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Effect of global financial crisis on nigerian stock exchange market

What roles did the global economic meltdown play in the crises? Manipulation of share prices does not significantly affect the market. Manipulation of share prices affects the market. Insider trading is not a significant factor in destroying confidence in the market. Insider trading is a significant factor in destroying confidence in the market. The crises in the exchange has not affected the Nigerian economy in any way.

The crises in the exchange has affected the Nigerian economy in some ways. There is no significant relationship between the global economic meltdown and the crises in the Nigerian stock exchange. There is significant relationship between the global economic meltdown and the crises in the Nigerian stock exchange. The Nigeria stock exchange is taken holistically but with the Onitsha branch of the exchange as a contact point.

To achieve this, investors in Enugu effect of global financial crisis on nigerian stock exchange market were selected. But the researcher properly managed his time effectively and efficiently. This study will be of significant interest to government and the central bank of Nigerian as they are aware of the problems facing the Nigerian stock exchange and remedies to tackle these problems.

The study will also be significant to institutional operators of the market especially the Nigerian Securities and Exchange Commission SEC and the future researchers who may want to share this experience.

This study will be of interest to investors who have been at the receiving end of the crises in the exchange. They will be able to know the real cause of the problems, response of SEC and efforts being made to protect their investments. The significance of this study will provide foreign businesses with the facilities to offer their shares and give the Nigerian Public an opportunity to invest and participate in the share and ownership of foreign businesses.

Nigeria stock exchange started in 1960 but commenced operations in 1961. Examples include stock, bonds, loans, and derivatives. SEC is the regulatory arm of the Nigerian capital market. It assumes a number of different systematic risk factors without however, definitively identifying the various types of risk. Friday August 6, 2010 p. Wall Street is where it all began The New York Institute of Finance; 1992but one will see that the Nigerian financial market — place today bears little resemblance to its origin there.

As companies were organized to conduct different types of commercial activities such as banking, retail trade, or shipping, an informal market in shares of these companies developed among the merchants who controlled them.

Literally however, a stock exchange can be described as a market for securities. A place where securities Bonds, stock and shares of varying types are traded openly, and where one can purchase or sell any of such securities relatively easily.

According to Alile and Anono 1986; 29securities are documentary evidence of ownership or entitlement to claim upon the assets of the issuing organization, which may be a business firm of the issuing organization, government. These documentary evidences usually have no fixed or absolute value but are traded on the stock exchange at values which are subjectively determined by those buying or selling them.

Okafor 1983 describes a stock exchange as an organized secondary market since a stock exchange is really strictly a market for existing rather than new securities.

The stock exchange provides an avenue for the movement of long-term capital funds from those with savings to invest in those areas of industries, commerce and government where funds are lacking for expansion and other developmental purposes.

According to Alile and Anorno 1986the stock exchange can also be a mechanism barometer as some would suggest which can measure and detect the symptoms of an impending economic boom or decline long before the predicted prosperity or decline actually occurs.

The stock exchange is able to change in economic conditions and trends which are a reflection of the total psychology or judgments of persons using the stock exchange, among whom the professional investment economist or analyst exerts the greatest influence.

She argued that the capital market, unlike the money market which functions basically to provide short-term funds, provides funds to industries and governments to meet their long term capital requirements, such as financing of fixed investments — buildings, plants, machinery, bridges etc.

The Nigerian Capital Market is a market for sourcing of medium and long-term funds by both the government and private sectors of the economy.

The strategic roles of the capital market in the allocation of scarce financial resources for rapid economic growth and development of any nation is well documented.

For example, Oladejo, R. Persuade 1990further enumerates the role of capital markets in economic development to include: This marketability also facilitates the dispersal of ownership form traditional industrial and financial interests; Improves the gearing of the domestic corporate sector by facilitating equity financing, and this helps to reduce corporate dependence on borrowing, thus making the financial system more solvent; Provides, through equity financing, a cushion effect of global financial crisis on nigerian stock exchange market companies against the variability of cash flows and even possible losses.

