Dennis Odife Panel Report On The Review of The NCM by MoF Sept 1996 - Abridged

The DENNIS ODIFE Panel Report on the REVIEW OF THE NIGERIAN CAPITAL MARKET, 1996
PANEL ON THE REVIEW OF THE NIGERIAN CAPITAL MARKET

FEDERAL MINISTRY OF FINANCE
FEDERAL SECRETARIAT COMPLEX. PHASE I. ROOM 116
IKOYI- LAGOS.
15281
Ref:………………………… 24th September, 19 ........... ..............
Date:…..…….…. .......................... 96
For the Attention of Chief A. A. Ani (M.O.N.)

The Honourable Minister of Finance, Office of the Honourable Minister, Federal Ministry of Finance
Abuja.
Honourable Minister,
FINAL REPORT ON THE REVIEW OF THE NIGERIAN CAPITAL MARKET

On March 22nd 1996, The Panel On The Review Of The Nigerian Capital Market ("The Panel") was
inaugurated to review the Nigerian C.apital Market in the context of fourteen elaborate Terms of
Reference. The Panel has completed its task, 3fld hereby submits its Report, entitled "THE FINAL
REPORT OF THE PANEL ON THE REVIEW OF THE NIGERIAN CAPITAL MARKET" for your
consideration.
The Panel carried out its work in a consultative manner, inviting contributions not only from the
public at large in the form of Memoranda, but also from knowledgeable individuals and
Organisations in both the public and private sectors of the Nigerian economy. Working as a
Committee of all of its Members and its Secretaries, The Panel met with distinguished resource
persons, as well as the Chief Executives of the Securities and Exchange Commission, The Nigerian
Stock Exchange as well as the representatives of The Central Bank of Nigeria, The National
Association of Chambers of Commerce, Industry, Mines and Agriculture, The Issuing Houses
www.proshareng.com 1
Association of Nigeria, The Manufacturers Association of Nigeria, and some Financial

Correspondents of Nigerian Newspapers, amongst others.
The foregoing were supplemented by Open Public Sessions in seven key cities in Nigeria. Each
Public Session was advertised well in advance, and representatives of the public as well as the
private sectors, and the universities were invited to attend and participate, and they did. In
addition, The Panel undertook an Overseas Study Tour of 9 cities in 6 countries and held 56
meetings with leading Capital Market Institutions and Regulators as well as Self-Regulatory
Organisations, including Central Monetary Authorities, and Stock Exchanges. Detailed studies were
commissioned at the instance of The Panel on aspects of its assignment as was thought
appropriate.
The Final Report comprises 2 Volumes and 5Appendices. Volume I embodies the Panel's Findings
and Recommendations which also includes an Economic Vision for Nigeria in the 21st Century; that
is "PROSPERITY WITH TRANSPARENCY" as well as an Implementation Plan. The Second
Volume is the proposed Draft Legislation to give effect to the Panel's Findings and
Recommendations. Appendices 1 to 5 .are respectively Minutes of Meetings of Panel Members;
Transactions at Seven Public Sessions~ Collection of Working Papers, Sponsored Research and
Report of the Overseas Study Tour; Compilation of Memoranda submitted as well as the Panel's
Interim Report dated 21st June 1996, The Members of the Panel have found the task of reviewing
.and charting a new course for the future of Nigeria's Capital Market to be a most stimulating and
rewarding exercise and wish to thank you for the privilege and opportunity given to us to
participate in this endeavour.
Yours sincerely,
CHIEF DENNIS ODIFE

(CHAIRMAN)
OTUNBA A.O. OGUNDE DR. AHMED ABDULAI

(MEMBER) (MEMBER)
PRINCE LEKAN FADINA ALHAJI AMINU BADA DANBAPPA

(MEMBER) (MEMBER)
MRS. M.A LASHMANN MR. O.G. ABIOSE

(SECRETARY) (SECRETARY)
CHAPTER ONE
THE CAPITAL MARKET AND ITS RELEVANCE

TO A MODERN ECONOMY
1.01 Introduction ----------------------------- - ----------------------------------- 19

1.04 Terms of Reference-------------------------------------------- -------------- 21
1.06 The Capital Market and its
1.07 Financial Markets ----------------------------------------------------------- 24
1.09 The Money Market ----------------------------------------------------------- 25
1.10 The Capital Market - - - - - - ----------------------------------- 25
1.13 The Trading Markets ----------------------------------- - - - - - 26
1.14 The Stock Exchanges --------------------------------------------------------- 27
1.16 Market Participants ----------------------------------------------------------- 27
1.17 The Issuers --------------------------- --------------------------------------- 27
1.18 The Intermediaries ------------------------- --------------------- 27
1.19 Investors---------------------------------------------------------------------- 27
1.20 The Regulators ---------------------------------------------------------------- 28
1.22 Integrated View -------------------------------------------------------------- 28
CHAPTER TWO
- PROSPERITY WITH TRANSPARENCY

A 21ST CENTURY VISION FOR THE NIGERIAN
ECONOMY AND THE CAPITAL MARKET
2.01 Introduction-------------------------------------------------------------- ---- 30

2.03 The Land And People of Nigeria------------------------------------- 30
2.10 The Future ---------------------------------------------------------------- ----- - 38
2.17 Evolution of a Nigerian Culture and Vision ----------------------- 41
2.26 "Prosperity with Transparency" - A 21st Century Vision---------- 43
2.28 The Economy and the Capital Market ------------------------------ 44
A. Nigeria As the Most Important Financial Centre in Africa,
Comparable With The Best In the World ---------------- 44
B. As An Engine of National Economic Growth And Development 45
2. Findings and Recommendations ------------------------------------ 45
CHAPTER THREE
HISTORY AND OBJECTIVES OF THE

NIGERIAN CAPITAL MARKET
3.01 Introduction -------------------------------------------------------------------- 47

3.02 The History of the Nigerian Capital Market- - - - - - - - - - - -------- 47
3.03 Date Landmark Events/ Developments- - - - - - - - - - - - --------------- 47
3.04 Objectives for the Establishment of The Nigerian Capital Market- - - - 51
3.06 Objectives for the Establishment of The Nigerian Stock Market - - - - 52
3.14 Objectives for the Establishment of the Securities and
Exchange Commission --------------------------------------------------------- 55
3.15 Findings and Recommendations -- - - - - - - - - - - - - -- - - - - - - - - - - - 56
CHAPTER FOUR
STRUCTURE, CONDUCT, AND PERFORMANCE

OF NIGERIAN CAPITAL MARKET
4.01 Introduction ----------------------------------------------------------------- 57

4.02 Market Structure ------------------------------------------------------------ 57
4.04 Securities-------------------------------------------------------------------- 58
4.07 Transactions Costs ---------------------------------------------------------- 58
4.10 Ownership Structure -------------------------------------------------------- 71
4.11 Market Segments ----------------------------------------------------------- 71
4.12 The Government Stock Market --------------------------------------------- 71
4.15 Staff Bonds ---------------------------------------------,-------------------- 72
4.20 Second Tier Securities Market - - - - - - - - - - - - - - - - 73
4.21 Market Conduct.........., ---------------------------------------------------- 73
4.22 Buying And Selling Securities - - - - - - - - - - - - - - - -- - - - - - - - - - 73
4.23 Settlement And Delivery System _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 76
4.24 New Issues ------------------------------------------------------------------ 78
4.25 Pricing On The Secondary Market - - - - - - - - - - - - - -- - - - - - - - - 80
4.26 Mechanism For Price Making- - - - - - - - - - - - - - - - -- - - - - - - - __ 81
4.27 Mergers And Acquisitions - - - - - - - - - - - - - - - - -- - - - - - - - - - - 81
4.28 Indigenisation and Privatisation - - - - - - - - - -- - - - - - -- - - - - - - - 82
4.29 Privatisation - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - 82
4.31 Supply of Information Regarding The Market- - - - -- - - - - - - - - - - 83
4.32 Performance and Economic Contribution - - - - - - - -- - - - - - - - - - 82
CHAPTER FIVE
REGULATORY AND SUPERVISORY STRUCTURE

OF THE NIGERIAN CAPITAL MARKET
5.01 Introduction - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - 92
5.02 Issues - - - - - - -- - - - -- - - - - - - .- - - - -- - - - - - - - - - - - - -- - 92
5.06 Other Agencies within Regulatory Roles in the Capital

Market Are As Follows - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --- - 75
1. The Corporate Affairs Commission ("CAC") - - - - - - - - - - - - 75
2. The Central Bank of Nigeria ("CBN")_ - - - - - - - - - - - - -- - - 75
3. The Ministry of Commerce and Tourism_- - - - - - - - - - -- - - - - - - - 75
4. The National Insurance Supervisory Board ("NISB")- - - - - - - -- - - - 75
5. The Issuing Houses Association of Nigeria - - - - - - -- - - - - - - - - - 75
6. The Federal High Court- - - - - - - - - - - - - - -- - - - - - - - - -- - 96
5.07 Background to Capital Market Regulation Generally - - - - - - - - - - - - - - - - 96
5.13 Capital Market Regulation in Nigeria for the Future - - - - - - - - - - - - - - - - 97
5.17 The Role and Responsibilities of the Federal Ministry of Finance ("FMF")- - - 98
5.21 The Securities and Exchange Commission ("SEC") - - - - - -- - - - - - - - - - - - 99
Governing Law- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - 99
Board of the Commission - - - - - - - - - - - - - - - - - - - - - - 99
5.23 Quorum for Meetings - - - - - - - - - - - - - - - -- - - - - - - - - --- - - - - - -- 100
5.24 Director-General/Chief Executive - - - - - - - - - - - - - - - - - - - - - - - 100
5.25 Company Secretary - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - ------ 100
5.26 Functions Of The Commission - - - -- - -- - -- - - - - - - - - - - - - - -- - 100
5.27 Powers of the Commission- - - - - - - - -- - - - -- - - - - - -- - - - --- - -- - - 101
5.29 Funding and Accounts - - - - - - - -- -- - - - - - - - - - - - -- - - - -- -- - - - - 101
5.31 Findings and Recommendations- - - - - - - - - - - - - - - - - - - - - - - - 102
CHAPTER SIX
THE NIGERIAN STOCK EXCHANGE
Introduction - - - - - - - - - - - - - - - - - - ---- - - - - - - - -- - - - - - - - - - - - - - - 104

Landmark Events - - - - - - - - - - - - - -- - - - - - - -- - - - - - - - - - - -- - 104
Origins of the Nigerian Stock Exchange ("NSE")- - - - - - - - - - - - - - - - - - -- 105
Early History - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - -- -- - - - - - - - - 106
Membership of Nigerian Stock Exchange- - - - - - - - - - - -- - - - - - - - - - - - 106
Governance of the NSE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 108
Governing Council - - - - - - - - - - - - - - - - - - - - - - - - - - - - -. - - - 109
Management of the NSE - - - - - - - - - - - - - - - - ,- - - - - - - - - - - - 110
Departments and Committees- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - 110
Committees- - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - -- 111
Investor Protection - - - - - - - - - - - - - - - - - - - - - - - --- - - - - - -- - - - - - -- - - -
111
Subsidiaries and Affiliated Companies - - - - - - - - --- -- - - - - -- - - - - - - - - - -- -112
The Central Securities Clearing System Limited- - - -- - - - -- - - - - - - - - - - - -----113
Trading, Clearing and Settlement Systems- - - - - - - - - - - - - - - - - - - - - - - - - -114
Quality of Stock broking - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -116
Finance and Accounts - - - - - - - - - - - -. - - - - - - - - - - - - - - - - - - -- - - -- 116
Findings and Recommendations - - - - - - - - - - - - - - - --- - - - - - - - - - - - - - 116
CHAPTER SEVEN
ADEQUACY OF CAPITAL MARKET LAWS AND REGULATIONS
7.01 Terms of Reference 6, 7and8- - - - - - - - - -- - - - - - - - - - - - - - -118

7.02 Applicable Laws and Regulations Identified - - - - - - - - - - 118
7.03 Regulations, Bye-Laws Guidelines, Subsidiary Legislation, etc. - - 119
7.06 Adequacy or Otherwise of Existing Legislation - - - - - - - - - 120
7.30 Securities and Exchange Commission Act, 1990 Present and Future Adequacy - - - - -
--------------- 127
7.34 The Proposed Securities and Exchange Commission
Decree-Comments -----------------------------------------------------------128
7.35 Funding-----------------------------------------------------------------------129
7.36 Functions of SEC -------------------------------------------------------------129
7.38 Right of Appeal--------------------------------------------------------- ~--- 129
7.44 Annual Reports And Accounts131
7.46 Annual Accounts And Audit Off SEC - - - - - - - - - - - - - - 132
7.4 7 Dispute Resolution Within The Capital Market Generally - - - - - 132
7.50 Special Powers of SEC -------------------------------------------------------133
7.56 Part XVII of the Companies And Allied Matters Act
Administered by SEC --------------------------------------------------------134
7.59 Trustee Investments Act 1990 - - - - - - - - - - - - - - - - 135
A. Historical Background to Legislation - - - - - -:- - - - - -- 135
7.63 B. Analysis of Provisions - - - -- - - - - - - - - - - - - 137
7.67 C. Observations by the Panel ------------------------------------------138
7.68 Permitted Investments of lnsurance Companies - - - - - - - - - - 138
7.72 Nigerian Investment Promotion Commission Decree "NIPC", 1995 -- 139
7.74 Foreign Exchange (Monitoring And Miscellaneous Provisions
Decree 1995 - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 140
7.76 Codification of Certain Laws and Regulations Pertaining to
The Capital Market - - - - - - - - - - -'-- - - - - - - - - - 140
7.77 Adequacy of Certain Other Legislation - - - - - - - - -- - - - - 141 7.78
Findings and Recommendations - - - - - - - - - - - - - - - - 141 7.79 Laws
and Regulations-Action Recommended - - - - - - - - - -- 142
CHAPTER EIGHT
DISPUTE RESOLUTION IN THE NIGERIAN CAPITAL MARKET
8.01 Introduction---------------------------------------------------------------- 144

8.05 Pattern of Disputes in the Nigerian Capital Market.------------- 145
A. Securities And Exchange Commission ("SEC") ------------- 145
B. SEC and Market Operators-------------------------------------- 145
C. NSE and Market Operators Users-Quoted Companies
(iv)
D. Operators and ¥embers of Public - - - - - - - - - -- - - - - - - - - - 146

8.06 The Exchange's Judicial Forum---------------------------------------------146
8.08 The SEC Administrative Hearing Committee - - - - - -- - - - - - 146
A. Jurisdiction And Scope of Functions - - - - - - - - - - - 146
8.13 B. Panel Findings About The AHC -------------------------------------148
8.14 Financial Services Regulation Co-Ordination Committee (''FSRSS")- - 149
8 .16 ISC Investigation of Suspected Investment Business Malpractices
Etc. And Its Enforcement Action - - - - - - - - - - - - - - - 150
8.17 Fraud and Other Criminal Activities - - - - -- - -- - - - - - - - 150
8.19 Findings and Recommendations ---------------------- , ----------------- 151
CHAPTER NINE
THE APPROPRIATE CAPITAL MARKET FOR NIGERIA
9.01 Introduction----------------------------------------------------------------- 152

