Stock exchange market is a highly organised market where investors can buy and sell existing securities like shares, stocks, debentures, gilt edge etc. This is a market where those who are interested in purchase of securities are brought into contact with the sellers. The stock exchange is an essential part of the capital market. It serves as a source of raising capital as well as a forum for financial investment. The market deals in old existing shares only, i.e ., new ones are not traded in it.

The stock exchange market ensures that every transaction must follow prescribed set of rules and regulations which are complex in nature. Quoted companies are organisations whose shares are quoted in the stock exchange market. The Nigerian stock exchange market is in Lagos with branches in Abuja and Port Harcourt. It was established in 1960 through the Act of Parliament. Some of the companies quoted in the market are: Nestle Food Nigeria Plc ., Nigeria Breweries Plc ., Guinness Plc ., Union Bank Plc ., First Bank Plc. etc.


Importance of Stock Exchange

  1. An Avenue for Raising Capital: Capital can be raised by companies and government through the stock exchange.
  2. Provides Employment Opportunities: The stock exchange provides employment for brokers, jobbers, clerks and others.
  3. Provides Information to Investors: Investors, especially foreign investors, can obtain necessary information about the investment situation of a country.
  4. Facilitates Transfer of Investment: An investor can withdraw his investment from a company to invest in another company.
  5. It is a Market for Investment: The stock exchange provides an avenue for people to invest in any sector of the economy.
  6. It provides Yardstick for Measuring Performance of Companies: The price quoted can be used to measure performance of a business as only sound and efficient companies are quoted on the stock market.
  7. It leads to Increase in the Standard of Living: Investment opportunities will lead to more income, which will affect consumption, thereby increasing the standard of living of the people of a country.


Functions of the Stock Exchange

  1. Fund Mobilisation: Through the stock exchange market which is a part of the capital market, fund or capital can be raised or mobilised by companies and investors.
  2. Sales of Securities: Investors can buy and sell old securities like stock, shares etc.
  3. Financial Market for Investment: It is a market where people can invest their money in shares of companies.
  4. It Facilitates the Transfer of Shares: Stock exchange facilitates the transfer of ownership of shares between investors. Investors who want to withdraw from one company to another can do so without any hindrance.
  5. Provides Avenue for Government to Raise Fund: Government can raise fund by selling bond or gilt-edge in the stock market.
  6. Valuation of Price of Securities: The market, through the forces of demand and supply can fix price for securities.
  7. Provision of Professional Advice: The stock market provides professional advice to investors on sales and management of securities.
  8. Provision of Rules and Regulations: The market is charged with the responsibility of providing rules and regulations that will ensure smooth operation on the floor of the stock exchange.
  9. Encourages Companies to be More Efficient: The market ensures that companies quoted in the exchange have good reputation; this will gear up companies to perform well so that they can be listed.



Buying and selling at the stock exchange is facilitated by the brokers and jobbers. Not everybody is permitted to trade directly at the exchange except the members. The actual dealer in securities are the jobbers who tend to specialise in particular types of stock while the brokers act as agents for potential buyers. A broker working on behalf of a client will approach the jobber with the intention of knowing the price. The jobber will then quote for him two prices: higher price as the selling price and lower price as the buying price. The difference is the jobbers’ turn. When the broker signifies his intention to buy, the necessary documents will be prepared.

Share of well known companies are known as blue chips while gilt-edge refers to government stock. Prices of shares are quoted cum div or ex div. Cum div denotes price at which the holder of such shares has the right to receive the next dividend payable while ex div denotes price at which the holder of such shares has no right to receive the next dividend. Two documents will be prepared to facilitate transactions. The documents are contract note and transfer form (note).


Contract Note: This is a document sent by a broker to his client to confirm a purchase or sale made on his behalf. Contract note will give details on:

  • Purchase or sale of shares.
  • Broker’s commission.
  • Date of payment.
  • Stamp duty that has been incurred.