Also, it is permanent financing which does not demand regular fixed returns like debt. With all the above enumerated roles of the Nigerian capital market, however, attainment of such goals is not feasible without the pivotal role of the Nigerian stock exchange. The Nigerian capital market without the Nigerian stock exchange is like a car without a fuel to propel it. The Nigerian stock exchange is therefore a self — regulatory organization SRO.

It regulates its members brokerage firms. It also regulates its listed companies to ensure compliance with listing rules. Directors of companies stand in a fiduciary relationship with their companies and are expected to run their companies with utmost good faith, competence and integrity.

Audit committees of publicly quoted companies are also vital organs of integrity in corporate governance. External auditors also play a pivotal role in ensuring the integrity of information emanating form companies quoted on the exchange, as they are statutorily required to attest to the financial statements published by such companies. Others include issuing houses, reporting accountants, lawyers and investment analysts.

Sadly, however, the Nigerian stock exchange is yet to score high on integrity. The Central Bank of Nigeria CBN has also been persistent in accusing banks, many of them players in the capital market, of consistently sending false returns to it.

For example, in the wake of the closure of savannah bank plc before its license was released back in 2010CBN reported that it was unable to confirm a figure of N2.

In the same vein, Onosode, G. O 2001 is unrelenting in his attack on Nigerian company directors who allow personal interest to colour their official actions and some Nigerian auditors who allow their cozy relationship with directors to colour their disinterestedness in carrying out their work.

  • The timely sanction of the management of the NSE by the SEC is a positive pointer that the regulatory body is not oblivion of sharp practices in the capital market;
  • Manipulation of share prices affects the market;
  • So even without the global downturn, according to the report, the over-inflated Nigerian stock was subject to wide spread abuse and insider trading of unimaginable magnitude and was headed for disaster;
  • They will be able to know the real cause of the problems, response of SEC and efforts being made to protect their investments.

Yet, to say that lack of integrity is peculiar to the Nigerian capital market is to miss the point. However, the crisis of integrity is exacerbated in the Nigerian capital market scene for reasons that include: So even without the global downturn, according to the report, the over-inflated Nigerian stock was subject to wide spread abuse and insider trading of unimaginable magnitude and was headed for disaster.

The period 2002 — 2008 was a one of boom for the Nigerian economy. Crude oil prices hit a peak of 7 per barrel in July 2008. During the period, Nigerian stock market capitalization rose to peak at N12.

THE IMPACT OF NIGERIAN STOCK EXCHANGE CRISES ON THE NIGERIAN ECONOMY

The boom in stock led to a mad rush by almost all Nigerians to invest in stocks. In a period of three years, a notable bank in the country, organized three public offerings, first in 2005, then in 2006 and again in 2007.

The rising share prices encouraged more people to borrow and invest; hoping that the shares prices would rise further.

The price rose above the capacity of ordinary people to buy shares and the stockbrokers simply lent more. The speculation thus fueled further rises and created an economic bubble. They banks lent millions to their staff and coerced them sometimes against their wish to invest in the banks own shares. Investors were shaken, stock prices sank and liquidity from margin lending evaporated. Part of the causes for the present crisis is that a lot of Nigerian stock brokers were stuck with the loans and the banks with liquidity problems, while certain chief executives of some banks became richer than their banks.

Thus even without the global downturn, even without the alleged repatriation of foreign funds, the Nigerian Stock Market was inflated, artificial; the correction would have been as shocking and painful.

The artificial boom led to a burst. However, Dangote emerged the president of the Nigerian Stock Exchange because the exchange has a laid down rules and regulations similar to that of Institute of Directors IoD for electing next president NSE monthly newsletter, 2009. According to the NSE rules pertaining to the selection of a president, the first vice-president to the outgoing president is always elected the president except there is a major development of statutory reasons to set this procedure aside NSE 2009.

