FREQUENTLY ASKED QUESTIONS ("FAQs")
1. Who is a Sub-Broker?
A Sub-Broker is a Capital Market Operator duly registered with The Securities and Exchange Commission ("SEC") to carry on the business of securities dealing. A Sub-Broker can buy and sell shares for clients and self through an affiliate stock-broking firm.
2. Who is a Corporate Investment Adviser?
A Corporate Investment Adviser is a Capital Market Operator duly registered with SEC to carry on the business of investment and financial advisory to individuals and corporate entities in respect of capital market investments.
3. What is Lease Finance?
Lease Finance is a short or medium term finance used to acquire assets and/or equipments with/without the title of the asset/equipment being transferred to the lessee (the borrower). Finance Lease is for a longer period, the title of the asset being transferred to the lessee, and all costs/expenses incidental to the repairs/maintenance of the asset is borne by the lessee. Operating Lease is for a shorter period, the title of the asset is resided with the lessor (the lender) but may contain an Option of Buy/Ownership at the end of the lease period. In addition, all costs/expenses incidental to the repairs/maintenance of the asset/equipment is maintained by the lessor.
4. What is an Initial Public Offering ("IPO")?
An IPO refers to the issue or sale of shares by a company seeking for listing as a publicly quoted company on the floor of the Nigerian Stock Exchange to the investing public for the first time in its corporate existence. The company appoints one or more investment banks (acting as the issuing house(s) to coordinating the IPO in concert with other professional parties such as stockbrokers, registrars, trustees e.t.c.
5. Does this mean the same thing as going public?
Correct. A company is said to be going public when it is undertaking an IPO. What this means is that the company becomes a Public Limited Company (PLC) whose shares are quoted and publicly tradeable on the floors of the Stock Exchange.
6. Why do companies go public?
Companies go public for a variety of reasons. Firstly, an IPO raises additional long term funding, which increases the company's capital base, towards funding productive investment.
Secondly, most companies utilize IPOs' to effect a change in their capital structure such that costly bank credit are retired from the proceeds of an IPO which is more cost effective and non-interest bearing. Others seek the prestige as well as enhanced financing opportunities available to Plc's' and the perception of sound corporate governance.
7. What are the changes expected of newly quoted companies?
Publicly quoted companies are required to adhere to the Stock Exchange Disclosure Requirements. For instance, they must furnish the Exchange with unaudited quarterly financial results as well as full year-end audited accounts within specified periods of time.
Public quotation also enforces a greater level of accountability and probity on companies especially as the regulations on investor protection are enforced consistently.
8. How are IPO shares bought and sold?
During the offer period (usually 21 working days) application forms can be obtained from authorized receiving agents, mostly banks and stockbrokers. Payment for shares can also be made through the same outlets.
Successful applicants are allotted shares while disqualified applications attract full refund. Subsequently all the issued shares are listed on the Stock Exchange, where they become tradeable from then on.
9. Can a newly quoted company be referred to as a blue chip?
No. A blue chip can be described as an established company having a long record of stable growth and credit worthiness and history of consistent dividend payment over a number of years.
10. What is Capital Gain?
This occurs when an investor sells an investment at a price higher than its carrying cost (i.e. cost of purchases). The Federal Government has abolished Capital gains Tax on stock market investments in Nigeria.
11. What is Earnings Per Share (EPS)?
This represents a fraction of a quoted company's earnings per each share outstanding. It is derived by dividing the company's post-tax Profit by the number of ordinary shares in issue.
12. What exactly is the Stock Exchange?
The Stock Exchange is the regulated financial marketplace in which shares, bonds and options are traded. The Nigerian Stock Exchange, which was established in 1961, is the country's only stock exchange.
13. What does Market Capitalisation mean?
This is the monetary value placed on a company by the market, calculated by multiplying the total number of shares outstanding by the current market price.
14. What is a new issue?
A new issue is a security or instrument being offered to the public for the first time. New issues may be initial public offerings by private companies going public or additional securities of corporations already public.
15. What is Price Earnings (P.E) Ratio?
This is a ratio that expresses the price of a company's stock in relation to its earnings per share. It hypothetically indicates over how many years, an investment in the stock will be recouped at current earnings and price terms.
16. Who regulates the Stock Market?
The principal regulator of the entire financial system in Nigeria remains the Central Bank of Nigeria. However the Securities and Exchange Commission (SEC) is vested with the responsibility of overseeing all capital market activities in Nigeria. Other Self-Regulating Organisations such as the Nigerian Stock Exchange (NSE), the Chartered Institute of Stockbrokers (CIS) and Association of Issuing House of Nigeria (AIHN) also play quasi-regulatory functions within the capital market community.
17. What is a Prospectus?
This printed document is actually a summary of a company's registration statement for new securities filed with the SEC. It contains in detail all material information about the corporation and the security being issued. A prospectus must be given to all potential buyers of a new issue.
18. What is underwriting?
The Securities and Exchange Commission ("SEC") has directed that all public offers must be at least 80% underwritten by Issuing House(s) Underwriting therefore means the upfront payment of all or part of the Offer proceeds by the Issuing House to the Issuer as a means of warehousing the shares to prevent unsuccessful offers due to low subscription.
The two forms of underwriting commonly used in the Nigerian Capital Market are Standby and Firm. While Standby Underwriting is contingent upon poor performance of an Offer, Firm Underwriting is normally done upfront.
19. What happens if an offer becomes oversubscribed?
Excess application monies may be utilized in allotting additional shares to the extent that can be accommodated by the company's unissued share capital (Authorized Share Capital) subject to regulatory approval. Any excess not accommodated by the authorized share capital shall be returned to shareholders as "return monies".