Transfer Form: After settlement of payments, a document called, transfer form will be prepared. The transfer form is a document used to transfer ownership of shares. The seller of the shares must sign the form which authorises the removal of his name from the share registration records of the company. The broker, acting for the buyer will complete the form and send to the company’s registrar. This will be sent with the share certificate of the seller and on that strength, a new certificate will be issued to the new shareholder.



In a specialised market like the stock exchange, only members are permitted to conduct business. All transactions in the market must follow laid down rules and regulations. Only companies that have received approval from the council of the exchange can be quoted. The two major members are: The brokers and jobbers. Others are the unauthorised clerks and the authorised clerks.


a) Broker: This is an agent who is professionally engaged in the purchase and sales of securities in the stock exchange on behalf of a client in exchange for commission called, brokerage. They act as a link or go-between the members of the public who want to buy and sell securities and other members of the exchange. Formally, they go through the jobbers to find out what the prices of the securities are.


b) Jobbers: A jobber is a member of the exchange who is the actual dealer in securities. He transacts business with the broker who is acting on behalf of the investors. Jobbers specialise in a particular type of business, they buy and sell securities on their own for a profit called, jobber’s turn. They quote two prices: buying price and selling price. Jobbers cannot deal with members of the public and their work requires high degree of experience.


Other members of the exchange are:

c) Unauthorised Clerk: An unauthorised clerk is an employee of the broker who is not allowed to deal on the floor of the exchange. They neither have access to the floor of the market, nor can they sell or buy securities. The unauthorised clerks are only given permission to assist members of the exchange.


d) Authorised Clerk: This is a clerk of the broker who under the regulations of the exchange, is entitled to buy and sell on behalf of their employers. They can enter the exchange and act on behalf of their employers. They are employed to transact business on behalf of their employers when they are absent from the exchange.



Securities are investments which are traded in the stock exchange in order to yield income. They may carry fixed interest rate, e.g. debenture. It is a general term for investments traded on at the stock exchange. Examples of securities are shares, stocks, gilt-edged, bond and debenture.


Types of Securities

  1. Shares: Shares can be defined as an individual portion of the company’s capital owned by shareholders. It is the interest which a shareholder has in a company. In other words, a share is a unit of capital measured by a sum of money. A share also represents the mechanism by which the shareholders of a company can have limited liability. They have single indivisible units, e.g. N250, N50 etc.
  2. Stock: Stock can be defined as the bundle of share or mass of capital which can be transferred in fractional amount. They are always fully paid, e.g. it can be quoted per N100 nominal value.
  3. Debentures: A debenture is a document which acknowledges a loan generally under the company’s seal, bearing a fixed rate of interest. It usually gives security for repayment of loan as well as the interest. It can be described as a document setting out the terms of a loan to a company, i.e ., certificate of indebtedness. Holders of debenture certificates have no voting rights.
  4. Bond: A bond is a security issued by a government or its agency or private institution as a means of raising fund. Bonds are usually due to be redeemed at some future date, and they carry a fixed rate of interest.
  5. Gilt-edged: Gilt-edged is a security issued by the government; it has a fixed rate of interest. This type of security is considered to be very safe as government cannot fail to pay its debts. Gilt-edged carries a minimum issued risk in terms of repayment.


Factors Affecting Prices of Securities

  1. The forces of demand and supply.
  2. Activities of speculators.
  3. Instability in prices of shares.
  4. Rate of interest on securities.
  5. Political situation of a country.



Speculation is the purchase of security by speculators in the hope that its price will rise and that profitable resale will thereby be possible. Speculators pay little attention to income to be obtained from securities at the moment but are interested in the fluctuations in their market prices. They purchase security with the hope that the price will rise and that selling it will bring profit. Speculation makes security to be more liquid. There are three speculators in the stock exchange, namely:

  1. Bull: This is a speculator on the floor of the exchange who buys securities with the hope that the price will rise and that he will sell at a higher price for a gain. The bull will wait for a time of general rise in prices of securities. A market is said to be bullish if it is keen to buy.
  2. Bear: This is a speculator who expects prices of securities to fall before delivery dates and thus sells out to make good profit. Bear is a name given to a speculator who sells stock in anticipation of a fall in prices of securities.
  3. Stag: A stag is a speculator who applies for new issues of shares and stock in large quantity with the feeling or anticipation that prices of the shares will rise above the offer prices. The stag hopes to make profit after selling.



