Capital Market In Nigeria Vis-A-Vis Its Career Opportunities For Lawyers

By Mustapha Babalola Toheeb.

INTRODUCTION.

The capital market is a complex institution and mechanism through which intermediate and long run funds are made available to government, business (firm) and individuals. The capital market therefore is an instrumental arrangement that performs the function of mobilizing private and public savings from surplus spending units and channeling them to the deficit units for the production of goods and services. Unlike the many money market which primarily exist as a means of liquidity adjustment, the capital market provides a bridge of transforming saving into long term investment by using equity bonds, debentures, mortgages and investment stocks to facilitate intermediation.

The market makes it possible for private and public sectors of the economy to rise long-term capital to execute government development programmes and from the expansion and modernization of the private business to enhance outputs, employment and income. The capital market is often described as an important part of country’s economy, which is indispensable to economy growth and development. In short, it is a place where nation’s wealth is bought.

The capital market itself is divided into two which are:

1. Primary Market: it is the market for new shares or securities
2. Secondary Market: it deals with exchange of prevailing or previously issued to securities among investors.

The importance of the capital market in economic development cannot be over emphasized. There is consensus of opinion that the nature and the content of the benefit which the capital market offer country be judged by the effects on the mobilization of savings, capital inflow and out flow the mobility of investible surplus funds, resources allocation, distribution of income and wealth and the response of economic policies.

Therefore, the development of the capital market should encourage efficient mobilization of both domestic and foreign savings for productive investment in order to achieve economic development. Without productive investment, there will be no growth and saving and there will be no investment.

The Nigerian capital market is an integral part of the Nigerian financial system. Other

sectors of the Nigerian financial system include: the money market, the insurance

market and the pensions. Each of these markets has a statutory regulatory institution

namely: CBN, SEC, NAICOM and PENCOM for the money, capital, insurance and

pension markets respectively. These regulatory institutions are empowered by statutes(laws) to supervise the various markets and facilitate the exchange of funds between the surplus and deficit units.

Operators in the market include Merchant Banks, Stock broking Firms, Issuing Houses, Development Finance Companies, the Central Bank, Securities and Exchange Commission and the Stock Exchange.

Emerging capital markets all over the world have a history and Nigeria is not in any way different. The Nigerian capital market represents a small but growing proportion of the nation’s economy. This study on the development of the capital market institution in an emerging economy like Nigeria seeks to examine not only how it came to be established but also how this institution has evolved to impact upon the Nigerian economy. The Nigerian capital market is principally a market for long-term investments where corporate equities and long-term debt securities are issued and traded. It is a market that is regulated by the Securities and Exchange Commission (SEC), which is the apex regulatory body of the Nigerian Capital Market. The capital market is so vital to the development of any economy that no country can risk its existence without putting in place measures to regulate the activities of the market. Consequently, government, at various points in time sought to promote an orderly growth and development of the market for viable investment opportunities. In view of this background, this article will be looking at the establishment and operation of the Securities and Exchange Commission.

The Securities and Exchange Commission (SEC) which is the apex regulator of the

Capital market began in 1962. It started as the Capital Issues Committee at the CBN

and later became the Capital Issues Commission in 1973 when the Capital Issues

Commission Act was enacted. The name Capital Issues Commission was later changed

to the Securities and Exchange Commission (SEC) in 1980 following the promulgation

in 1979 of SEC decree no. 71. The law has severally been amended and it is now called

the Investments and Securities Act (ISA) No. 29 of 2007.

The SEC is the main regulatory organ of the Nigerian capital market and has the power, inter alia, to:

1. make rules and regulations for the market;
2. register and regulate securities exchanges and other self-regulatory organisations;
3. register and regulate the issuance of securities;
4. intervene in the management and control of failing capital market operators; and
5. in appropriate circumstances, impose penalties and levies on defaulting capital market operators.

The Overriding reason for regulation of the capital market by SEC is to protect investors

by creating an atmosphere that is devoid of sharp practices of any kind. The SEC uses

the tools of Registration, Rules Making, Investigation, Monitoring, Enforcements and

Compliance to ensure that all market participants play according to rules.

• EVOLUTION OF THE NIGERIAN CAPITAL MARKET

Capital market activities in Nigeria can be said to have commenced in 1946 with the

issuance of the first development stock of £300,000 (Three hundred thousand pounds

sterling) by the then Colonial Administration. This took place even before the Central

Bank of Nigeria (CBN) was established in 1958. The CBN and the Ministry of Finance

later facilitated the establishment of the SEC and the other institutions of the Nigerian

capital market.

The Nigerian stock exchange came into being in 1960 as the Lagos stock exchange but

started trading in 1961 with three equities, six Federal Government bonds and ten

Industrial Loan making a total of nineteen listed stocks (nineteen stocks all together). It

later changed its name and became the Nigerian Stock Exchange (NSE) in 1977. There

are now over 200 securities listed on the NSE and the trading system has improved

during this time from a manual call-over system to a screen based electronic trading

system where traders transact business via the computer. When companies or governments need funds to execute any task, they can approach the capital market for the funds they need using any of the securities (instruments) such as equities (ordinary shares), debts instruments (bonds, debentures or preference shares).

