Frequently Asked Questions (FAQ)

Who is a stockbroker?

A firm or a person, registered by the Securities and Exchange Commission, licensed by The Nigerian Stock Exchange and certified by the Chartered Institute of Stockbrokers, to buy and sell securities (quoted and unquoted) on behalf of another person called ‘ investors’ for a brokerage commission. The commission charged is regulated by the Securities and Exchange Commission.

Who is an investor?

A person or an institution that buys or sells securities for benefits or a consideration – capital gains, dividend, bonus share, rights issue etc. 

What are securities?

Securities are classes of liquid assets that confer a form of ownership, which can be easily traded on a secondary market, such as stocks and bonds. It also includes their derivatives, such as futures contracts and options.

What are stocks and share?

Stocks and Shares are used interchangeably. However, there is a minor distinction:

Stocks are share of a company that represents ownership or a stake on the company.

 Shares are the unit of ownership interest or a financial asset in a corporation. While share are often used to refer to the stock of a corporation, it can also represent ownership of other classes of financial assets such as mutual funds.

Who can buy shares?

Under the Nigeria laws, you have to be 18 years and above to qualify to buy shares in your name. However, parents buy shares for their wards in their own names and later transfer them to the children when they attain the legal age of 18.

Can shares be transferred?

Yes, shares are transferable but only through a stockbroker 

How do I buy stocks on the Nigerian Stock Exchange?

Stock can be bought and sold on The Nigerian Stock Exchange through an Authorised Dealing Member known as Stockbroker.

Which stocks should I choose?

That depends on the investors’ investment objectives and the advice of a stockbroker.

What is a scrip or bonus share?

These are new shares made fully- paid by the capitalization of reserves and allotted free of charge to ordinary shareholders in proportion to their existing holdings. In this process, fractions of shares sometimes arise and are often aggregated and sold, after which a cash payment in respect of the fraction is made to every qualified shareholder.

What does a stockbroker charge for his services?

A stockbroker charges a commission called “Brokerage” The charge is regulated by the Securities and Exchange Commission.

What are the charges for buying and selling shares in the Nigerian Stock Market?

The following are the statutory charges for the purchase and sale of shares on The Nigerian Stock Exchange:

Consideration refers to the price of the shares purchased, i.e. unit price times the quantity of shares purchased

What does an investor gain by buying shares?

  • Dividend which is part of company’s profit.
  • Bonus shares – i.e. extra shares fully paid out of reserve which is distributed to existing holders.
  • Capital appreciation as market prices of shares increase.
  • Right to attend meeting of shareholders and participate in its deliberation as voting members.
  • Use of share certificate/ CSCS statement as collateral for bank borrowing. etc
How are the activities of stockbrokers controlled?

As members of The Nigerian Stock Exchange their activities are regulated by the Securities and Exchange Commission and The Nigerian Stock Exchange.

Why are the activities of stockbrokers regulated?

This is to protect the investing public and maintain public confidence in the buying and selling of securities.

Who do I approach when I have problems with a share certificate or dividend?

Your stockbroker or the company’s registrar.

What is the ATS?

The ATS refers to the Automated Trading System of The Nigerian Stock Exchange. The system became operational in April 1999 and replaced the call-over trading system.

Automated trading refers to a procedure whereby dealers on the trading floor of the stock exchange enter buy and sell orders for shares into an electronic trading system. The trading system is designed to generate trades automatically when selling and buying prices match

What is Clearing House Number (CHN)?

This is the Clearing House Number assigned to every shareholder at the first point of entry into CSCS system by completing CSCS – R005 shareholders particulars. Shareholders are to provide the same CHN to all subsequent stock broking firms they have transactions with for ease of reference.

What is the CSCS?

CSCS is an acronym for the Central Securities and Clearing System Limited, the Company that provides central clearing and depository services for The Nigerian Stock Exchange.

It was incorporated in 1997 and has since provided central clearing services for investments in The Nigerian Stock Exchange. Central clearing refers to a process whereby the registration, clearing, settlement and delivery processes are centralized thereby reducing the cost and time involved in processing trades on the stock exchange.

What is a unit trust?