9.02 Evaluation of the Capital Market - - - - - - - - - - - - - - - 152
9.09 Noteworthy Issues/Developments In The Reform of the
Nigerian Capital Market - - - - - - - - - - - - - - - - - - 154
9.16 Proposed Capital Market Structure- - - - - - - - - - - - - -- -- - - 157
9.17 The Lead Regulator --------------------------------------------------------- 158
9.18 Governing Law -------------------------------------------------------------- 158
9.19 Reporting Relationships ---------------------------------------------------- 158
9.20 Governance --------------------------------- ------------------------------- 158
9.22 Second Level Regulators ------------------------------------- ------------- 160
9.23 Role of ISC ln The Trading System ---------------------------------------- 160
9.27 Role of ISC In Delivery And Settlement -..,... - - - - - - - - - - - 161
9.30 Role of ISC In Dispute Resolution Within The
Capital Market -------------------------------------------------------------- 161
9.32 Role of ISC In Training - - - - - - - - - - - - - - - - - - - 162
9.34 Calls For Independent Stock Exchanges - - - - - - - - - - - - - 162
9.39 The Stock Exchange of Nigeria Limited -. - - .,- - - ,- - - - - - - 164
9.45 The Future of the Nigerian Stock Exchange - - - - - - - - - - - - 165
9.48 Capital Trade Points or Exchanges- - -..,... - - - - - - -- - - - 166
9.57 The Derivatives And Other Exchanges- - - - - - - ------ - - - -- 168
9.59 Commodities Exchanges --------------------------------------------------- 168
9.60 Central Depository Corporation - - - - - - - - --- - - - - - - - 168
9.62 Other Capital Market Institutions -.- - - - - - ---- - - - - - - 169
9.65 Capital Market Trade Associations - - -- - - - - - -- - - - - 170
9.68 Promoting Active Bond Market In Nigeria - - - - - - - - - - - - - 170
9.69 An Appropriate Informal Judicial Forum For
The Nigerian Capital Market. .- - - - - - - - - - - - -- - - - - - - -- - ------ 171
9.70 A. What Type of Institution Is Required?- -.- - - - - - - - - - - - -171
9.71 B. Membership Of IST And Quorum - -------------------------------- 172
9.72 C. Jurisdiction-------------------------------- ------------------------- 172
9.73 D. Appeals ----------------------------------------------------------- - 172
9.74 Findings and Recommendations ------------------------------------------- 173
(v)
CHAPTER TEN
INCENTITIVE FOR THE CAPITAL MARKET
10.01 Introduction - - - - - - - - - - - -- - - -- - -- - - - - - - - - - - - - - - - - - - --- 176

PART A
A. Tax Issues and the capital market -- - - -- - -- - - - - - - - 176
10.06 B. The need for minimal or Low Rate Taxes on Capital
Market Transaction -- - - -- - -- - - - - - - - - - - - - - - - - 177
10.08 C. Companies Income Tax -- - - -- - -- - - - - - - - - - - - - - - 177
10.10 D. Withholding Tax -- - - -- - -- - - - - - - - - - - - - - - - - 178
(i) Dividends -- - - -- - -- - - - - - - - - - - - - - - - - 178
10.12 (ii) Interest -- - - -- - -- - - - - - - - - - - - - - - - - - 178
10.16 E. Capital Gains Taxation -- - - -- - -- - - - - - - - - - - - - - 180

10.28 F. Taxation of Unit Trust Schemes -- - - -- - -- - - - - - - 183
10.30 G. Taxation of Investment Trust Companies -- - - -- - -- - 183
10.34 H. Stamp Duties -- - - -- - -- - - - - - - - - - - - - - - - - - - 184
10.37 I. Insurance Premium Relief And Permitted Investment
Of Insurance Companies -- - - -- - -- - - - - - - - - - - - 185
10.38 J. Venture Capital (Incentives) Decree, 1993 -- - - -- - 186
PART B
10.39 Other Appropriate Incentives For the Capital Market -- - 186
CHAPTER ELEVEN
ENHANCING THE RESPONSIVENESS OF THE

CAPITAL MARKET IN NIGERIA
PUBLIC ENLIGHTENMENT, EDUCATION AND TRAINING
11.01 Introduction -- - - -- - -- - - - - - - - - - - - - - - - - 189

11.02 Public Enlightenment and Education -- - - -- - -- 189
11.08 Assessment of Current Educational and Training
Programme Available Within The Capital Market -- - - - 191
11.15 Panel’s Observation -- - - -- - -- - - - - - - - - - - - - - - - - 193
11.18 The Institute of Investment and Capital Market

Studies (“IIMCS” or the “INSTITUTE”) -- - - -- - -- - - - 194
A. Type of Institution -- - - -- - -- - - - - - - - - - - - - - - - - 194
11.19 B. The Development And Recognition of Capital
Market “Professionals” -- - - -- - -- - - - - - - - - - - 195
11.20 C. Regulators and Oversight Personnel That Require
Capital Market Training -- - - -- - -- - - - - - - - - - - 195
11.22 Research -- - - -- - -- - - - - - - - - - - - - - - - -- - - - - - - - - - 196
11.23 Continuing Professional Education (CPE) -- - - -- - -- - - - 196
11.24 Funding -- - - -- - -- - - - - - - - - - - - - - - - -- - - - - - - - - - 197

11.27 Governance -- - - -- - -- - - - - - - - - - - - - - - - - - - - - - - - 197
11.28 Findings and Recommendations -- - - -- - -- - - - - - - - - - 198
CHAPTER TWELVE
THE NEW AGENDA
12.01 Introduction - - - - - - -. - - - - - - - - - - - - - - - - - - - - - - - -200

PART A
12.02 Unfinished Capital Market Business - - - - - - - - - - -- - - - - - 200
12.03 Unclaimed Dividends - - - - - - - - - - - - - - - - - - - - - - - - - - 201
12.06 Unclaimed Share Certificates - - - - - - - - - - - - - - - - - - 201
12.07 Dividend Warrants Not Accepted By Some Banks - - - - - - - - 202
12.09 Delay In the Issuance Of Share Certificates By Companies
And Transfer Agents- - - - - - - - - - - - - - - - - - - - 202
12.10 Delays In The Sale Of Shares By Brokers- - - - - - - - - - - - - 202
12.11 Further Privatisation - - - - - - - - - - - - - - - - - - - - - - - - - - - - 202
12.15 Housing And Infrastructure Bonds - - - - - - - - - - - - --- - - - - 203
12.18 Ensuring An Adequate Conceptualisation Of Inflation In Nigeria 204
12.21 Equity Ownership And Mis-Use Of Local Credit - - - - - -- - _ 204
12.25 National Income Accounting - - - - - - - - - - - - - - - - - - - - - 205
12.26 Nurturing Purely Nigerian Companies- - - - - - - - - - - - - -- 206
12.27 Small Business Administration- - - - - - - - - - - - - - - - - - -- 206
12.28 Ensuring A Culture Of Succession - - - - - - - - - - - - - - - - 207 12.20
Encouraging Foreign Institutional Investment (FII)- - - - - - 207
12.31 The Role of Commercial And Merchant Banks In
The Capital Market - - - - - - - - - - - - - - - - - - - - - - - - - 207
12.40 Recent Developments In The Nigerian Capital Market- -- - 209
12.41 A. Reforms Introduced by the SEC- - - - - - - - - - - - - - - - - - 209
12.42 Secondary Market Pricing - - -- - - - - -- - - - - - - - - - - - 210 12.41 B.
Reforms Introduced By The Nigerian Stock Exchange - - - 211
1. Central Clearing System - - - - - - - - - - -- - - - - - -- - 211
2. Reduction in Fees of Exchange and Brokers - - - - - 211
12.44 Panel's Conclusions - - - - - - - - - - _ - - - - - - - - - - - - - - - 211
PART B
12.45 Technical Issues
Information Technology For Nigerian Capital Market- - - - - 213
PART C
12.50 Implementation Programme - - - - - - - - - - - 217 12.51
Phased Implementation - - -- - .- - - - - - 217
PART D - The Way Forward - .

12.53 Entrepreneurship: Key To Prosperity With Transparency - - 218
12.63 Findings and Recommendations- - - - - - - - - - - - 221

,
. (vii
LIST OF TABLES/CHARTS
1.1 Most Populous Nations of the World - - - - - - - - - - - 31

1.2 Most Populous Nations of Africa- -- - - - - - - - - - - - 31
1.3 Demographic Trends Within Nigeria - - - - - - - - - - - - - 33
1.4 Basic Statistical Indicators - - - - - - - - - - - - - -- - - - 33
1.5 Key Economic Indicators - - - - - - - - - - - - - - - - - - 34
1.6 Federally Collected Revenue - - - - - - - - - - - - -- - -- 35
1.7 Average Growth Rate of Nigerian Population. - - - - - 32
1.8 Projection of Nigerian Population to 2025 AD.-- - - - - 32
2.1 &2.2 Number listed securities and Dealings Members

compared with total Membership 1987-1995 - -- - - - 59
Growth of Securities on the Nigerian Stock Exchange 1985 – 1994*. 59
2.3b The Nigerian Capital Market. - - - - - - - - - -- - - - - 64
2.1 Structure of the Nigerian Financial System* .- - - - - -......... 59
2.2 Growth in the Number Of Securities listed 1973 -1994* - - 59
2.2b. Size of the Nigeria Issue Market Industrial Securities Issued - 62
2.3 Net New issues as percent of~1arket Capitalisation, 1980-1995- - 63
2.4. Scale of Listing Fees on the NSE,-- - - - - - - - - -- -- -- -- - - 65
2.4a. Nigerian Stock Exchange Index*- - - - - - - - - - - - - --- - - - - - - - 86
2.4. NSE all Share Index Value*- -- - - - - - - - - - - - -- - - - - -- - - - - 87
2.5 Scale of Capital Market Fees approved by SEC - - - - - - - - - - - 67
Summary of Market Capitalisation on the Nigerian Stock Exchange
1994 - '1995- - - - - - - - - - - - - - -- 67
2.8. Pattern of Ownership of Quoted Companies - - - - - - - - -- - - - 69
2.9 Nigerian Capital Market Settlement and Delivery System - - - -- - 70
2.10 List of SEBI Guideline Booklets - - - - - - - - - - - - - - - - - - - - - 77
2.11 Ratio of Market Capitalisation to GPD - - - - - - - - - - - - - - - - - 84
2.12 Performance of the NSE All-Share index, 1991-1995 - - - - - - 85
2.13 Comparative Performance of Emergent Capital Markets - - - - 88
2.14 Comparative Ranking of the Performance of Emergent
Capital Markets - - - - - - - - - --- - - - - - -- - - - - - - - - - - - - - - 89
Summary of completed questionnaires submitted by Stockbrokers - 91
LIST OF DIAGRAMS
The Nigerian Financial System
ACKNOWLEDGEMENT
ANNEXURES
I. Summary Of New Issues In the Nigerian Stock Market 197601994

II. References And Bibliography
Executive summary
Report of the Panel on the Review of the Nigerian Capital Market
EXECUTIVE SUMMARY
CHAPTER ONE
INTRODUCTION TERMS OF REFERENCE AND CONTEXT OF THE

REVIEW
1.01 INTRODUCTION
The Head of State and Commander in Chief of the Armed Forces of the Federal Republic of
Nigeria, General Sanni Abacha, announced in his 1996 Budget Speech that a Panel would
be set up to review the Nigerian Capital Market. The Honourable Federal Minister of
Finance, Chief A.A. Ani gave further details in his own Budget Briefing and on the occasion
of the inauguration of the Panel on Friday 22nd March 1996, at Abuja.
The Panel comprises the following:
Chief Dennis O. Odife
Otunba A:O. Ogunde
Dr. AhmedtAbdulai
Alhaji Aminu Baba Danbappa Prince Lekan Fadina Chairman
Mr. O.G. Abiose Member Member
Mrs. M.A. Lashmann Member Member
Secretary Secretary
1.02 STRUCTURE OF THE REPORT

The Final Report comprises 12 Chapters each of which examines the Terms of Reference
listed alongside it. The Second Volume is the Draft Legislation specifically prepared to
embody all the Suggestions and Recommendations of the Panel including the modernising,
adaptation and codification of most of the laws and regulations governing activities within
the Capital Market.
1.02 Five Appendices comprising Minutes, Memoranda, Report of Overseas Study Tour,
Working Papers etc. which may be read in conjunction with the Main Report have been
compiled and documented as follows:-
- Minutes of the Meetings of the Panel

- Proceedings At seven Public Sessions
- Working Papers And Sponsored Research
- Memoranda Submitted To The Panel
- Overseas Study Tour And References.
1.04 Chapter One of the Final Report is the Introduction, while Chapter Two determines the
VISION for the future. Chapters Three to Seven are the expository Chapters, and they examine
the current situation of the Capital Market, from a financial, organisational and legal points of
view. Chapter Eight examines the pattern of disputes and the mechanism for dispute resolution
in the Market making appropriate recommendations.
Chapters Nine to Twelve are the recommendatory Chapters; they prescribe solutions to the
problem highlighted in the expository Chapters and in the context of the VISION. Chapter
Twelve embodies a framework for the Implementation of the Report and in addition points the
way forward towards the realisation of the VISION, "PROSPERITY WITH TRANSPARENCY"
CHAPTER TWO

A 21ST CENTURY VISION FOR THE NIGERIAN
ECONOMY AND THE CAPITAL MARKET
2.01. INTRODUCION
The Panel's Third Term of Reference requires it:
"To anticipate the likely direction of evolution of the Nigerian economy in the next century and project
how the Capital Market should develop to respond adequately to the needs of the economy."
2.02. After very careful consideration, the Panel found that its Report would be more coherent and its
recommendations more relevant, if it first determined the sort of economy for which such
recommendations are to be made and applied, before deliberating on some of the other Terms of
Reference, such as Terms of Reference 2,5,8 and 11 and reaching any conclusions. The Panel thus
found that it was most appropriate for it to commence its review of the Nigerian Capital Market with the
third Term of Reference.
2.03 THE LAND AND PEOPLE OF NIGERIA