The Nigerian capital market is regulated by a panoply of laws, chief among them being the Investment and Securities Act, 2007 which is divided into 18 parts, the ISA makes provision for the establishment of the Securities and Exchange Commission. There are key bodies established by the ISA which are the Administrative Proceedings Committee (APC) and the Investments and Securities Tribunal (IST). The APC is a committee of the SEC established as a quasi-judicial fact-finding body. Essentially, it provides the avenue for market operators against whom complaints have been made (by investors and the SEC alike) to be heard prior to the determination of the complaint by the SEC. It goes without saying that a decision of the APC will be regarded as a decision of the SEC, and an appeal can therefore be made to the IST.

The IST is established under the ISA to adjudicate on any question of law or dispute involving:

1. A decision or determination of the SEC in the operation and application of the ISA, and, in particular, relating to any dispute between:

capital market operators;

capital market operators and their clients;

an investor and a securities exchange or capital trade point or clearing and settlement agency; or capital market operators and self-regulatory organisations;

2. The SEC and a self-regulatory organisation;
3. A capital market operator and the SEC;
4. An investor and the SEC;
5. An issuer of securities and the SEC; and
6. Disputes arising from the administration, management and operation of collective investment schemes.

Decisions of the IST are to be enforced in the same manner as a decision of the Federal High Court (FHC). Appeals arising from decisions of the IST lie at the first instance to the Court of Appeal.

Other laws regulating it includes the Securities and Exchange Commission Rules and Regulations,2013(SEC Rules) which is drawn up by SEC pursuant to its power and it is considered as the market’s bible.

Another law regulating capital market in is the Companies and Allied Matters Act. The Companies and Allied Matters Act (CAMA) is secondary in its applicability to the capital market. It governs most aspects of the incorporation and operations of companies and other corporate bodies requiring incorporation or registration with the Corporate Affairs Commission (CAC). To the extent that these companies and corporate bodies are participants in Nigeria’s capital market, CAMA provisions are significant and apply also to the capital market. For instance, Parts VI and VII of the CAMA make provisions on the nature and types of shares and bonds to be issued by companies. These securities end up being offered and traded in the Nigerian capital market.

Undoubtedly, other sector-specific legislation has a certain degree of relevance to the capital market. Arguably, the most important is that relating to banks (Banks and Other Financial Institutions Act, 1991) (as Amended), pension fund administrators (Pension Reform Act, 2014) and the Central Bank of Nigeria (CBN) (Central Bank of Nigeria (Establishment) Act, 2007).

It is worthy to note that dealings in foreign exchange are regulated by both statute and the CBN through regulations, circulars and directives. A key piece of legislation is the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (FEMM Act). Foreign exchange (FX) transactions are also regulated by the Foreign Exchange Manual (FX Manual), which was recently revised so that it conforms with the foreign exchange practices implemented by the CBN in the past two years.

Capital market provides plethora of opportunities for companies such as opportunities for companies such as access to capital, access to cheaper funds than would have been raised from financial institutions, opportunities abound where capital can be invested to yield returns, listing on the exchange boost the image of the company and lastly it aids the visibility of the company and its products.

Moving further to the career opportunities in capital market, the capital market is not short of opportunities for lawyers. Lawyers can advise clients as either solicitors to an issuer or as solicitors to an offer. It is the duty of the solicitors to an offer to make sure there is no deliberate misstatement of facts or concealments in the offer document.

Another area where lawyers can come in as a trustee. A trustee is an individual or an institution put in charge of overseeing the day to day management of property owned by a trust for the benefit of the trust. In the capital market, trustees are the eyes and ears of the investors, especially, in bonds and unit trusts schemes. They keep custody of the title documents and ensure that the issuer complies with the Trust Deed.

 ISSUES OF CONCERN IN THE NIGERIAN CAPITAL MARKET

1. Ponzi schemes.

These are scams calculated to deceive the unsuspecting individuals. It has the following characteristics. There is a promise of abnormal returns on cash they want you to invest, usually far higher than what is obtainable in the banks. The money raised is not used in any productive ventures; instead, monies collected from subsequent investors are used to pay initial investors. The initial investors when they receive their first return go to town with the news of their superior returns, telling friends and relatives who are then attracted to invest based on the confirmation received. The purported investment (Ponzi scheme) manager banking on this euphoria then collects cash from many more unsuspecting depositors but after a short while closes shop and makes away with the money collected to another far destination before the law catches up with him.

2. Limited knowledge of the market

• Investing in the capital market requires knowledge about the market. A prospective investor in the market would need to have basic knowledge about investments or
• employ the services of an investment adviser. Inadequate knowledge of the market can make the difference between a profitable investment and a non-profitable one.

CONCLUSION.

On a final note, it’s crystal clear that capital market is an area that’s pivotal to the growth of the nation’s development and also at the same time, it has a lot of career opportunities for different disciplines including lawyers as lawyers has a major role to play in the process of capital market.

REFERENCES:

1. A paper presented on opportunities in the Nigerian Capital Market by The Securities and Exchange Commission, Abuja.
2. NWANKWO G.O: Money and Capital Market in Nigeria Today, University of Lagos Press Page 161-135 1991.
3. NWANKWO E.A “The Development of Capital Market in Africa with particular reference, a Kenya and Nigeria IMF Staff paper (Washington) volume 2 July 1997.

ABOUT THE AUTHOR.

Mustapha Babalola Toheeb  is a Pupil of Law, a content creator, a blogger & a student of Faculty of Law, Bayero University, Kano. He is the Founder of Lex Updates Publications and the Zonal Director, Directorate of Programs, Policies and Projects, North West Zone, Law Students Association of Nigeria.

He is interested in advocacy, academic writing, legal writing/history, activism and a  plethora of positivism. To reach him,email:[email protected] or contact/whatsapp:08106244073.