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According to Kingsley in Guardian, Wednesday, August 18, 2010an obvious manifestation of the rots in the NSE occurred when SEC suspended Nova finance securities on March 26, 2009, after investigations uncovered unethical practices of insider trading. According to him, the investigation triggered another probe into Afribank Registrars; accused of aiding and abetting the unethical practices by Nova finance securities.

Dangote and Nova with the assistance of Afribank registrars were said to have swapped a total volume of 500,000 units of irredeemable non-cumulative convertible preference shares in 10 different transactions, which were admitted to the daily official loss of the Nigerian Stock Exchange.

But in a twist of fate, the euphoria that followed his landslide victory at the NSE election was cut short by the federal high court in Lagos, which nullified the election; shareholders of African petroleum plc. The disagreement within the NSE council is believed to be connected with Prof. Dangote, according to Boniface Keizer 2010; 45 rejected the proposal. Instead, in a swift reaction, Dangote in his petition accused the management of the NSE of misappropriating over N11 billion between 2007 and 2008.

The expenditures being questioned by Dangote include theN450 million for international travels, N125 million on business and local trips, N70 million on trips to Abuja, N980 million for personnel training, and others the Guardian, Friday August 6, 2010.

It derives its legal muscle form the investments and Securities Act of 1999 ISA and has as its major functions the following: Investor protection thereby enhancing their confidence in the capital market; Ensuring of orderly and equitable dealings insecurities business and Promotion of capital market growth and development. Okereke 2002 opines that in designing a regulatory framework, a delicate balance have to be struck between allowing the market sufficient room to carry out its functions while at the same time ensuring that practices that impinge the integrity of the market are prohibited.

In the wake of the crisis in the NSE and carrying out its oversight regulatory functions, SEC on Wednesday August 4, 2010, announced the removal of the Director General of the NSE, Okereke-Onyiuke and directed Dangote to cease acting as president of the council, in line with a subsisting court order, pending the final out come of the litigation.

He added that the SEC had become concerned about recent development in the NSE, particularly inadequate oversight litigations resulting form boardroom succession squabbles, allegations of financial mismanagement, governance challenges, and delay in implementing the succession plan of the exchange carefully weighting the implications of direct intervention in the affairs of the exchange on the market against the more compelling goals of safeguarding the public interest and investors.

On the other hand, a founding member of the Shareholders Solidarity Association SSAGbadebo Olatokunbo believes the investors would benefit from the turn of event. Kingsley Okon of BGL securities, however, said that nothing really has exchanged. According to him, whoever becomes the director general of NSE will not change things much. It is the performance of the individual companies in the market that constitute the true state admitted that what the management of SEC does is to ensure that the operating environment runs according effect of global financial crisis on nigerian stock exchange market stipulated rules and regulations.

Already, some stakeholders have called on the economic and financial crimes commission EFCC to wade into the matter as part of strategies to ensure a thorough job is done. For example a Lagos based economist, Dr.

He added that in other parts of the world especially in the developed societies, similar issues are given urgent attention because of their ability to harm the larger economy.

The impact of the crisis in the capital market is both of positive and negative one. Another positive impact is of the crisis is its ability to educate investors and the general public on the state of affairs in the market.

No doubt the turn of events in the capital market is not palatable with investors and the economy at large, but it sure has a positive impact on how investors should approach the capital market.

  • Manipulation of share prices affects the market;
  • However, the crisis of integrity is exacerbated in the Nigerian capital market scene for reasons that include:

It is obvious from the unfolding events, that most investors and stockbrokers approach the Nigerian capital market as though it were money market. Their desire to reap in a short-term motivated then to engage in high speculations which invariably influenced stock prices. The timely sanction of the management of the NSE by the SEC is a positive pointer that the regulatory body is not oblivion of sharp practices in the capital market.

In an interview granted to Daily Sun on Monday, August 23, 2010, the president of chartered institute of bankers of Nigeria CBNLaoye Jaiye Ola pointed out that the sack of the NSE management was necessary to engender accountability and transparency in the market.

However, the negative impact of the crisis is more far reaching than the positive effect.