The Federal Republic of Nigeria has a total land area of 923,768 square kilometres. It is a vast country,
even though the whole of it is within one time zone. In terms of distance, the country Is approximately
1,500 kilometres from east to west, about 1,400 kilometres from south to north~ and about 1 ,500
kilometres from the south-w~st comer to the furthest point in the north-east. By air, it takes about two
hours at the most to fly from one end of the country to the other. Countries such as Ivory Coast are
nearer to Lagos than places such as Calabar in the south-east, Maiduguri, in the North-east or Sokoto in
the north-west. The new Federal Capital Territory at Abuja is, however, nearly equidistant from the four
extremities of the country. It is centrally located, and has abundant space for future development.
2.04. Administratively, the nation has a Federal Government, which is now based in Abuja. The country
is subdivided into States and
Local Government areas. Every village or town, therefore, belongs to one local government area or the
other. Some of the other major cities, which are mostly State Capitals~ include Kano, Kaduna, Port
Harcourt, Warri, Ijebu-Ode, Abeokuta, Sagamu, llorin, Minna,
Ibadan, Lokoja, Ogbomosho, Katsina, Yola, Sokoto, Jos, Enugu,Maiduguri, Bauchi, Makurdi, Benin~
Badagry, Asaba, Onitsha, Aba, Umuahia, Calabar, Uyo.
2.05. The population of Nigeria in 1991 was estimated at approximately 88.5 million. According to
World Bank sources the population of the country had risen to approximately 108 million by mid-1994.
This is clearly inconsistent with the Central Bank of Nigeria's estimate that the population of the country
was approximately 91.3 million by 1992. [see page 22, table 9, in the Perspectives of Economic Policy
Reforms in Nigeria, published in 1993 by the Research Department of the CBN] or table 14 of page 43 of
the ANNUAL ABSTRACT OF STATISTICS published by the Federal Office of Statistics, [FOS] 1995 edition,
which places the 1994 population of Nigeria, from FOS and National Population Commission sources~ at
96~244,000. Using the 1991 population of 88,500;000 however still ranks Nigeria as the 11th most
populous nation on earth~ just larger than Mexico which however has over twice the land area of
Nigeria. (Table 1. 1) Within Africa, Nigeria is easily the most populous nation, with one in every four or
five Africans being a Nigerian. (Table1.2).
2.06 Nigeria's population has grown on average over the past 21 years at stable rates of not less than
2% and not more than 2.5% compounded annually. This contrasts with the rate of 3% (or even 3.2%)
which is applied in international publications for low income countries such as Nigeria. [Chart 1.1] On
the assumption that the population will continue to grow at the same average rates until 2021
A.D, or at the rate of3% projected by the World Bank, there will be either in excess of200 million
Nigerians at the end of the next twenty five years, [Chart 1.2] or at the very least, the population of the
country will have doubled. It is also noteworthy that Nigeria has more young than old people in its
population, only a quarter or so of which has to undertake the bulk of economic production. [Table 1.3]
There are approximately as many females as males, and the female population represents a latent
industrial and entrepreneurial energy waiting to be tapped if the experiences of the emergent Asian
nations is anything to go by.
2.07 Nigeria is a multi-ethnic, multi-religious and multi-lingual
society with a long history of living together, of inter-marriages and also of internal trade as well as
trade with the rest of West Africa and North Africa. Nigeria was a British colony until it attained
independence in 1960. It became a Republic in 1963. Naturally, therefore, most of its laws and
institutions, including its Capital Market, were to some extent patterned after those of Britain. Most of
Nigeria's initial external trade was also with Britain, and then with Europe and subsequently the
America's. Trade with Europe, Asia and the America's is a more recent phenomenon than trade with
West Africa and North Africa, but is far better documented. Such documentation as is available, may be
obtained primarily from the Federal Office of Statistics, and also from the Central Bank of Nigeria.
2.08. Nigeria's recent economic performance up to 1995 has been anything but impressive. Tables 1.4
and 1.5, show Basic Statistical Indicators and Key Economic Indicators for The Federal Republic of
Nigeria during the past three to five years, side by side with average growth rates from 1975-84, 1985-
89 and 1990-95. The Statistics on Nigeria contained in World Bank documents, and referred to above,
are interesting for several reasons;
First, is that the foreign investors will have easier access to them and place more reliance on them than
on data from Nigeria sources. For example, they indicate that our average life expectancy is still very
short, at 51, and that our per capita income is less than US $300, or approximately N24,000.00. They
also indicate that our terms of trade are getting worse, agriculture and industry are declining,
investment is falling, and that little or no help may be expected from outside sources.
2.09. What is not indicated however in the statistics, but which remains the mainstay of the Nigerian
economy are the vast oil and gas reserves, which are being exploited to yield nearly 80% of the national
income. Nigeria's large land mass is a potential strength for agriculture, but it is scarcely and poorly
exploited. Nigeria is reported to have substantial solid mineral, resources, but the likelihood for their
exploitation to boost the income of the nation in the short run is remote. Nigeria has a large population,
and a relatively well skilled labour force. Managerial talent is still scarce however, and purchasing power
is low. Nevertheless, Nigeria remains the single largest market in West Africa and even black Africa.
2.10. THE FUTURE

The foregoing scenarios signify great pressures in the immediate future for Administrations at all tiers of
Government, as well as the private sector. While these pressures will need to be addressed
immediately, it g-is important to identify and to recognise some of their principal manifestations, which
may be as follows:
Education: Pressure for more classrooms,' teachers and recreational facilities
Health: Pressure for more hospitals beds, drugs and personnel
Housing and Welfare: Pressure for more housing, utilities, towns and cities
Labour: Pressure for more employment opportunities, factories and the establishment of new
businesses or the expansion of existing ones.
Infrastructure: Pressure on existing infrastructure in the form of roads, power, water, and
telephones.
Government Finance: Pressure on the finances of the Federal and State Governments and the
various administrative units.
Security: Pressure on the law enforcement Agencies
Judiciary/Justice: Pressure on the judiciary
Women and Minorities: Pressures from minorities including the youth and women for more
participation in governance and in the economy.
Resource Allocation: Pressure from various areas, especially the rural areas for more equitable
and better allocation of scarce resources.
Information Technology: Pressure on Nigerian entitles to join the global revolution in Information
Technology.
External Trade Imbalance: Pressure to create a new economic framework which encourages
entrepreneurship ~d mass participation in economic development.
Environment: Pressures to meet international environmental standards, especially environmental

impact assessment.
2.11. On the external front, there are also a number of threats which may not be ignored:
Ecowas: The French speaking countries of West Africa have concluded plans to establish their own
single Capital Market with a unified Settlement and Clearing System. The Market is expected to be
operational by 1997, and 16 stock-broking companies are to be licensed to invest in the Exchange and
to operate on it. Nationals of ECOW AS nations are defined as "Nigerian Citizens" under Nigerian laws
for purposes of investing in the Capital Market.
European Union: By the end of 1998, all the currencies of Members of the European Union will be
replaced by one Currency to be known as the EURO. From January, 1996, investment bankers from
Member nations of the European Union are permitted to undertake the full range of investment banking
business in all member nations without first seeking a local license.
Developments in Asia: Developments in Asia, especially the recent advances made by the South
East Asian countries together with India, represent an example to be emulated and a challenge to be
surpassed.
2.12. From the Central Bank of Nigeria, ANNUAL REPORT AND ACCOUNTS, 1994 the Panel discovered
that Nigeria has earned over US $200 billion from oil and other sources in the past twenty years,
representing over $11 billion per annum. (Table 1.6). This income which is very substantial appears to
have had very little impact on the development -of the country. This situation is disturbing considering
that there are countries which have earned much less than this, and which may not be as well endowed
as Nigeria but which have nonetheless achieved more substantial economic growth and development
than: Nigeria has thus far achieved.
2.13. The Panel noted and was puzzled by the widely divergent paths of historical change evident in
the development of societies. It recalled its experiences in the countries it visited some of which share
similar colonial and historical experiences as Nigeria, but which as at today have performed much better
economically
especially in recent times. A relevant question therefore, why is it that some nations prosper while
others stagnate and decline?
2.14. As far as the Panel could determine, every system or society, and this includes organisations,
economic, social or political, have three broad components which interact to determine performance.
These are:
1. The Framework of laws, regulations, norms and practices which prescribe choice and decision
making in the field. These become the Rules of the Game.
2. The Organisations set up by the State or by individuals to achieve particular objectives. They are
manned by teams or people who have a common objective. In striving to achieve their goals, the
Organisations may deliberately or accidentally alter the institutional framework.
3. The Feed-Back Mechanism through which the system monitors the performance of the first two
components and responds to the changes which have occurred in the Framework to keep it performing
as required. For the system to function optimally, the process should be continuous. The rules of the
game are important, because, if they are fair, they make it easier for all participants to compete
equitably. If they are not fair, then they change the pattern of competition, or how Organisations go
about achieving their objectives.
The Rules of the Game, therefore, determine what the transaction "cost" will be. Where transactions
costs are material, then not everyone can participate, and the performance of the system will be
different from a situation in which the transaction costs are minimal and more people can participate.
The rules of the game therefore make quite a big difference in each society.
2.15. From the foregoing, it is quite clear that the challenge of leadership in the next century
will be to build a sound institutional Framework of laws, regulations, rules, norms and
practices, as well as Organisations, which will, under the management of competent
leadership serve as a feed back mechanism, deal with the above mentioned pressures and
transform them into energies to propel Nigeria from relative underdevelopment to a
developed and modern nation in the
I shortest possible time, by expanding its markets, unlocking its
resources and widening the participation in value added economic activities by the entire
citizenry of the country.
2.16. The challenge is made more daunting by the fact that the other economies are not standing still
but are trying on their own to further improve the lots of their peoples, to increase the edge which they
have over us, and thus render us less competitive. It is, therefore, to all intents and purposes very
much like fighting a war, only that this is a war with no clear borders, a war in which there may be
enemies and friends at home and enemies and friends abroad. It is complicated further by the fact that
the roles keep changing, and that friends in one cause may be foes in another.
2.17 EVOLUTION OF A NIGERIAN CULTURE

AND VISION
Members of the Panel have also interpreted the search for a 21st Century VISION for Nigeria not as an
invitation to foist their individual or collective visions on the nation, but to determine as far as is
practicable what the true VISION for the country should be judging from the words and actions of the
past and present leadership, and the yearnings and aspirations of the generality of the people.
2.18. It is recalled that Nigeria became independent in 1960, and that the major events of our time,
for example, the civil war, indigenisation, privatisation, and SAP, all of the major laws and institutions,
outside perhaps of a few institutions like the Central Bank and the Stock Exchange, were created by the
Military. The impact of military rule on civil society and vice versa may not therefore ever be adequately
assessed, but it should in any event, not be under-estimated. The Panel has noted also that for the
entire period that the military was in power, there were large numbers of civilians at all cadres of
Government making effective contributions. Such active participation by civilians, which does not appear
to be adequately recognised and understood by the outside world, has contributed to the evolution of a
culture which is uniquely Nigerian, and which cuts across a broad spectrum of society.
2.19. Moreover, the VISION of the future which is presented below, is drawn largely from the
statements made from time to time by various leaders, civilian as well as military, and by key
functionaries of all past Administrations, including the current one. The VISION is neither new nor is it
original; but it is uniquely Nigerian. It is uniquely Nigerian because it is a VISION which is
indigenous to our people and it has manifested in every regime so far since independence. It is,
therefore, likely to be easily internalised by the new civilian leadership. The success of the VISION will
also be dependent on the extent that economic, social and political structures are in place to foster
competent leadership and sound institutions.
2.20. Traditional Nigerian communities organised production through group co-operative syndicates
work, age grade societies and trade guilds which operated peacefully together to ensure the prosperity
of individuals and of the community. Savings were mobilised through the "adashi" or "esusu" system,
whereby capital was accumulated and on-lent to the most needy on a rotational basis. The discovery of
oil soon after independence, and the abundance of the post-war years may have created and sustained
the illusion of affluence, leading directly to the pervasive mismanagement of our national wealth which
continued until recent times, and almost became a culture of its own.
2.21. There is evidence, however, that a Nigerian VISION has always existed even in our darkest days,
and from time to time, has indeed manifested itself in such Programmes as:
1975 -1979 "LowProfile",and "Operation Feed the Nation",
1979 - 1983 "Ethical Revolution", and "Green Revolution"
1984 - 19R5 "War Against Indiscipline"
1985 - 1993 SAP, MAMSER, DFFRI, "Better Life for
. Rural Women"
1993 to-date "War Against Indiscipline and Corruption",
"Family Support Programme"
2.22. Even though the above mentioned Programmes were popular with Nigerians generally, they
however achieved varying degrees of success in concrete terms. It was however not until the current
Administration introduced certain measures that were outlined in the
1996 Federal Budget that the national VISION for Nigeria can be said to have manifested itself: that is:
PROSPERITY WITH TRANSPARENCY. Some of the bold measures already introduced or proposed include
reforms of the following: Reform of the Ports, the Petroleum Sector, the Financial Institutions including
the Central Bank of Nigeria, the promulgation of the Failed Banks And Other Financial Institutions
Decree to be followed by a Failed Parastatals And Contracts Decree.
2.23. It has been shown that the Nigerian VISION has been with us
all along, but it is to the credit of the current Administration that this VISION is now well articulated,
leading to the current efforts to build sound institutions to ensure a smooth succession during and after
the transition to civil rule.
2.24. On the basis of the efforts of the present Administration at cleaning up the country, and from the
evidence so far made public, there is little doubt that major institutions within the public and private
sectors have been unsound. For example, in a statement at the foundation laying ceremony of the new
Federal Secretariat for Delta State, at Asaba in July 1996, the Head of State and Commander-in-Chief of
the Armed Forces of the Federal Republic of Nigeria, General Sanni Abacha, confirmed this view while
contemplating the spectre of abandoned projects all over the country. He stated that the abandoned
projects were products of
"faul conceptualization, poor planning and 1mproper implementation"
2.25. If this has been the pattern since independence, then one can conclude that thirty-six years of
poor conceptualisation, poor planning and improper implementation, are core problems that require
urgent solutions. The nation's foremost aspiration must, therefore be to get away as quickly as possible
from its current predicament and strive to achieve prosperity within the shortest possible time.
2.26. "PROSPERITY WITH TRANSPARENCY" -A 21ST

CENTURY VISION
1. PROSPERITY WITH TRANSPARENCY may be interpreted in this context to comprise the following:
Prosperity Re: Wealth, influence, Abundance

- F or the nation as a whole
- For the component parts such as the States .and Local Governments
- For Organisations, Companies and groups.
- For the individuals, male and female alike.
Transparency i.e. Clear, Open, No Concealment, No Disguise, No
Mask.
- Open And Honest Government
- Precise Legislation, Rules And Procedures,
- Zero or Minimal corruption and absence of similar antisocial conduct.
- Low transaction costs because the Laws, Rules etc. are clear and known to all.
2.27. The adoption of the foregoing VISION has clear implications as to how society is governed, its
politics, the economy and how its Capital Market, is to be organised. It will be found on closer
examination that TRANSPARENCY alone will not do, just as PROSPERITY alone also will not do.
PROSPERITY WITHOUT TRANSPARENCY will mean that corruption will be rife, and hence, there would be
no assurance that such PROSPERITY can be achieved or that having been achieved, that it can be
sustained. TRANSPARENCY WITIIOUT PROSPERITY will mean mass poverty and hence a state of civil
strife and unrest.
PROSPERITY is essential if Nigeria is to withstand the population pressures which are now knocking at
her doors. TRANSPARENCY will mobilise all the people to work harder and together with the leadership,
democratically, to reinforce the PROSPERITY of the individual, the community, the society, the
organisation, and hence of the nation.
The VISION PROSPERITY WITH TRANSPARENCY is therefore one which unites all Nigerians under their
leadership, to move the country forward into the next century so that the nation and its people may
occupy their rightful place under the sun.
Recent progr~mes by the present Administration affirm the foregoing VISION, just as public acceptance
of such policies affirm their approval and support. The Panel, has consistent with its Terms of Reference,
restricted itself to the implications of the foregoing VISION for the economy -and the Nigerian Capital
Market.
2.28. THE ECONOMY AND THE CAPITAL MARKET

The Panel believes that in the 21st Century, and even before it, the Nigerian Capital Market should
strive to become the most important financial centre in Africa, comparable with 'the leading
Capital Markets of the world, and that it should also be the engine of growth and development for the
country.
A. Nigeria As The Most Important Financial Centre

in Africa. Comparable With The Best In The World
For Nigeria to become the most important financial centre in Africa comparable with the
best in the world, the following steps/ actions and events must occur or be taken; that is:
- the Nigerian Capital Market must trade a larger variety of instruments;

- the Nigerian Capital Market must operate according to international standards of fairness, equity,
and transparency.
- the Nigerian Capital Market must be attractive to foreign investors, either from the rest of Africa
of from the rest of the world.
- financial disclosure in the Nigerian Capital Market must be consistent with the b.est in the world;
- transactions costs in the Nigerian Capital Market must be as low and competitive as, or lower
than competing markets, and must assure investors the same degree of liquidity;
- the national currency must also be freely convertible.
B. As an En2ine of National Economic Growth

And Development.
- The Nigerian Capital Market must be attractive to local investors;
- The Nigerian Capital Market must provide venture capital funds;
- The Market must provide funds for States, Municipalities and Parastatals, and other economic
units.
- The Market must be attractive for the listing of local securities of small, medium and large
enterprises.
- The Market must be able to provide funds for the financing of infrastructure.
- The Market must capture the entire range of Capital Market activity, including the informal
sector.
- The Regulatory structure of the market must ensure transparency, as well as openness, fairness
and liquidity.
2.29 FINDINGS AND RECOMMENDATIONS

1. That Nigeria is a leading nation in Africa and the world but that her economic
performance is at variance with this status.
2. That Nigeria's population will double in the next twenty five years, and, will put
Nigeria's people and leadership under pressure to achieve superior economic performance.
3. That Nigeria has a large population of young people and females.

