supplementary market maker – In the Nigerian capital market, supplementary market makers encourage competition among equity market makers, and further enhance the market maker liquidity provision. A supplemental market maker is required to provide a quote for securities in which they make markets for 60% of the trading day
- Liquidity provider – Serve the same purpose as market makers, primarily for the secondary debt (bond) market.
Market operator – Professional
intermediaries that offer specialized capital market services in various
forms, including buying and selling securities, providing
investment advice, making a market, auditing accounts of
companies who have raised capital from the market, providing legal
advice to investors and issuers,
managing investment portfolios, and underwriting securities,
among others.
Market participant – In finance, market
participants are investors that regularly purchase equity and debt
securities, either coming from the supply side
(supplying excess money in the form of investments) or from
the demand side (demanding excess money in the form of borrowed
equity). These investors are
categorized into (a) investor versus speculator, and (b)
institutional versus retail. The term may be used loosely to include all
investors in the market.
Market trend – The general direction of a market –
typically up/rising (bullish), down/falling (bearish) or steady.
Trends can vary in length from short, to
intermediate, to long term.
Markets – A stock exchange has the
ability to trade different investment products (securities). As a
result, a stock exchange can create different markets in which
different securities trade. These markets are usually an
electronic platform that can accommodate the rules for trading a
specific security. The Nigerian Stock
Exchange currently lists three (3) types of products on
three (3) boards—equities (stock, preference stock, structured
products), bonds (corporate, federal and
state/local) and ETFs—that are traded on three (3)
different boards.
Mutual fund (or memorandum quotation) – A professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities). A mutual fund is usually an open-ended fund and has a fund manager that trades (buys and sells) the fund’s investments in accordance with the fund’s investment objective. A fund’s investment objectives (and or its names) define the type of investments in which the fund invests. In return for one’s investment, shareholders receive an equity position in the fund, and in effect, in each of the fund’s underlying securities. A fund’s net asset value (NAV) is calculated every day. While funds offer a choice of liquidity and convenience, they charge fees and often require a minimum investment. A contractual investment advisory fee is charged for the management of the fund’s investments, along with other fees. Some of the more significant (in terms of amount) are a transfer agent expense, custodian expense, legal/audit expense, fund accounting expense, registration expense, board of directors/trustees expense, etc. Shareholders are free to sell their shares at any time, although the price of a share of the fund will fluctuate daily, depending upon the performance of the securities held.
Net asset value (NAV) – Used to calculate the ‘per share’ Naira amount of a fund. NAV represents the fund’s market price. It is derived by taking the total value of all the securities in the fund (or portfolio) minus any liabilities divided by the number of shares outstanding. NAV = Total Value of Securities -Liabilities / Shares Outstanding Nominal value (or face value or par value or notional amount) – The value of a security that is set by the company issuing it; unrelated to market value. For stocks it is the original cost of the stocks; for bonds it is the amount paid to the holder at maturity.
Financial Terms
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
Market capitalization (or market cap) –
The total market value of all of a company’s outstanding shares.
Market capitalization is calculated by multiplying a
company’s outstanding shares by the current market price
of one share. The investment community uses this figure to determine a
company’s size, as opposed to sales or total asset figures.
Market intermediary – A business entity
that acts as the middleman between two parties in a financial
transaction. Commercial banks and other financial
institutions, such as investment bank, broker-dealers,
mutual funds and pension funds, are all examples of intermediaries.
Market intermediaries offer a number
of services to the buy side and the sell side, and charge
investors advisory fees, broking commissions, proprietary trading fees,
etc. while providing other benefits such as safety,
liquidity and economies of scale.
Market maker – A broker-dealer firm that accepts the risk of holding a certain quantity of a particular security, in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of securities. If these prices are met, they will immediately buy for or sell from their own accounts. This process takes place in mere seconds. Market makers are very important for maintaining liquidity and efficiency for the securities they make markets in. Market makers are required to maintain a strict separation of the market-making side and the brokerage side of their business, to prevent their brokers from recommending a specific security simply because the firm makes a market in that security. A market maker makes money by buying stock at a lower rice than the price at which they sell it, or selling the stock at a higher price than they buy it back. Ordinarily they can make money in rising or falling markets, by taking advantage of the difference between “bid” and “offer” prices. There are different types of market makers:
- Supplementary market maker – In the Nigerian capital market, supplementary market makers encourage competition among equity market makers, and further enhance the market maker liquidity provision. A supplemental market maker is required to provide a quote for securities in which they make markets for 60% of the trading day
- Liquidity provider – Serve the same purpose as market makers, primarily for the secondary debt (bond) market.
Market operator – Professional
intermediaries that offer specialized capital market services in various
forms, including buying and selling securities, providing
investment advice, making a market, auditing accounts of
companies who have raised capital from the market, providing legal
advice to investors and issuers,
managing investment portfolios, and underwriting securities,
among others.
Market participant – In finance, market
participants are investors that regularly purchase equity and debt
securities, either coming from the supply side
(supplying excess money in the form of investments) or from
the demand side (demanding excess money in the form of borrowed
equity). These investors are
categorized into (a) investor versus speculator, and (b)
institutional versus retail. The term may be used loosely to include all
investors in the market.
Market trend – The general direction of a market –
typically up/rising (bullish), down/falling (bearish) or steady.
Trends can vary in length from short, to
intermediate, to long term.
Markets – A stock exchange has the
ability to trade different investment products (securities). As a
result, a stock exchange can create different markets in which
different securities trade. These markets are usually an
electronic platform that can accommodate the rules for trading a
specific security. The Nigerian Stock
Exchange currently lists three (3) types of products on
three (3) boards—equities (stock, preference stock, structured
products), bonds (corporate, federal and
state/local) and ETFs—that are traded on three (3)
different boards.
Mutual fund (or memorandum quotation) – A professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities). A mutual fund is usually an open-ended fund and has a fund manager that trades (buys and sells) the fund’s investments in accordance with the fund’s investment objective. A fund’s investment objectives (and or its names) define the type of investments in which the fund invests. In return for one’s investment, shareholders receive an equity position in the fund, and in effect, in each of the fund’s underlying securities. A fund’s net asset value (NAV) is calculated every day. While funds offer a choice of liquidity and convenience, they charge fees and often require a minimum investment. A contractual investment advisory fee is charged for the management of the fund’s investments, along with other fees. Some of the more significant (in terms of amount) are a transfer agent expense, custodian expense, legal/audit expense, fund accounting expense, registration expense, board of directors/trustees expense, etc. Shareholders are free to sell their shares at any time, although the price of a share of the fund will fluctuate daily, depending upon the performance of the securities held.
Net asset value (NAV) – Used to calculate the ‘per share’ Naira amount of a fund. NAV represents the fund’s market price. It is derived by taking the total value of all the securities in the fund (or portfolio) minus any liabilities divided by the number of shares outstanding. NAV = Total Value of Securities -Liabilities / Shares Outstanding Nominal value (or face value or par value or notional amount) – The value of a security that is set by the company issuing it; unrelated to market value. For stocks it is the original cost of the stocks; for bonds it is the amount paid to the holder at maturity.
Financial Term for Nigeria Stock Market
May 1, 2019 by admin
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:
- 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
- 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
- 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.
Financial Terms for Nigeria Stock Exchange
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
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.
Growth stock
May 1, 2019 by admin
Filed under Nigeria Stock Exchange
A stock which typically does not pay a dividend, as the company declares