A system where a number of investors pool money together and invests collectively in shares and bonds; with each investor owning a unit, with the value depending on the underlying assets owned by the fund. A unit trust allows modest investment to be diversified away from a holding in a single or small number of companies. It gives the combined benefits of diversification, security and a sufficient weight of assets to ensure cost-effectiveness and merit the attention of leading fund managers. The trustee is normally a major bank and is the legal holder and custodian of the securities

Can an investor change from one stockbroker to another under the CSCS operations?

Yes. The investor is free to change from one stock broking firm to another.

Can a client (shareholder) take the CSCS statement to another stockbroking firm?

Yes, he can.

What is the relationship between The NSE and CSCS?

CSCS is an associate company of The Nigerian Stock Exchange but an independent company. All shares to be traded on the NSE floors must be deposit with the CSCS, which does clearing and settlements of trades for the NSE.

How many times are shareholders required to complete the shareholders particulars form?

Shareholders are required to complete the form only once. They are to provide the same CHN to all subsequent stockbroking firms they have transactions with for ease of reference.

What are account numbers and how are they obtained?

This is CSCS computer generated account number that is allocated to a new shareholder. It is unique to each stockbroking firm. A shareholder can have as many accounts as the number of stockbroking firms he uses but one account per house.

What is the relationship between The NSE and CSCS?

CSCS is an associate company of The Nigerian Stock Exchange but an independent company. All shares to be traded on the NSE floors must be deposit with the CSCS, which does clearing and settlements of trades for the NSE.

What is Market Making?

Market making is the process whereby a broker-dealer who has been registered as such, holds himself out to provide continuous two-way quotes (compromising of buy and sell prices and sizes) to the market for the securities that they make markets on during the trading day.

Who is the Market Maker?

A market maker is a broker dealer licensed to execute and maintain firm bids and offer according to the rules of the Exchange.

How were the markets making securities baskets allocated?

The Exchange conducted a comprehensive selection process based on certain criteria:

  • Compliance history
  • Past trading performance
  • Financial capability
  • Technology and business readiness
What are Opening and Closing auction?

The Opening auction occurs every day at the end of the pre-open adjust session on the NSE. It is a process through which order book during pre-open are matched in such a way that the highest volume that can be traded at a single price is matched. The opening auction establishes the opening price, also called the equilibrium or market clearing price, of a security just before the continuous trading session commences for the day. The closing auction is a similar process as the opening auction, but is used to establish the closing price of the security for the day. It takes into consideration existing orders in the order book during the continuous trading session.

How are the listed companies protected?

The primary reason for Market Making is to provide liquidity for the shares of a listed company. The Exchange will continue to enforce its post listings requirements as regards free float and will not tolerate and hostile take-over of the company by the Market Maker. The company stands to benefit a lot from the market making programme.

What Is Short Selling?

Short selling involves the selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short selling is a legitimate trading strategy on the floor of the Nigerian Stock Exchange (NSE) provided the security has been borrowed and in the account of the seller prior to initiating a trade on the security.

Market makers can however engage in covered short selling activities, which require that a bona-fide agreement to borrow a security is in place with an authorized securities lender prior to selling short.

Naked short selling is banned for all market participants on the floor of the NSE, short sellers assume the risk that they will be able to buy the stock at a more favourable price than the price at which they sold short.

What is naked short selling?

The practice of selling shares you do not own without borrowing, or making arrangements to borrow the shares.

Can every Broker Dealer Short Sell?

Yes, all Broker Dealers can Short Sell. However, they are prohibited from naked short selling.

What is Covered Short Selling?

A Dealing Member may not accept a short sale order in any security from another person, or effect a short sale in any equity security for its own account, unless the Dealing Member has borrowed the security, or entered into a bona-fide arrangement to borrow the security, which will be delivered on the date of delivery. Covered short selling is the act of selling securities that you have borrowed or entered into a bona-fide arrangement to borrow.

What are the consequences for naked short selling?

The penalty for naked selling depends on the degree of default;

  • 10{2d573afb44a2c0849d5570cf28788736e32cc2fcbfa6084a2608cc77dc421ed3} of the value of transaction
  • Suspension
  • License/Privileges revoked
Will orders that have been Short Sold be marked in the system?

All orders for short sale must be marked “short sale.”