4. That only about a quarter of the Nigerian population in
5. That Findings of the Panel is that Nigerian people as well as successive leaderships
have been in search of a VISION, which is shared by all Nigerians, and which will lead them
to a better society. The programmes of the current leadership have made the VISION to
manifest very clearly, as PROSPERITY WITH TRANSPARENCY.
6. That the Vision of PROSPERITY WITH 1RANSPARENCY, implies and requires that the
economy be opened up, developed, deregulated, and democratised in order for it to achieve
its full potential and unlock the wealth of the nation in both resources and in talents.
7. The VISION requires that the Nigerian Capital Market becomes the leading capital market
in Africa, comparable to the best in the world, and the engine of national economic growth
and development.
CHAPTER THREE
HISTORY AND OBJECTIVES OF THE
NIGERIAN CAPITAL MARKET
3.01 INTRODUCTION
This Chapter deals with the 1st and 2nd of the Panel's Terms of
Reference which require it:
1. " …to review the history, structure, conduct and performance of the Nigerian Capital Market and
its contributions to Nigeria's economic development..."
2. "... to examine the objectives for the establishment of the Nigerian Capital Market and their
continued relevance to Nigeria's contemporary and .prospective needs and aspirations and to make
appropriate recommendations..."
Whilst this Chapter reviews the history as welt as the objectives for the establishment of the Capital
Market and makes appropriate recommendations, matters that relate to the structure of the market as
well as its conduct and performance are dealt with subsequently in Chapter Four.
3.02 THE HISTORY OF THE NIGERIAN CAPITAL

MARKET
The history of the Nigerian Capital Market is presented below in chronicological order an in
terms of the landmark events developments which created and influenced it.
3.03 DATE LANDMARK EVENTS/DEVELOPMENTS
1946 * Promulgation of the 10 year plan Local Loan Ordinance providing for the floatation of Pound
Sterling 300,000 3% 1st Government Stock 1960/1961.
1951 * Creation of a Loan Fund for financing some public utilities.
1957 * Government and Other Securities (Local Trustees Powers) Act.
1958 * Establishment of the Central Bank of Nigeria (“CBN”)
1957 * Appointment of a Committee under Professor Barback to examine ways and means of
fostering a shares market in Nigeria.
1957 *General Loan and Stock Act, 1990
1957 *Local Loans (Registered Stock and Securities) Act, 1990
1959 *CBN in pursuance of its role in respect to the development of the Capital Market floated the 1st
Federation of Nigeria Development loan of =N=4 million.
1959 * The Lagos Stock Exchange operating as a Private Company Limited by Guarantee and having
Share Capital was formed as a result of the Report of the Barback Committee.
1959 * Statutory Corporations (Guarantee of Loans) Act, 1990.
1960 *The incorporation of the Lagos Stock Exchange took place through the collaborative efforts of
the CBN, the business community and the NIDB (then known as The Investment Company of Nigeria
"ICON"). The original subscribers to the Memorandum and Aricles of Association were:
1. Alhaji Shehu Bukar
2. Chief Theophilus Adebayo Doherty
3. Sir Odumegwu Ojukwu
4. Mr. Akintola Williams
5. C.T. Bowring & Co.
6. The Investment Company of Nigeria ("ICPN")
7. John Holt Nigeria Limited.
1960 *The promulgation of the Lagos Stock Exchange Act 1990 which permitted only licenced
Stockbrokers Issuing Houses to engage in the business of buying and selling of shares.
1961 *The Lagos Stock Exchange commenced operation on the
5th of June, 1961.
1961 * Income Tax Management Act, 1990
1962 *Exchange Control Act, 1990.
1962 *Trustee Investments Act, 1990

1962 *Capital Issues Committee of the Central Bank of Nigeria
1962 * Directive recalling Nigerian Investments Overseas back into the country. .
1962 * Savings Bonds and Certificates Act, 1990
1966 *Borrowing by Public Bodies Act. 1990
1967 *Capital Gains Tax Act. 1990
1968 *Companies Decree, 1968
1969 * Banking Act, 1990
1972 *Nigerian Enterprises Promotion Act, 1972 since Repealed
1973 *Capital Issues Commission Act. 1973 since Repealed
.;
1974 *National Provident Fund Act: 1990
1975 * Industrial Enterprises Panel (Wole Adeosun)
1976 *Financial System Review Panel (Dr. pius Okigbo) set up in April to study the structure and
operations of the Nation's financial system and to make recommendations for improvement.
1976 *Pension Act, 1990
1977 *Lagos Stock Exchange transformed to The Nigerian Stock Exchange ("NSE") on 2nd December
following the Government White Paper on the Okigb6 Report.
1977 *Nigerian Enterprises Promotion Act (Phase 2) 1977, since Repealed.
1978 * Securities and Exchange Commission ("SEC") Act,. 1979 since Repealed. SEC is a Regulator or
Government Agency that is empowered to conduct surveillance in securities dealings, promote
development and the protection of investors.
1985 * Second-Tier Market of the Stock Exchange launched to attract small and medium sized
business to the Stock Market.
1985 * Second-Tier Foreign Exchange Market Act, 1990 since repealed.
1986 *Marketing Boards scrapped
1986 * First Issue of Federal Government of Nigeria Stock to be over subscribed.
1988 *Re-enactment of the Securities and Exchange Commission Decree, 1988.
1988 *Privatisation and Commercialisation Decree 25 of 1990 designed to re-orientate the enterprises
for privatisation and commercialisation towards a new horizon of performance improvement, viability
and overall efficiency.
1988 *Industrial Development Co-ordination Act, 1990 since repealed.
1989 *Repeal and enactment of the Nigerian Enterprises Promotion Commission Decree 9 of 1989.
1989 *Privatisation and Commercialisation of numerous public enterprises
1989 *First Unit Trust launched in December.
1990 *Companies and Allied Matters Act, 1990
1991 *Banks and Other Financial Institutions Decree 25 of 1991
1993 * Venture Capital (Incentives) Decree 1993
1994 * Privatisation of Banks
1995 *Repeal of the Nigerian Enterprises Promotion Commission Decree 1989 by Decree 16 of 1995
paving way for direct. foreign participation in the market.
1995 *Formation of (FSRCC) Financial Services Regulation Coordination Committee by The Central
Bank of Nigeria to provide a platform to resolve regulatory disputes between SEC, The Stock Exchange
and NDIC.
1995 * Promulgation of the Nigerian Investment Promotion Decree 16 of 1995.
1996 *Ogunlana's Panel on the Insurance Industry
1996 *Panel on the Review of the Nigeria Capital Market appointed.
3.04. OBJECTIVES FOR THE ESTABLISHMENT OF THE NIGERIAN CAPITAL MARKET

The objectives for the establishment of a Capital Market in Nigeria are examined from the following
perspectives:
- long term development planning before the advent of the organised Stock Market.
- the establishment of the Stock Market, including the Second Tier Securities Market.
- the establishment of the SEC.
- the consistency of the above objectives and their relevance and continued relevance.
- the fidelity of the Agencies established for the above mentioned purposes.
The birth of a Capital Market in Nigeria may be traced back to the country's Colonial Administration
which in 1946 established a 10-year Development Plan for Nigeria, under which long-term funds were
raised in the United Kingdom and Nigeria for financing small community improvement projects
educational research and educational infrastructure, and to induce private sector industrial and
agricultural development. .
3.05. A Local Loans Board was set up in.1946, and Regional Loans Boards followed in 1949.
Thereafter, development planning was by five year Federal and Regional plans, and savings were
mobilised through the Regional Marketing Boards as well as non-bank finan9ial intermediaries such as
the Lagos Building Society and the Post Office Savings Bonds Scheme.
The Central Bank of Nigeria was created in 1958, to issue currency and to co-ordinate the financial
system, amongst other functions.
Popular thinking at the time was that political independence was incomplete without economic self-
determination and the institutions associated with it.
3.06. OBJECTIVES FOR THE ESTABLISHMENT OF

THE NIGERIAN, STOCK MARKET
The Panel was informed by the Securities and Exchange Commission, in its Memorandum to the Panel
that the objectives for the establishment of the Nigerian Capital Market are the same as the objectives
for the establishment of Capital Markets everywhere else in the world. The Memorandum stated the
following as the objectives:
- the mobilisation of savings from surplus economic units for on-lending to deficit units to ensure
efficient and effective allocation of scarce financial resources.
- to create an avenue for the populace to participate in the economy
- to reduce over-reliance on the money market for industrial financing
- to provide seed money for venture capital development
- to promote solvency, efficiency and a competitive financial sector
- to encourage corporate financial discipline and accountability
- to provide long term financial sector requirements without increasing the' tax burden on the
citizens.
- to promote a Stock Market culture.
3. 07. The Panel examined the above objectives in the context of the history of the Market and found
evidence from the CBN Publication
..
TWENTY YEARS OF CENTRAL BANKING IN NIGERIA, that
at the time the Lagos Stock Exchange was setup, Nigerian citizens and associations who had surpluses
invested. the same abroad in London. One of the objectives for the establishment of the Stock
Market was therefore to provide avenu.es for such investors with surplus funds to invest locally. i~
3.08. Another objective which was confirmed by the Panel is that of providing an avenue for
participation by Nigerians in their economy. This was clearly the philosophy behind the indigenisation
and privatisation programmes of the 19708 and 1980s.
Report of .the Panel on the Review of the Nigerian Capital Market
3.09. Next, the Panel examined the issue of raising of money by Governments as one of the objectives
for the establishment of the Capital Market in Nigeria, and finds it to be a plausible one. However, the
Panel also found that even though in terms of value, the bulk of listed securities on the Nigerian Stock
Exchange ("NSE") were for a while Federal and State Government stocks, previous Governments do not
appear to have made as much use of the Capital Market as was possible. For example:
1. The first Federal Government Stock was floated in London long before the establishment of the
Lagos Stock Exchange.
2. The Central Bank of Nigeria was empowered by the Lagos Stock Exchange Act to issue and trade
in Federal Government Stocks, whether or not it is a member of the Exchange. The market in
Government Stocks does not therefore need the Stock Market.
3. The Borrowing By Public Bodies Act did not apply to the local Capital Market.
4. The Government and Other Securities (Local Trustee Powers) Ordinance was promulgated in
1957, well before the Lagos Stock Exchange was formed, allowing Trustees to invest in the securities of
public bodies such as The Ports Authority, The Coal Corporation, The Railway Corporation and the
Electricity Corporation. None of these Bodies has raised funds from the Capital Market locally.
5. For many years the Federal Government sold its Stocks on the Stock Market and they were
usually under-subscribed. Only one Issue has so far been fully subscribed, and that was in 1986. The
Federal Government has not offered any new stocks since then.
3.10. From the foregoing, the Panel is of the view that even though the objectives for establishing
Capital Markets as adduced by SEC may be of universal application, they were not necessarily the
objectives which the Nigerian Government had in mind when it laid the foundations for the
establishment of the Nigerian Stock Market.
3.11. Apart from SEC's views, the Panel has also noted the objectives for the establishment of the
Nigerian Capital Market as
described at the inception of the Lagos Stock Exchange by the managing director of Nigeria's premier
development bank, The Nigerian Industrial Development Bank Limited, (NIDB) which was one of the
promoters and a Member of the foundation Council of the Exchange, as follows:
- The mobilisation of savings for economic growth Diversion of capital from less productive sectors
like real estate to more productive sectors such as industries.
- To augment the banking system and reduce the dependence of Government on taxation for
economic development.
- To decentralise the ownership of assets and create a healthy private sector.
- Avoidance of excessive concentration of economic power in the hands of Government.
- Avoidance of excessive concentration of economic power in the hands of a small private group.
- To encourage more even distribution of wealth.
- To facilitate co-operation between indigenes and aliens in fostering economic development.
3.12. These objectives which were articulated at the time of the establishment of the Stock Market
appear plausible. In fact, the Panel found that the objectives are still very relevant considering the fact
that in spite of the progress made and the extent of success achieved, some of the problems that were
meant to be dealt with at that time still remain, viz:
- Scarce financial resources are still flowing into properties Economic power is still
concentrated in the hands of Government
- There is still over-dependence on the banking sector
- The private sector is still not healthy
- Nigeria is not attracting enough foreign investment
- There are still problems of distribution and concentration of wealth. .
3.13. In addition to the above sources, the Panel also found that the objectives for the establishment
of a market for trading. in stocks and shares in Nigeria are contained in the Objects clause of the
Memorandum and Articles of Association of NSE. " Some of these objectives were:
"…(a) To provide facilities to THE PUBLIC, IN NIGERIA for the purchase and sale of funds, stocks and
shares of any kind and for the investment of money...
(e) To correlate the stock-braking activities of its members and FACILITATE THE EX
CHANGE OF INFORMATION for their mutual advantage and for the benefit of their clients and to OFFER
FACILITIES WHEREBY THE PUBLIC CAN BE INFORMED of prices dealt in by members.
(f) To co-operate with the Association of Stockbrokers and Stock Exchanges in other countries and
to obtain and make available to Members information and facilities likely to be of advantage to them or
to their Clients "
3.14. OBJECTIVES FOR THE ESTABLISHMENT OFTHE SECURITIES AND EXCHANGE

COMMISSION
As part of its findings, the Panel noted that Government
appears to have had a different set of objectives for setting up the Securities and Exchange Commission
("SEC") as distinct from its objectives for setting up the Stock Market, Government's objectives include
the following:
1. In 1962, just one year after the commencement of trading on the Lagos Stock Exchange, The
Federal Government, through the CBN established the Capital Issues Committee ("CIC") to monitor the
Stock Exchange, and the rest of the Capital Market, and to reach decisions on the "timing price and
amounts of all Issues by public companies". The Exchange was a member of the Committee which
remained in operation until 1973.
2. The main objective of the CIC was "...to keep the absorptive capacity of the infant Capital Market
in check..." as per (SEC Memorandum to the Panel).
3. In 1973, the Committee was upgraded to a Commission with its own enabling decree, but with
the same functions.
4. These functions were enlarged by the Nigerian Enterprises

Promotions Decree of.1972 and 1974, and the focus was on
Report of the Panel Oil the Review of the Nigerian Capital Market
controlling the dominance of the economy by aliens rather than in encouraging new
investments by Nigerians and aliens into the Capital Market.
5. The Commission was again upgraded to the Securities and Exchange

Commission in 1978 with a decree of the same name, which was re-enacted in 1988,
further enlarging the functions and the powers of the Commission.
6. The Privatisation and Commercialisation Decree of 1988, and the Companies
and Allied Matters Decree of 1990, further reinforced and entrenched the powers of
SEC over the Capital Market.
7. Although the various decrees gave power to SEC to develop the Market, the
emphasis in practice was on regulation and control. "Keeping in check", rather than
facilitating the development of the Capital Market.
8. In the 1991 Budget, Government proposed a policy of deregulation, and the

matter was referred to an InterMinisterial Committee. Records of the deliberations of
the Committee show that while SEC and the NSE played impnrtant roles in the
proceedings, the conclusions of the Committee may have been inappropriate as they
lacked the inputs of market participants.