Second Tier Securities Market (SSM) is a market in which buying and selling of existing securities of companies take place. It came into existence in order to complement the efforts of the stock exchange market towards fund mobilisation for investments.

Second Tier Securities Market is an appendage of the Stock Exchange and therefore serves to assist it. The mode of operation in this market is similar to that of the First Tier Security Market but it is less restricted. One of the reasons for setting it up is to create avenue for investment in order to develop the economy of country, e.g. Nigeria. Investors in this market are equally protected by the stock exchange. The major participants in this market are stock brokers and banks such as acceptance houses, investment banks, issuing houses etc.


Advantages of SSM to the Companies

  1. The market provides opportunity for buying and selling of shares of companies.
  2. It is an avenue for companies and investors to raise more capital.
  3. SSM also assists and complements the efforts of the stock exchange market.
  4. Availability of short and long term fund to companies can lead to expansion in operation and prospects for growth.
  5. It ensures survival and development of companies without fear of discontinuity.
  6. SSM is set up to enhance investment avenues and the development of the Nigerian economy.
  7. It provides financial advice to companies in areas to invest their funds.
  8. SSM saves advertising costs when shares are being floated.


To the Investing Public

9) SSM affords investors the opportunity of assessing the profitability and efficiency of companies so as to know which companies to invest.

10) Investors are provided with the opportunity of obtaining loans.

11) It provides avenue for long term investment.

12) Investors enjoy enhanced ability in buying and selling of shares.

13) Investors have the assurance of enjoying 10% of equity capital of companies operating at SSM.


Operating Regulations at SSM

(a) Method of Admission

The following are the methods of admission into the SSM.

  1. Offer for Sale: This is an offer to the public to sell part of the equity of existing shareholders of a company to investors.
  2. Offer by Introduction: A company can be allowed entry after it has sold 10% of its equity to the public.
  3. Offer by Placement: Here, stock brokers undertake to look for buyers for at least 25% of the company’s share.
  4. Offer for Subscription: Offer for subscription is an offer to sell new shares of a company to interested investors.


(b) Requirement for Admission into SSM

Before a company can be admitted into SSM, it has to fulfil the following requirements:

  1. The company must be incorporated as a public limited liability company under the Companies Act 1968.
  2. The shareholders must not be less than 100.
  3. The company must sign a general undertaking with the stock exchange market.
  4. The company must make available, at least 10% of its equity share to the investing public.
  5. The financial statements of the company for three years must be submitted to the stock exchange.
  6. Any investor or shareholder will not be allowed to either directly or indirectly acquire more than 75% of the issued capital.



  1. Arbitrage: This is the practice of switching fund from one market to another in order to exploit price or yield differentials.
  2. Contango: This is a term used when a member wishes to postpone or carry over settlement of transactions to the following account does so on payment of interest on the sum due. In other words, it is a charge paid by a speculator for deferring settlement from one account day to the next on account of shares purchased.
  3. Backwardation: This is a payment made by a speculator to the buyer when he is unable to deliver stock to the buyer on the agreed date.
  4. Ticket Day: This is one of the two days in which the broker passes to the jobber the ticket which shows particulars of transaction. Within the days, arrangement for final settlement on account day can be made. It shows the names of the investors, details of shares purchased and the price.
  5. Account Day: Account day or settlement day is the second day on which settlement of transaction is completed by the transfer of money due for securities purchased.
  6. Bearer Securities: These are securities which are transferred by handing them over without change of registration. This kind of security is one in which possession is regarded as proof of ownership. The holder is the legal owner.
  7. Inscribed Securities: These are securities in which certificates are not given to the buyer. The ownership will only be documented in the register.
  8. Issuing Houses: These are financial institutions which specialise in making public issues of shares on behalf of public limited companies. The issuing house takes up the entire or large part and offers it for sale at a slightly higher price.

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