As an investor looking to invest in stocks, it is important to understand the Modus operandi of the Nigeria Stock Market. This will give you an edge when interacting with the system.
Basically, as the name implies, the Nigerian stock market is a public marketplace for issuing, buying, and selling stocks that trade on a stock exchange (Nigerian Stock Exchange). However, it is important to note that stocks are not the only instruments that trade on the stock market. We can also buy bonds and other securities on the Nigerian stock market.
How does Nigerian stock market work?
As we have earlier mentioned, the Nigeria stock market is a public marketplace where trades occur. It operates on what we call an Automated Trading System (ATS), which is a computer program.
This allows for an effective trading platform. This platform allows the coming together of individuals and institutional investors for the sole purpose of trading.
Furthermore, the Nigerian stock market is basically divided into two major segments. These are the primary and the secondary market. The primary market is where organizations set up their stocks or shares for sale. They achieve this through what we call an Initial Public Offering (IPO).
While the secondary market is a place where you can buy stocks that are existing and being traded.
Key players in the Nigerian Stock Market and their functions
- Securities Exchange Commission (SEC)
The SEC is the apex regulatory body of the Nigeria capital market that answers to the Federal Ministry of Finance. They are saddled with the responsibility of regulating the capital market with an aim of protecting investors. In addition, they must also ensure the development of the capital market. This is to enhance its allocative authority and open the door for a private sector-led economy.
- Nigerian Stock Exchange(NSE):
The NSE is a registered organization limited by guarantee. They founded it in the year 1960, and it is duly licensed under the Investments Securities Act (ISA). In addition, they also regulate it to operate under the Security Exchange Commission. The Nigeria Stock Exchange offers listing services, trading services, market data solutions, etc. They achieve this through an automated trading system that allows investors to trade several securities.
- Central Securities Clearing System (CSCS)
Basically, The CSCS is an arm under the Nigerian Stock Exchange. They license them to carry out the responsibility of depository, clearing, and settlement of all transactions in the NSE. Furthermore, the CSCS as the Nation’s exclusive Financial Market Infrastructure processes all securities in the Nigerian stock market. They process these securities in an electronic book-entry form. This is to ensure safe and efficient transaction processes in the market.
Currently, in Nigeria, there are well over 90 stockbrokers. They are professional traders who purchase and sell shares on behalf of their clients. A stockbroker can either be an investment advisor or a registered representative. The majority of these stockbrokers work with a brokerage firm, and they handle transactions for individuals and institutions.
How do I buy shares in the Nigerian stock market?
Buying stock on the Nigeria stock market is very straightforward once you follow all the necessary guidelines. The first thing you must do is to find a brokerage firm or a stockbroker that will purchase the shares on your behalf.
Once you have done this, you can proceed to fill the CSCS (Central Securities Clearing Systems) account opening form. After the form filling, you will need to fund your stock brokerage account.
After all these processes, you can submit your first trade, once you reach a consensus on what you want.
Investing in stocks is very lucrative, but with its own risks. Therefore, ensure that you have a thorough understanding of the market before investing.