The Panel has in this Chapter examined the objectives for which the Capital
Market, the Stock Market and the lead Regulatory Agency for the market
were set up.
The Panel found that the objectives for the establishment of the Capital
Market and the Stock Market are still very relevant, but that the focus and
the objectives for the establishment of the Regulatory Agency for the
market were rather restrictive and need to be amended in order to facilitate
the “unlocking” of Nigeria's vast economic potentials.
Report of the Panel Oil the Review of the Nigerian Capital Market
CHAPTER FOUR
STRUCTURE CONDUCT AND PERFORMANCE

4.01 INTRODUCTION
This Chapter deals with the second aspect of the 1st Term of Reference and with the
second part of the 9th Term of Reference which require the Panel:
"... To review... structure, conduct and performance of the

Nigerian Capital Market and its contributions to the
Nigerian economic development…"
"…To examine the structure of the Nigerian Stock Exchange and its branches and
their adequacy in the context of the Federal Government Privatisation Programme
and the policy of ensuring widespread shareholding, and make appropriate
recommendations."
The structure of the Capital Market is examined in this Chapter in terms of the numbers of
institutions and volume of activities in the Market over time. A review of how the business of
the Capital Market is conducted and the performance of the same in comparison with other
Capital Markets of the world is undertaken. In addition, the Chapter also examines the
contribution of the Stock Market to the indigenization,and privatisation
programmes of Government and the policy of encouraging wide-spread shareholding.
4.02 MARKET STRUCTURE

The major Capital Market Institutions
The main institutions of the capital Market include the CBN, SEC and NSE, the
merchant Banks, Stock-Brokers, Registrars or Transfer Agents, Insurance Companies, Unit
Trusts and Pension Funds. The NSE which is based in Lagos and liaison office in Abuja. In
1994, there were 140 Stock Brokers, and 177 quoted securities. This excludes the
Government Stocks and other fixed interest securities. By 1996, there were 162 Stock-
Brokers and 181 quoted securities. There were also 51 Merchant Banks and over 65
Commercial Banks.
4.03 Table 2.1 shows the Structure of the Nigerian financial system including the Capital
Market, in terms of number and distribution of financial institutions. Attention is drawn in the
Table to the large numbers and varieties of financial institutions, as well as the numbers of
listed securities over time, to the growth of the Stock Exchange and its branches, as well as
the increase in the number of Merchant Banks and Stock-Brokers.
Charts 2.1, 2.2 and 2.3show graphically the growth in the numbers of various types of listed
securities, as well as the growth in the membership of the Stock Exchange compared with
listed securities. The figures however do not show the fact that until 1994, the Stock
Exchange had more non-dealing members members (156) than dealing members (140) and
that it was only in 1995 that the Exchange did not have, as Members, more people and
institutions who were not Stock-Brokers than there were Stock-Brokers.
4.04 Securities
Market capitalisation at the end of 1995 was appropriately $2.098 billion, and with a.
turnover of 0.1 %, approximately
$2,098,000, or just over -N= 178,330,000, which is the amount of Stock Broking business to
be shared by more than 160 Brokers. This ranks amongst the lowest in the world.
4.05 Table 2.1 also shows the growth of listed securities as well as new Issues of Debt and
Equity in the Nigerian Capital Market from 1985 to 1994. Chart 2, 1 plots all new Issues in
the market over time. The new Issues curve shows two peaks which correspond to the major
privatisation in 1988 to 1990, and the privatisation of banks during 1993. The chart also
shows that the issue of Government Bonds has been on the decline, while the Issue of
industrial bonds has been on the increase. Table 2.2 shows the number and value of
industrial securities listed from 1976 to 1994.
4.06 As at the end of 1995, the total number of" shares quoted companies listed on the
NSE was ~20.33 billion compared with N17.51 billion for the same period of 1994. (SEC
Annual Report
1995). Table 2.3 shows the amount of net new. Issues as a percentage of market
capitalisation for each year from; 1980 to 1995. The proportion has been consistently below
10%, and following the sharp me in .market capitalisation from 1993, the proportion has
dropped even lower.
4.07 Transactions Costs

Transactions "costs" in the Nigerian Capital Market are
of the Capital Market is however to be evaluated not only in the relative but in the absolute
sense.
4.03 Table 2.13 shows the Ratio of Market Capitalisation to Gross Domestic Product from
1985 to 1995. Table 2.14 shows the Performance of the Nigerian Stock Exchange All-share
Index on a monthly basis from 1991 to 1995. Table 2.15 shows the Comparative Performance
of the Nigerian Capital Market with other Emerging Markets.
4.04. Table 2.16 shows a Comparative Ranking of the Performance of the Nigerian Capital
Market with other Capital Markets based on the data in Table 2: 15. The comparison shows
the following:
(1) The performance of the Nigerian Capital Market is at the bottom
of the scale on all counts except dividend pay-out.
(2) On this item of dividend yield on which the Nigerian Capital
Market appears to lead other emerging markets, the implication
is that capital flight is prevalent.
4.05 The Panel is therefore unable to reconcile the views of SEC and the Stock Exchange (in
their respective Memoranda to the Panel) that the Nigerian Stock Market has performed well
by all international standards, with the findings especially in Tables 2.15 and 2.16 which
shows that the Nigerian Stock Market is one of the lowest ranked in the world in terms of
performance.
CHAPTER FIVE
REGULATORY AND SUPERVISORY STRUCTURE

OF THE NIGERIA CAPITAL MARKET
5.01 INTRODUCTION
This Chapter examines and reports on the Panel's 10th Term of
Reference which is:
" . …To review the role of the regulatory and or supervisory

agencies and the adequacy of the regulatory/supervisory oversight process, including the
number and adequacy of self-regulatory organisations established for the purpose..”
5.02. FINDINGS AND RECCOMODATIONS

The Findings of the Panel are as follows:
1. That the regulatory map of the Nigerian Capital Market is
not generally available or universally known and accepted as it should be.
1. That the Securities and Exchange Commission, as the apex regulator for the
Capital Market has been under-supervised and has not been accountable to any
body.
2. That by its own admission, SEC was unable to supervise the

Stock Exchange.
4. That the Financial Statements of the SEC lacks transparency.
5. That the mechanism for regulatory interpretation and dispute resolution in

the Capital Market suffered from the absence of a competent Board for the
Commission for the past 10 years.
6. That the operation of the ADMINISTRATIVE HEARING COMMITTEE without

competent judicial personnel was never and could never have been intended by the
enabling Decree.
7. That the Panel came to the conclusion that an apex regulatory body modelled
after the SEC of the USA is unsuitable for Nigeria.
CHAPTER SIX
6.01 INTRODUCTION
This Chapter deals with the 9th Term of Reference, which obliges
the Panel:
" ....To examine the structure of the Nigerian Stock Exchange

and its branches, and their adequacy in the context of the Federal Government privatisation
programme, and the policy of
encouraging wide-spread shareholding, and make appropriate
recommendations…”
.
The adequacy of the Nigerian Stock Exchange and its branches in the context of the Federal
Government privatisation programme and the policy of encouraging wide spread shareholding
had earlier been dealt with in Chapter Four.

The Findings And Recommendations of the Panel are as follows:
1. The Nigerian Stock Exchange was promoted on the initiative
of the Federal Government of Nigeria and carefully nurtured
as a unique experiment in Government and private sector
cooperation.
2. Government granted a monopoly to the organisation under the Lagos Stock

Exchange Act of 1961, in order for it to commit itself to providing facilities for the
public to trade in shares and stocks, to maintain fair prices through stock jobbling, and
to restrict the business to its Members.
3. The body agreed to abide by these conditions, to restrict Members to Dealing

Members and to report its activities and any refusal to admit any applicants to
Government through the Governor of the Central Bank.
4. Over the years, the body deviated from these covenants, and altered the
structure of its Membership and governance such that it was no longer devoted
exclusively to the promotion
of the public interest.
5. The pattern of the governance and the management of the Stock Exchange has
been poor and unimaginative, and has as a result not developed the Capital Market in
the past 36 years, and is not likely to do so in the foreseeable future.
6. The financial records of the Stock Exchange were not such as could confirm that
all resources of income were disclosed and accounted for.
7. That the growth in the volume of securities for trading in the stock market has
resulted mostly from various Government initiatives such as the indigenisation and
privatisation programme.
8. The Branches of the Stock Exchange were of very limited use to investors who
wished to trade their securities. Knowledge about the Capital Market and the Exchange
even in the branch locations was very poor.
Report of the panel on the Review of the Nigerian Capital Market
9. The recent initiatives of the Stock Exchange regarding the adoption of screen
based trading and Central Clearing System are mis-conceived and are not likely to
succeed in moving the Capital Market forward.
10. The Stock Exchange has no succession plan, and the programme of developing
Executives, through the appointment of Directors to the Branch Stock Exchanges
appears to have been abandoned.
CHAPTER SEVEN
ADEQUACY QF CAPITAL MARKET LAWS AND REGULATIONS
7.01 TERMS OF REFERENCE 6, 7, AND 8

This Chapter deals with the 6th, 7th and 8th Terms of Reference
which require the Panel:
"to identify and itemise all Laws and Regulations prescribing the conducting of Capital Market
activities, and institutions I:lIld to assess their continued relevance."
"to codify all Laws and Regulations prescribing Capital Market activities, behaviour and
institutions into one comprehensive law applicable to all."
"to recommend measures to strengthen the laws, the structure, the institutions and the
framework (including Manpower Training) of the Capital Market to make it more responsive to
.the needs of all economic units, be they at Federal, State, Local Government or village level."
7.02. FINDINGS AND RECOMMENDATIONS

The Panel's findings and recommendations are as
follows that:- .
(i) the Nigerian Capital Market is subject to a
myraid of Laws and Regulations some of which date back to thirty-five years.
(ii) that there is no basis whatsoever for the continued retention of the "onopoly"
status granted to the NSE. As part of its strategy to
"unlock" the potentials of the Nigerian economy there is an urgent need to establish
more autonomous and independent Stock Exchanges outside Lagos.
(iii) that the two principal legislation within the Capital Market i.e. the Lagos Stock
Exchange Act of1961 and the Securities And Exchange Commission Act 1990 are no
longer consistent with the present structure and future developmental focus
of the Market. Both the LSE and SEC Acts have to be repealed.
(iv) that the draft SEC Decree being sponsored by SEC is unimaginative, restrictive and
unsuitable for the rapid development of the Capital Market generally.
(v) that the Trustee Investment Act should be retained but Guidelines should' be
issued periodically to allow Trustees and Asset Managers more flexibility in their
investment decisions.
(vi) that new provisions should be introduced to facilitate the development of a Bonds
Market and Borrowings by States, Local Government and other Public Bodies from the
Capital Market.
(vii) that an all embracing INVESTMENT SERVICES DECREE, 1996 should be

promulgated to amend, modify, adapt and codify the provisions of the principal Laws
and Regulations within the Capital Market.
CHAPTER EIGHT
DISPUTE RESOLUTION IN THE NIGERIAN CAPITAL MARKET
8.01 INTRODUCTION
The 12th Term of Reference is considered in this Chapter as it
requires the Panel:
'
"To consider the desirability or otherwise of setting up an appropriate informal judicial forum,
within the Capital Market for the prompt determination of any question, dispute or controversy
that may arise between the institutions in the Nigerian Capital Market inter se or
Market Operators generally ....."
8.02 Disputes, questions and controversies do arise in any capital market from time
to time, and it is essential, for the proper functioning of the Market that such question,
disputes or controversies are adjudicated upon and resolved in a timely fashion and in
a manner which increases rather than reduces the confidence of the public in the
fairness and openness of the Markets.

The Panel found that an appropriate judicial machinery does not exist within
the Capital Market for the speedy determination of all controversies and
disputes that may arise within the Market. The Panel's recommendation as to
what type of judicial machinery that is required to deal with this matter is
embodied in Chapter Nine.
CHAPTER NINE
THE APPROPRIA TE CAPITAL MARKET FOR NIGERIA
9.01 INTRODUCTION
With regard to its 4th and 11th Terms of Reference, the Panel is expected -
"To analytically examine the present state of the Nigerian Capital Market and
formulate a concise policy framework geared towards the creation of a conducive
atmosphere for the orderly growth and development of the Market..."
"To recommend in the light 'of its findings above, precautionary measures to be put in
place and appropriate steps to be taken to ensure that the Nigerian Capital Market
functions optimally henceforth and that
it becomes alive to the needs of both local and foreign investors..."

The Findings and Recommendations of the Panel are as follows:
1. That a new apex regulatory agency, to be known as THE INVESTMENT

AND SECURlTIES COMMISSION (JSC) be established to replace the SEC.
2. That a new National Stock Exchange to be known as THE

STOCK EXCHANGE NIGERIA LIMITED (SEN) be
established at Abuja, the new Federal Capital Territory to set the standards against
which other Stock Exchanges in Nigeria are to compete.
3. That the Nigerian Stock Exchange be renamed "THE LAGOS

STOCK EXCHANGE LIMITED".
4. That 12 unpretentious mini Stock Exchanges to be known as the "CAPITAL

TRADE POINTS" (CTP) be established in the underlisted cities in the country to
serve as nurturing
grounds for indigenous enterprises which may eventually seek listing to the main
Stock Exchanges in LAGOS and ABUJA. That is, Kaduna, Jos, Yola, Kano, Maiduguri,
Katsina, Onitsha, Warri, Port Harcourt, Calabar, Ibadan and Aba.
5. That a National Central Depository be established to

facilitate the take-off of screen based trading.
6. That a National Unit Trust scheme be promoted to hold shares in quoted

companies and to mobilise savings in the rural areas for Capital Market investment,
and to give small investors access to the stock market by pooling their investments.
7. That COMMODITIES, OPTIONS AND FUTURES

EXCHANGES, be established as soon as possible to enhance (he efficiency of the
underlying markets.
8. That CAPITAL MARKET TRADE ASSOCIATIONS be actively promoted to

improve the quality of capital market practitioners, and to lend vibrancy to capital
market operations.
9. In general, the view of the Panel is that the appropriate

philosophy for the development of Nigerian Capital Markets is to ensure that the
markets are properly structured to serve the nation as well as foreign investors,
that the markets and investments grow, on a sound and consistent basis.
10. It is essential to the above stated philosophy that the markets contribute in
the most effective way to the functioning and. to the growth of the economy and to
the creation of wealth.
Report of the Panel on the Review of the !~igerian Capital Market
11. In the same vein, the philosophy of capital market regulation that is
recommended is to maintain an appropriate level of regulation sufficient to sustain
the highest standards of market integrity and investor protection, without hindering
the freedom and flexibility of the market to grow and to introduce innovations.
12. In the area of market development, the lead regulator will assist to develop
infrastructure, and to maintain an atmosphere which encourages innovation and an
inflow of foreign investment. It will be the role of the lead regulator to ensure that
the market framework is large enough to accommodate the demands of the
economy for growth and prosperity.
13. The Panel found that an appropriate judicial machinery does not exist within
the Capital Market for the speedy determination of all controversies and disputes
that may arise within the Market.
14. The Panel recommends the establishment of an INVESTMENT SERVICES

TRIBUNAL ("1ST') to be. structured along the lines ofthe Body of Tax Appeal
Commissioners for the adjudication of all controversies and disputes arising within
the Capital
Market in a speedy, "informal" and yet businesslike manner.
Appeals from the decisions of the 1ST shall lie in the first instance to the Federal
High Court and thereafter to the Court of Appeal and the Supreme Court.
CHAPTER TEN
INCENTIVES FOR THE.CAPITAL MARKET
10.01 INTRODUCTION
This Chapter deals with the 13th Term of Reference which enjoins the Panel:
"to make suggestions and recommend appropriate incentives necessary to be injected from
time to time by any Government of the Federation into the Nigerian Capital Market to ensure
the attainment of the targeted growth indices between investments and Capital Market
Development"
10.02 The Panel's approach was to treat the subject matter into two parts. In Part A,
current tax issues affecting activities within the Capital Market are examined whilst Part B
deals with other categories of incentives which may in one way or another help with the
speedy and dynamic development of the Capital Market.
CHAPTER ELEVEN
ENHANCING THE RESPONSIVENESS OF THE CAPITAL MARKET IN NIGERIA

- PUBLIC ENGLIGHTENMENT, EDUCATION
AND TRAINING
11.01 INTRODUCTION
This Chapter deals with the 8th Term of Reference which requires
the Panel to:
"...recommend measures to strengthen the laws, the structure, the institutions and
framework (including manpower training) of the Capital Market to make it more responsive
to the needs of all economic units, be they at the federal, state, local government or village
level."
11.02. FINDINGS AND RECOMMENDA TIONS

1. That the efficiency and effectiveness of the Capital Market
depends to a large extent on the existence of a common body of specialised
knowledge and skills which are possessed by its Regulators, Operators and other
participants.
2. That there is currently no programme in place within the Nigerian Capital

Market to provide for the imparting and dissemination of such knowledge and
skills to participants including Regulators and concerned Government officials.
3. That there is, therefore a need to establish specialised institution within the
Nigerian Capital Market to educate eligible Market Operators and participants, and
to develop the skills which are essential to the creation of the profession of
"Financial Analysts" who can compete with their counterparts in the rest of the
world.
4. That the existence of a core of competent professionals who share common

knowledge and skills will facilitate the assimilation of the ethics of the Financial
Analysts profession and a Code of Conduct to enrich the profession and enhance
professionalism in the capital market.
5. That as an interim measure, all avenues should be explored to send bright

young Nigerians abroad to acquire the education and skills in Capital Market
operations.
CHAPTER TWELVE
THE NEW AGENDA
12.01 INTRODUCTION
This Chapter which is in four parts deals with the 14th Term of
Reference that requires the Panel
"to recommend such other actions as may be considered desirable at this stage having
regard to the present policy thrust of the Federal Government in the sphere of Capital
Market development…"
In Part A, certain unfinished Capital Market Business are considered. Part Band C are
devoted respectively to Technical Issues and an Implementation Scheme for the Final
Report whilst Part 0, the Way Forward completes the Panel's scenario for the country's
NEW AGENDA.

1. That the Nigerian Capital Market should rank amongst the
best in the world. The country must proceed with confidence to modernize its
market by adopting the best and latest available technology.
2. The Panel recommends that the Central Bank of Nigeria ("CBN") should
establish the maximum reasonable amount of debt that companies may be
allowed to obtain from the banking system, such that after the limit is
attained fresh equity will have to be injected for the company to be eligible for
more local credit. It should be noted that the CBN has set similar limits for
Banks.
3. The Panel also recommends that the maximum limits of the

equity of any Nigerian company which a foreign or local
portfolio investor may acquire should be clearly spelt out in advance and made
generally known and universally applicable. Thereafter, the securities laws should
provide for disclosure norms and for publication of trade and volume data to ensure
pre-trade and post-trade transparency.
4. The Panel considers it essential that all public and private

institutions embrace a culture of succession, and to achieve this, Government should
direct that appointments to important sensitive jobs for which there are several
qualified candidates be on a non-renewable contract basis as it has recently-directed
in the case of University Vice-Chancellors.
5. The Panel recommends that Government should encourage

the inflow of Foreign Institutional Investment ("FII"), even though it is mindful of the
dangers of its volatility, for which appropriate precautions should be taken. The Panel
notes
that for the past 36 years or more Nigeria has been encouraging FOREIGN DIRECT
INVESTMENT ("FDI"), and that current policies still encourage FDI, but that until
1995, FII were almost prohibited.
6. The Panel recommends that Government should set aside a definite
proportion of the shares of any privatised .entity which foreign investors may
collectively own, as well as the maximum proportion of such shares which any
individual foreign institutional investor may own.
7. The Panel concluded that under its proposed financial

structure, commercial banks should be regulated by the Central Bank, while merchant
banks should be regulated by the lead Capital Market Regulator.
8. The Panel concluded that further and detailed action will

have to be taken by the lead Regulator to ascertain the appropriate level of fees,
charges and costs chargeable by SEC and NSE and maintain them at levels consistent
with one another, and compatible with the desired level of
transparency and efficiency.
9. The Panel recommends a phased Implementation Programme

as set out in its Report.
10. The Panel recommends that the WAY FORWARD for the country is the
development of "entrepreneurship" as a key to PROSPERITY with TRANSPARENCY.
CHAPTER ONE
INTRODUCTION, TERMS OF REFERENCE AND CONTEXT OF THE REVIEW
1.01 INTRODUCTION
The Head of State and Commander in Chief of the Armed Forces of the Federal Republic of Nigeria,
General Sanni Abacha, announced in his 1996 Budget Speech that a Panel would be set up to review the
Nigerian Capital Market. The Honourable Federal Minister of Finance, Chief A.A. Ani gave further details
in his own Budget Briefing and on the occasion of the inauguration of the Panel on Friday 22nd March
1996, at Abuja.
The Panel comprises the following:
Chief Dennis O. Odife Chairman

Otunba A.O. Ogunde Member
Dr. Ahmed Abdulai Member
Alhaji Aminu Baba Danbappa Member
Prince Lekan Fadina Member
Mr. O.G. Abiose Secretary
Mrs. M.A. Lashman Secretary
1.02. The Federal Government's concern and expectations of the Nigeria Capital Market were clearly
stated in the Ministerial Press Briefing as follows:
"With the promulgation of the Nigerian Investment Promotion Decree 1995 and the Foreign Exchange
Monitoring and Miscellaneous Provision Decree 1995, there was great hope that the capital market will
respond fast and effectively to take advantage of these decrees. It was expected that the Stock
Exchange would go international so that investors abroad could transact business in Nigeria without
difficulty. It would appear, however, that the capital market having been structured during the period of
a regulated economy could not adapt itself to the deregulated system that Nigeria has now embraced.
Part of this problem could be attributed to the diversity of the key legislation, i.e. the Securities and
Exchange Commission, Decree 1988, the Stock Exchange Act 1961, the Companies and Allied Matters
Decree 1990, the BOFID Decree 1991, the NIPC Decree 1995, the Trustees
Investments Acts 1957 and 1962. Also the diversity of the key institutions i.e. the Securities and
Exchange Commission, the Nigerian Stock Exchange, the Stock Brokers, the Issuing Houses, Banks,
Registrars, Central Bank of Nigeria (CBN), Institute of Stockbrokers, all contribute to non-cohesiveness
of the Nigerian Capital Market. As a result of all these, the adequacy of the conduct of business in the
Nigeria Capital Market cannot be properly monitored at any time in terms of transaction cost, speed of
delivery, fairness of prices determined in the market. Also the responsiveness of the market to external
events cannot be effectively felt.
Nigeria needs a capital market that is responsive to the needs of the nation and which
must be attractive to both local and foreign investors and can thus be said to be international.
The Securities and Exchange Commission is the Federal Government organ established
during the first and second phases of the indigenization decree, to regulate the market. It played a vital
role in ensuring transparency during the privatization of various parastatals. As part of the measures to
deregulate the economy and boost international confidence in the capital market, the Securities and
Exchange Commission (SEC) was directed to desist from performing the function of shares valuation.
SEC should now concentrate on more vital areas now being brought into focus by the Nigerian
Investment Promotion Decree 1995.
SEC's role should be mostly supervisory, administrative and judicial in matters affecting
the capital market.
The Nigerian Stock Exchange must internationalize the market and attract foreign investment.
Government expects that this should go hand in hand with the modernisation of trading floor, the
trading process and democratization of its governance to further increase the participation of
professional security dealers in', its deliberation in anticipation of the admission Qf foreign security
dealers into the Nigeria market as well as the participation by Nigerian dealers in international offerings
in which foreign companies may be involved. The Stock Exchange should encourage its branches to be
real trading
floors by mobilizing business communities in the areas of operation to introduce

their companies into the Exchange. Government expects all components of the
market such as Registrars and Stock Brokers to be resident in each floor so as to
make the floor the true market rather than being a branch of the Lagos Stock
Exchange.
During 1996 Government will-set up a Panel to look into the Nigerian Capital
Market in its entirety to codify all laws relating to security dealings so that all
operators and participants derive their powers and function from a common body
of legislation instead of from several pieces of legislation operated independently
by each Agency. The Panel will of course, look into Securities and Exchange
Commission, the Stock. Exchange, the operation of Brokers, Registrars, Banks
and all key players in the capital market with a view to making the capital market
vibrant and acceptable internationally. The capital market as already explained
must be responsive and attractive to both local and foreign investors. Anything
less than that is not acceptable to the nation."
1.03. On the basis of the foregoing, the Honourable Minister in his Inauguration
Address to the Panel announced the 14 Terms of Reference for the review of the
Capital Market to the Panel and directed it to submit its Final Report at the end of
six months and an Interim Report at the end of three months.
1.04 TERMS OF REFERENCE

The Terms of Reference of the Panel were as follows:
1. to review the history, structure, conduct and performance
of the Nigerian Capital Market and its contribution to the
Nigerian economic development;
2. to examine the objectives for the establishment of the Nigerian Capital

Market and their continued relevance to Nigeria's contemporary and .prospective
needs and aspirations, and make appropriate recommendations;.
3. to anticipate the likely direction: of evolution of the Nigerian economy in

the next century and project how the capital market should develop to respond
adequately to the needs of the economy.
4. to analytically examine the present state of the Nigerian

Capital Market and formulate a concise policy framework
geared towards the creation of a conducive atmosphere for
the orderly growth and development of the market.
5. to assess the continued adequacy of the structure, laws"
institutions and overall framework of the Capital Market in the

light of the evolution 'Of the Nigerian economy and of the
recent developments in the Money Market as well as of the
needs of the economy as the Nation is 'approaching the
twenty-first century.
to identify and itemize all laws and regulations prescribing the
conduct of Capital Market activities and institutions, and to

assess their continued relevance.
to codify all laws and regulations prescribing Capital Market

activities, behaviour and institutions into one comprehensive
law applicable to all;
to recommend measures to strengthen the laws, the structure,
the institutions and the framework (including manpower

training) of the Capital. Market to make it more responsive to
the needs of all economic units, be they at the federal, state,
local government or village level;
to examine the structure of the Nigerian Stock Exchange and
its branches and their adequacy in the context of the Federal

Government Privatisation Programme and the policy of
ensuring widespread shareholding, and make appropriate
recommendations;
to review the role of regulatory and or supervisory agencies

and the, adequacy of the regulatory/supervisory oversight
process, including the number and adequacy of the self
regulatory organizations established for the purpose;
to recommend, in the light of findings above precautionary

measure to be put in place and appropriate steps to be taken
to ensure that Nigerian Capital Market functions optimally
henceforth and that it becomes continuously alive to the needs
of both local and foreign investors;
to consider the desirability or otherwise of setting up an
appropriate informal judicial forum, within the Capital Market for prompt
determination of any question, dispute, or controversy that may arise between
the institutions in the Nigerian Capital Market, inter se, or Market operators
generally;
13. to make suggestions and recommend appropriate incentives necessary to

be injected from time to time by any government of the Federation into the
Nigerian Capital Market to ensure
the attainment of the targeted growth indices between investments and Capital
Market developments and
14. to recommend such other actions as may be considered desirable at this

stage having regard to tJ1e present policy thrust of the Federal Government in
the sphere of Capital Market development.
The Panel was also required to review the role of key individuals and institutions
in the development of the Capital Market and to make appropriate
recommendations.
1.05. It is necessary for a full appreciation of the scope of the work of the Panel
to understand its Terms of Reference and the prevailing economic, financial and
social background within which the review was instituted. In this context, the
Panel has been obliged to take note of certain developments, events, factors and
trends within the domestic and international environment in the recent past and,
in particular, would like to observe and recall the following:
1. The banking crisis in which nearly one half of all Nigerian licensed
commercial and merchant banks became distressed, and the fear that the
distress c0ul3 spread to the Capital Market.
2. The "finance house crisis" in which nearly all of the 600 finance houses in
the country crashed or went out of business over a two year period which in turn
heralded the banking crisis. In addition to this was the failure of numerous
Savings and Loans institutions, mortgage institutions and Community Banks. '
3. The genuine concern of the Administration for the yearnings

of Nigerians for a better life and the alleviation of povert
4 Inadequacy of internal resources to fund the activities of the Federal, State and Local
Governments, as well as service external obligations.
5. The apparent inability of the economy to attract sufficient amounts of qualitative foreign
direct and portfolio investments, even after the repeal of the Exchange Control Act of 1962, and
the Nigerian Enterprises Promotion Decree of 1989.
6. A follow up to the Dr. Pius Okigbo's Review of the

Financial System including the Capital Market in 1976.
7. A follow up to the Work of Chief Oluwole Adeosun' s

Industrial Enterprises Review Panel of 1975.
8. The need for private sector participation in the financing of

infrastructure and utilities.
9. The search for solutions to Nigeria's poor economic performance generally, and the need
to unlock its resources and create wealth.
10. The promulgation of the Failed Banks Decree, to be followed by a Failed Contracts/
Parastatals Decree which may also be extended to cover the Investment Industry and the Capital
Market.
11. The need for Nigeria to rejoin the global economy and if possible to follow the exemplary
and most inspiring performance of Asean Capital Markets which are relatively younger than that
of Nigeria.
12. The search for strategies to foster private sector leadership

and bold initiatives within the Nigerian economy.
1.06. THE CAPITAL MARKET AND ITS RELEVANCE

TO A MODERN ECONOMY
1.07 Financial Markets

As nations develop and modernize, their financial systems also acquire greater breadth, depth,
and complexity. Financial markets, which are specialized frameworks or arrangements for creating
and exchanging (trading) financial claims of all duration,
short, medium and long, evolve. In most cases, such evolution is a combination of chance and
purposive behaviour. In most modem economies, the role of chance has become increasingly
negligible, while economic forces are given greater and wider roles to play, within prescribed
frameworks.
1.08. Generally, two types of markets have been identified, and these are the Money Markets,
and the Capital Markets. The distinction between these two categories of financial markets are
highlighted below.
The Money Markets

Money Markets are financial markets which specialize in
trading claims or assets of relatively short and medium duration.
The Capital Markets

Unlike the Money Markets, Capital Markets specialize in the
trading of assets of medium to long term duration. In terms of time, long duration would be five
years and above, while medium term
duration would range from two years to five years. Securities of indefinite duration, such as
"perpetual debentures" are also traded on the Capital Market.
1.09 THE MONEY MARKET

Unlike traditional "markets" which have fixed locations, Money Markets have no fixed location.
The Money Market of a nation is that framework comprising the Central Bank, the Treasury, the
banks, and the national payments system. The Money Market can also be distinguished from the
Capital \Market by its instruments, such as; Treasury Bills, Municipal and Parastatal Notes, Bank
Certificates of Deposit (CDs), Commercial Papers (CPs), Repurchase Agreements (REPOS), and
Bankers Acceptances (BAs). They also include Simple Savings and Current Accounts Certificate
even though these latter instruments cannot be traded.
1.10. THE CAPITAL MARKET

Like the Money Market, the Capital Market has its own
instruments, and these include:
- Equities; (Le. Ordinary Shares, Unit Trusts).
- Semi-Equity (Le. Preference Shares, Convertible Loan Stocks).
- Debt (i.e. Government Bonds, Government Agency/
Parastatal Bonds, Municipals Local Government/States/ Village Project Bonds, Private Sector
Bonds), and
- Derivatives (i.e. Options, Futures)
1.11. The importance of Capital Markets is however hardly evident from the foregoing
description. In the words of T.E. Copeland &
J Fred Weston in their Book titled FINANCIAL THEORY AND CORPORATE POLICY, 1983
Second Edition at page 12.
" ...... The importance of Capital Markets cannot be overstated. They allow the efficient
transfer of funds between borrowers and lenders. Individuals who have insufficient wealth to
take advantage of all their investment opportunities which yield rates of return higher than the
market rate are able to borrow funds and invest more than they would without Capital Markets.
In this way, funds can be efficiently allocated from individuals with few productive opportunities
and great wealth to individuals with many opportunities and insufficient wealth. As a result, all
(borrowers and lenders) are better off than they would have been without Capital Markets "
1.12. It follows, therefore, that the ability of nations to mobilize savings and to transform such
savings into meaningful investment, depends on the sort of Capital Market that they are able to
set up for themselves, either on their own or with the help of others. Capital will flow where it is
best compensated, and nations which desire capital must increasingly compete for it with the
rest of the world, even from their own subjects. The test of economic policy is, therefore, the
ability to design a framework which attracts and retains the most capital for the benefit of not
only the providers of capital but also the constituents of the nation.
1.13. THE TRADING MARKETS

Within the Capital Markets are the markets for primary issuance and secondary trading in
various Capital Markets instruments. The best known of these markets are the Stock Exchanges.
In addition to The Stock Exchanges, there are other trading markets such as the Over- he-
Counter Market (0- T -C) the best known of which is the one organised by the National
Association of Securities Dealers in the United States of America. There are also networks of
primary dealers in Government and Municipal securities, as well as the private placement
markets.
1.14. THE STOCK EXCHANGES

Originally organized as clubs of stockbrokers for trading in securities approved by them for
the purpose, Stock Exchange~ are now everywhere "national institutions" closely regulated
and monitored to provide transparent mechanisms for the orderly trading in approved
securities.
1.15. In the words of Mr. E.A.-Goldenweiser, formerly of the United States Federal Reserve
Board, (1934)
"…the Stock Exchange is fundamentally an

institution which makes it possible to collect capital for the purpose of launching new
enterprises, and also makes it possible for persons who own shares in an enterprise to sell
them to each other through organized machinery without having to seek for buyer…”
1.16. MARKET PARTICIPANTS

To function properly, Markets require not only participants, a~ buyers and sellers, but also
as observers and regulators. The main participants in any Capital Market are as follows:
1.17. THE ISSUERS

This category of participants comprises the economic units, whether in the public or in the
private sector, which are in positions of relative financial deficit, and as such resort to the
Capital Markets to raise the funds they need. These may be called the Issuing Companies or
the Vendors of securities which are approved for listing and trading. In this category belong,
the Central Government, their Agencies and Corporations, Municipal Authorities, Stat~
Governments, Local Governments, Companies, Foreign Governments and their Corporations
or Companies.
1.18. THE INTERMEDIARIES

These are the Investment Bankers, Merchant Bankers, Broker-Dealers, Underwriting
Syndicates, and selling Groups, who advise Issuers and make markets or trade :in the
approved securities.
1.19. INVESTORS
The investors are not a homogenous class, but comprise all those who hold securities and
trade in them at" one time or another. They include individuals, Pension Funds, Fund
Managers,
Governments, as well as Banks.
1.20. THE REGULATORS
One of the major lessons of economic policy in modem times is that the Capital
Market of the United States of America which is the largest, and which is
considered to be the most efficient in the world, is also the most regulated. The
lesson is that markets require to be regulated to be efficient, and that
"deregulation" does not mean an absence of regulations, rather, what it depicts is
the unique mix of regulations under which a market performs optimally.
1.21. The key Regulator in all Capital Markets is an Agency which is somewhat
akin to the Securities and Exchange Commission of the United States of America.
Other important Regulators within the Capital Market are the Stock Exchanges, the
Reserve or Central Bank and Securities Dealers Associations. The Treasury or
Ministry of Finance in all countries is usually entrusted with the "Oversight"
responsibility over the entire financial system and the economy as a whole.
1.22. INTEGRATED VIEW

Financial markets, including Money and Capital Markets are integrated for the
proper functioning of an economy, and have to be seen as such. The Treasury or
Ministry of Finance always plays this integrative role in the system, and it does it
most effectively and efficiently when its role as well (as the roles of all other
participants in the system) is clearly defined and known to all.
1.23. STRUCTUREOF THE REPORT

The Final Report comprises 12 Chapters each of which examines the Terms of
Reference listed alongside it. The Second Volume is the Draft Legislation
specifically prepared to embody all the Suggestions and Recommendations of the
Panel including the modernising, adaptation and codification of most of the laws
and regulations governing activities within the Capital Market.
1.24. Five Appendices comprising Minutes, Memoranda, Report of Overseas Study

Tour, Working Papers etc. which may be read in conjunction with the Main Report
have been; compiled and documented as follows:
- Minutes of The Meetings of the Panel - Proceedings At Seven
Public Sessions - Working Papers And Sponsored Research
- Memoranda Submitted To The Panel
- Overseas Study Tour And References.
1.25. Chapter one of the Final Report is the Introduction, while Chapter Two determines the
VISION for the future. Chapters Three to Seven are the expository Chapters, and they 'examine
the current situation of the Capital Market, from a financial, organisational and legal points of
view. Chapter Eight examines the pattern of dispuwtes and the mechanism for dispute
resolution in the Market making appropriate recommendations.
Chapters Nine to Twelve are the recommendatory Chapters; they prescribe solutions to the
problems highlighted in the expository Chapters and in the context of the VISION. Chapter
Twelve embodies a framework for the Implementation of the Report and in
addition points the way forward towards the realisation of the I
VISION, "PROSPERITY WITH TRANSPARENCY".
CHAPTER TWO

A 21ST CENTURY VISION FOR THE NIGERIAN ECONOMY AND THE CAPITAL MARKET
2.01. INTRODUTION
The Panel's Third Term of Reference requires it:
"To anticipate the likely direction of evolution of the Nigerian economy in the next century and
project how the Capital market should develop to respond adequately to the needs of the
economy."
2.02. After very careful consideration, the Panel found that its Report would be more coherent
and its recommendations more relevant, if it first determined the sort of economy for which
such recommendations are to be made and applied, before deliberating on some of the other
Terms of Reference, such as Terms of Reference 2,5,8 and 11 and reaching any conclusions.
The Panel thus found that it was most appropriate for it to commence its review of the Nigerian
Capital Market with the third Term of Reference.
2.03 THE LAND Al\l) PEOPLE OF NIGERIA

The Federal Republic of Nigeria has a total land area of
923,768 square kilometres. It is a vast country, even though the whole of it is within one time
zone. In terms of distance; the country is approximately 1,500 kilometres from east to west,
about 1,400 kilometres from south to north, and about 1,500 kilometres from the south-west
comer to the furthest point in the north-east. "By air, it takes about two hours at the most to fly
from one end of the country to the other. Countries such as Ivory Coast are nearer to Lagos
than places such as Calabar in the south-east, Maiduguri,:in the north-east or Sokoto in the
north-west. The new Federal Capital Territory at Abuja is, however, nearly equidistant from the
four extremities of the country. It is centrally located, and has abundant space for future
development.
2.04. Administratively, the nation has a Federal Government, which is now based in Abuja. The
country is subdivided into States and
Report of the Panel on the Review of The Nigerian Capital Market
Local Government areas. Every village or town, therefore, belongs to one local government area or
the other. Some of the other major cities, which are mostly State Capitals~ include Kano, Kaduna,
Port Harcourt, Warri, Ijebu-Ode, Abeokuta, Sagamu, Dorin, Minna,
Ibadan, Lokoja, Ogbomosho, Kat~ina~ Y ola, Sokoto, Jos, Enugu. Maiduguri, Bauchi, Makurdi,
Benin~ Badagry, Asaba, Onitsha, Aba, Umuahia, Calabar, Uyo.
2.05. The population of Nigeria in 1991 was estimated at approximately 88.5 million. According to
World Bank sources the population of the country had risen to approximately 108 million by mid-
1994. This is clearly inconsistent with the Central Bank of Nigeria's estimate that the population of
the country was approximately 91.3 million by 1992. [see page 22, table 9, in the Perspectives of
Economic Policy Reforms in Nigeria, published in 1993 by the Research Department of the CBN] or
table 14 of page 43 of the ANNUAL ABSTRACT OF STATISTICS published by the Federal Office of
Statistics, [FOS] 1995 edition, which places the 1994 population of Nigeria, from FOS and National
Population Commission sources at 96,244,000. Using the 1991 population of 88,500;000 however
still ranks Nigeria as the 11 the most populous nation on earth, just larger than Mexico which
however has over twice the land area of Nigeria. (Table 1.1). Within Africa, Nigeria is easily the
most populous nation, with one in every four or five Africans being a Nigerian. (Table 1.2).
2.06 Nigeria's population has grown on average over the past 21 years at stable rates of not less
than 2% and not more than 2.5% compounded annually. This contrasts with the rate of 3% (or
even 3.2%) which is applied in international publications for low income countries such as Nigeria.
[Chart 1.1] On the assumption that the population will continue to grow at the same average rates
unti12021 A.D, or at the rate of 3 % projected by the World Bank, there will be either in excess
of200 million Nigerians at the end of the next twenty five years, [Chart 1.2] or at the very least, the
population of the country will have doubled. It is also noteworthy that Nigeria has more young than
old people in its population, only a quarter or so of which has to undertake the bulk of economic
production [Table1.3] There are approximately as many females as mate$, and the female
population represents a latent industrial and entrepreneurial energy waiting to be tapped if the
experiences of the emergent Asian nations is anything to go by.
2.07 Nigeria is a multi-ethnic, multi-religious and multi-lingual
society with a long history of living together, of inter-marriages and also of internal trade as well
as trade with the rest of West Africa and North Africa. Nigeria was a British colony until it
attained independence in 1960. It became a Republic in 1963. Naturally, therefore, most of its
laws and institutions, including its Capital Market, were to some extent patterned after those of
Britain. Most of Nigeria's initial external trade was also with Britain, and then with Europe and
subsequently the America's. Trade with Europe, Asia and the America's is a more recent
phenomenon than trade with West Africa and North Africa, but is far better documented. Such
documentation as is available, may be obtained primarily from the Federal Office of Statistics,
and also from the Central Bank of Nigeria.
2.08. Nigeria's recent economic performance up to 1995 has been anything but impressive.
Tables 1.4 and 1.5, show Basic Statistical Indicators and Key Economic Indicators for The Federal
Republic of Nigeria during the past three to five years, side by side with average growth rates
from 1975-84, 1985-89 and 1990-95. The Statistics on Nigeria contained in World Bank
documents, and referred to above, are interesting for several reasons;
First, is that the foreign investors will have easier access to them and place more reliance on
them than on data from Nigeria sources. For example, they indicate that our average life
expectancy is still very short, at 51, and that our per capita income is less than US $300, or
approximately N24,000.00. They also indicate that our terms of trade are getting worse,
agriculture and industry are declining, investment is falling, and that little or no help may be
expected from outside sources.
2.09. What is not indicated however- in the statistics, but which remains the mainstay of the
Nigerian economy are the vast oil and gas reserves, which are being exploited to yield nearly
80% of the national income. Nigeria's large land mass is a potential strength for agriculture, but
it is scarcely and poorly exploited. Nigeria is reported to have substantial solid mineral resources,
but the likelihood for their exploitation to boost the income of the nation in the short run is
remote. Nigeria has a large population, and a relatively well skilled labour force. Manageri31
talent is still scarce however, and purchasing power is low. Nevertheless, Nigeria remains the
single largest market in West Africa and even black Africa.
2.10. THE FUTURE

The foregoing scenario signify great pressures in the immediate future for Administrations at all
tiers of Government, as well as the private sector. While these pressures will need to be
addressed immediately, it is important to identify and to recognise some of their principal
manifestations, which may be as follows:
Education: Pressure for more classrooms,' teachers and recreational facilities
Health: Pressure for more hospitals beds, drugs and personnel
Housing and Welfare: Pressure for more housing, utilities, towns and cities
Labour: Pressure for more employment opportunities, factories and the establishment of new
businesses or the expansion of existing ones.
Infrastructure: Pressure on existing infrastructure in the form of roads, power, water, and
telephones.
Government Finance: Pressure on the finances of the Federal and State Governments and the
various administrative units.
Security: Pressure on the law enforcement Agencies
Judiciary/Justice: Pressure on the judiciary
Women and Minorities: Pressures from rninorities including the youth and women for more
participation in governance and in the economy.
Resource Allocation: Pressure from various areas, especially the rural areas for more equitable
and better allocation of scarce resources.
Information Technology: Pressure on Nigerian entities to join the

global revolution in Information Technology. :
External Trade Imbalance: Pressure to create a new economic framework which encourages
entrepreneurship and mass participation in economic development.
Environment: Pressures to meet international environmental standards, especially

environmental impact assessment.
2.11. On the external front, there are also a number of threats which may not be
ignored:
Ecowas: The French speaking countries of West Africa have concluded plans to
establish their own single Capital Market with a unified Settlement and Clearing
System. The Market is expected to be operational by 1997, and 16 stock-broking
companies are to be licensed to invest in the Exchange and to operate on it. Nationals
of ECOWAS nations are defined as "Nigerian Citizens" under Nigerian laws for
purposes of investing in the Capital Market.
European Union: By the end of 1998, all the currencies of

Members of the European Union will be replaced by one currency to be known as the
EURO. From January, 1996, investment bankers from Member nations of the
European Union are permitted to undertake the full range of investment banking
business in all member nations without first seeking a local license.
Developments in Asia: Developments in Asia, especially the recent advances made

by the South East Asian countries together with India, represent an example to be
emulated and a challenge to be surpassed.
2.12. From the Central Bank of Nigeria, ANNUAL REPORT AND ACCOUNTS, 1994 the
Panel discovered that Nigeria has earned over US $200 billion from oil and other
sources in the past twenty years, representing over $11 billion pet annum. (Table1.6).
This income which is very substantial appears to have had very little impact on the
development .of the country. This situation is disturbing considering that there are
countries which have earned much less than this, and which may "not be as well
endowed as Nigeria but which have nonetheless achieved more substantial economic
growth and development than Nigeria has" thus far
achieved.
2.13. The Panel noted and was puzzled by the widely divergent paths of historical
change evident in the development of societies. It recalled its experiences in the
countries it visited some of which share similar colonial and historical experiences as
Nigeria, but which as at today have performed much better economically
especially in recent times. A relevant question therefore, why is it that some nations prosper while
others stagnate and decline?
2.14. As far as the Panel could determine, every system or society, and this includes organisations,
economic, social or political, have three broad components which interact to determine performance.
These are:
1. The Framework of laws, regulations, norms and practices which prescribe choice and decision
making in the field. These become the Rules of the Game.
2. The Organisations set up by the State or by individuals to achieve particular objectives. They
are manned by teams or people who have a common objective. In striving to achieve their goals, the
Organisations may deliberately or accidentally alter the institutional framework.
3. The Feed-Back Mechanism through which the system monitors the performance of the first
two components and responds to the changes which have occurred in the Framework to keep it
performing as required. For the system to function optimally, the process should be continuous. The
rules of the game are important, because, if they are fair, they make it easier for all participants to
compete equitably. If they are not fair, then they change the pattern of competition, or how
Organisations go about achieving their objectives.
The rules of the Game, therefore, determine what the transaction "cost" will be. Where transactions
costs are material, then not everyone can participate, and the performance of the system will be
different from a situation in which the transaction costs are minimal and more people can participate.
The rules of the game therefore make quite a big difference in each society.
2.15. From the foregoing, it is quite clear that the challenge of leadership in the next
century will be to build a sound institutional Framework of laws, regulations, rules, norms
and practices, as well as Organisations, which will under the management of competent
leadership serve as a" feed back mechanism, deal with the above mentioned pressures and
transform them into energies to propel Nigeria from relative underdevelopment to a
developed and modern nation in the I shortest possible time, by expanding its markets,
unlocking its
resources and widening the participation in value added economic activities by the entire
citizenry of the country.
2.16. The challenge is made more daunting by the fact that the other economies are not standing still
but are trying on their own to further improve the lots of their peoples, to increase the edge which they
have over us, and thus render us less competitive. It is, therefore, to all intents and purposes very
much like fighting a war, only that this is a war with no clear borders, a war in which there may be
enemies and friends at home and enemies and friends abroad. It is complicated further by the fact that
the roles keep changing, and that friends in one cause may be foes in another.
2.17 EVOLUTION OF A NIGERIAN CULTURE

AND VISION
Members of the Panel have also interpreted the search for a 21st Century VISION for Nigeria not
as an invitation to foist their individual or collective visions on the nation, but to determine as far as is
practicable what the true VISION for the country should be judging from the words and actions of the
past and present leadership, and the yearnings and aspirations of the generality of the people.
2.18. It is recalled that Nigeria became independent in 1960, and that the major events of our time,
for example, the civil war, indigenisation, privatisation, and SAP, all of the major laws and institutions,
outside perhaps of a few institutions like the Central Bank and the Stock Exchange, were created by the
Military. The impact of military rule on civil society and vice versa may not therefore ever be adequately
assessed, but it should in any event, not be under-estimated. The Panel has noted also that for the
entire period that the military was in power, there were large numbers of civilians at all cadres of
Government making effective contributions. Such active participation by civilians, which does not appear
to be adequately recognised and understood by the outside world, has contributed to the evolution of a
culture which is uniquely Nigerian, and which cuts across a broad spectrum of society.
2.19. Moreover, the VISION of the future which is presented below, is drawn largely from the
statement~ .hade from time to time by various leaders, civilian as well as military, and by key
functionaries of all past Administrations, including the current one. The VISION is neither new nor is it
original; but it is uniquely Nigerian. It is uniquely Nigerian because it is a VISION which is indigenous to
our people and it has manifested in every regime so far since independence. It is, therefore, likely to be
easily internalised by the new civilian leadership. The success of the VISION will also be dependent on
the extent that economic, social and political structures are in place to foster competent leadership and
sound institutions.
2.20. Traditional Nigerian communities organised production through group co-operative syndicates
work, age grade societies and trade guilds which operated peacefully together to ensure the prosperity
of individuals and of the community. Savings were mobilised through the "adashi" or "esusu" system,
whereby capital was accumulated and on-lent to the most needy on a rotational basis. The discovery of
oil soon after independence, and the abundance of the post-war years may have created and sustained
the illusion of affluence, leading directly to the pervasive mismanagement of our national wealth which
continued until recent times, and almost became a culture of its own.
2.21. There is evidence, however, that a Nigerian VISION has always existed even in our
darkest days, and from time to time, has indeed manifested itself in such Programmes as:
1975 - 1979 "Low Profile",and "Operation Feed the Nation". 1979 - 1983 "Ethical Revolution",
and "Green Revolution" 1984 - 1985 "War Against Indiscipline"
1985 - 1993 SAP, MAMSER, DFFRI, "Better Life for
Rural Women."
1993 to-date "War Against Indiscipline and Corruption", "Family Support
Programme”
2.22. Even though the above mentioned Programmes were popular with Nigerians generally,
they however achieved varying degrees of success in concrete terms. It was however not until
the current Administration introduced certain measures that were outlined in the 1996 Federal
Budget that the national VISION for Nigeria can be said to have manifested itself: that is:
PROSPERI Y WITH TRANSPARENCY. Some of the bold measures already introduced or proposed
include reforms of the following: Reform of the Ports, the Petroleum Sector, the Financial
institutions including the Central Bank of Nigeria, the promulgation of the Failed Banks And
Other Financial Institutions Decree to be followed by a Failed Parastatals And Contracts Decree.
2.23. It has been shown that the Nigerian VISION has been with us
all along, but it is to the credit of the current Administration that this VISION is now well
articulated, leading to the current efforts to build sound institutions to ensure a smooth
succession during and after the transition to civil rule.
2.24. On the basis of the efforts of the present Administration at cleaning up the country, and
from the evidence so far made public, there is little doubt that major institutions within the
public and private sectors have been unsound. For example, in a statement at the foundation
laying ceremony of the new Federal Secretariat for Delta State, at Asaba in July 1996, the Head
of State and Commander-in-Chief of the Armed Forces of the Federal Republic of Nigeria,
General Sanni Abacha, confirmed this view while contemplating the spectre of abandoned
projects all over the country. He stated that the abandoned projects were products of
"faulty concetualisation poor planning and improper
implementation"
2.25. If this has been the pattern since independence, then one can conclude that thirty-six
years of poor conceptualisation, poor planning and improper implementation, are core
problems that require urgent solutions. The nation's foremost aspiration must, therefore be to
get away as quickly as possible from its current predicament and strive to achieve prosperity
within the shortest possible time.
2.26. "PROSPERITY WITH TRANSPARENCY" - A 21ST

CENTURY VISION
1. PROSPERITY WITH TRANSPARENCY may be interpreted in this context to comprise the
following:
Prosperity Re: Wealth, Affluence, Abundance

- For the nation as a whole
- For the component parts such as the States and Local Governments.
- For Organisations, Companies and groups.
For the individuals, male and female alike.
Transparency i.e Clear, Open, No Concealment, No Disguise, No Mask.

- Open And Honest Government
- Precise Legislation, Rules And Procedures
- Zero or Minimal corruption and absence of similar anti social conduct.
Low transaction costs because the Laws, Rules etc. are clear and known to all.
2.27. The adoption of the foregoing VISION has clear implications as to how-society is governed,
its politics, the economy and how its Capital Market, is to be organised. It will be found on closer
examination that TRANSPARENCY alone will not do, just as PROSPERITY alone also will not do.
PROSPERITY WITHOUT TRANSPARENCY will mean that corruption will be rife, and hence, there
would be no assurance that such PROSPERITY can be achieved or that having been achieved, that
it can be sustained. TRANSPARENCY WITHOUT PROSPERITY will mean mass poverty and hence a
state of civil strife and unrest.
PROSPERITY is essential if Nigeria is to withstand the population pressures which are now knocking
at her doors. TRANSPARENCY will mobilise all the people to work harder and together with the
leadership, democratically, to reinforce the PROSPERITY of the individual, the community, the
society, the organisation, and hence of the nation.
The VISION PROSPERITY WITH TRANSPARENCY is therefore one which unites all Nigerians under
their leadership, to move the country forward into the next century so that the nation and its
people may occupy their rightful place under the sun.
Recent programmes by the present Administration affirm the foregoing VISION, just as public
acceptance of such policies affirm their approval and support. The Panel, has consistent with its
Terms of Reference, restricted itself to the implications of the foregoing VISION for the economy
and the Nigerian Capital Market.
2.28. THE ECONOMY AND THE CAPITAL MARKET

The Panel believes that in the 21st Century, and even before it, the Nigerian Capital Market should
strive to become the most important financial centre in Africa, comparable with the leading Capital
Markets of the world, and that it should also be the engine of growth and development for the
country.
A. Nigeria As The Most Important Financial Centre

in Africa. Comparable With The Best In The World
For Nigeria to become the most important financial centre in
Africa comparable with the best in the world, the following steps/
actions and events must occur or be taken; that is:
- the Nigerian Capital Market must trade a larger variety of instruments;

- the Nigerian Capital Market must operate according to international standards fairness,
equity, and transparency. the Nigerian Capital Market must be attractive to foreign
- investors, either from the rest of Africa or from the rest of the world.
- financial disclosure in the Nigerian Capital Market must be consistent with the best in the
world;
- transactions costs in the Nigerian Capital Market must be as low and competitive as, or
lower than competing markets, and must assure investors the same degree of liquidity; the
national currency must also be freely convertible.
B. As an Engine of
National Economic Growth
And Development.
- The Nigerian Capital Market must be attractive to local investors;
- The Nigerian Capital Market must provide venture capital funds;
- The Market must provide funds for States, Municipalities and Parastatals, and other
economic units.
- The Market must be attractive for the listing of local securities of small, medium and large
enterprises.
- The Market must be able to provide funds for the financing of infrastructure. .
- The Market must capture the entire range of Capital Market activity, including the informal
sector.
- The Regulatory structure of the market must ensure transparency, as well as openness,
fairness and liquidity..

1. That Nigeria is a leading nation in Africa and the world
but that her economic performance is at variance with this status. .
2. That Nigeria's population Will double in the next twenty five years, and will
put Nigeria's people and leadership under pressure to achieve superior economic perfor-
mance.
3. That Nigeria has a large population of young people and females. ,

4. That only about a quarter of the Nigerian population in
Report of the Panel on the Review of the Nigerian' Capital Market
terms of age may be involved in productive economic endeavours.
5. That Findings of the Panel is that Nigerian people as well as successive

leaderships have been in search of a VISION, which is shared by all Nigerians, and which
will lead them to a better society. The programmes of the current leadership have made
the VISION to manifest very clearly, as PROSPERITY WITH TRANSPARENCY.
6. That the Vision of PROSPERITY WITH TRANSPARENCY, implies and requires that the
economy be opened up, developed, deregulated, and democratised in order for it to achieve its full
potential and unlock the wealth of the nation in both resources and in talents.
7. The VISION requires that the Nigerian Capital Market becomes the leading capital market in
Africa, comparable to the best in the world, and the engine of national economic growth and
development.
CHAPTER THREE
HISTORY AND OBJECTIVES OF THE NIGERIAN CAPITAL MARKET
3.01. INTRODUCTION
This Chapter deals with the 1st and 2nd of the Panel's Terms
of Reference which require it:
1. " ......to review the history, structure, conduct and performance of the Nigerian
Capital Market and its contributions to Nigeria's economic development…”
2. ......" to examine the objectives for the establishment of the Nigerian Capital Market and
their continued relevance to Nigeria's contemporary and prospective needs and aspirations and
to make appropriate
................................ recommendations "
Whilst this Chapter reviews the history as well as the objectives for the establishment of the
Capital Market and makes appropriate recommendations, matters that relate to the structure of
the market as well as its conduct and performance are dealt with subsequently in Chapter Four.
3.02. THE HISTORY OF THE NIGERIAN CAPITAL MARKET

The history of the Nigerian Capital Market is presented below in chronological order and
in terms of the landmark events/ developments which created and influenced it.
3.03. DATE LANDMARK EVENTSIDEVELOPMENTS
1946 * Promulgation of the 10 year plan Local Loan Ordinance

providing for the floatation of Pound Sterling 300,000 3%
1st Government Stock 1960/1961.
1951 *Creation of a Loan Fund for financing some public utilities.

1957 *Government and Other Securities (Local Trustees Powers)
Act.
1958 *Establishment of the Central Bank of Nigeria ("CBN'')
1957 * Appointment of a Committee under Professor Barback to examine ways and means of
fostering a shares market in Nigeria.
1957 *General Loan and Stock Act, 1990
1957 *Local Loans (Registered Stock and Securities) Act, 1990
1959 *CBN in pursuance of its role in respect to the development of the Capital Market floated
the 1st Federation of Nigeria Development loan of =N=4 million.
1959 * The Lagos Stock Exchange operating as a Private Company Limited by Guarantee and
having Share Capital was formed as a result of the Report of the Barback Committee.
1959 *Statutory Corporations (Guarantee of Loans) Act, 1990.
1960 *The incorporation of the Lagos Stock Exchange took place through the collaborative
efforts of the CBN, the business community and the NIDB (then known as The investment
Company of Nigeria "ICON"). The original subscribers to the Memorandum and Aricles of
Association were:
1. Alhaji Shehu Bukar
2. Chief Theophilus Adebayo Doherty
3. Sir Odumegwu Ojukwu
4. Mr. Akintola Williams
5. C.T. Bowring & Co
6. The Investment Company of Nigeria (“ICON”)
7. John Holt Nigeria Limited.
1960 *The promulgation of the Lagos Stock Exchange Act 1990 which permitted only licenced
Stockbrokers/Issuing Houses to engage in the business of buying and selling of shares.
1961 *The Lagos Stock Exchange commenced operation on the
5th of June, 196 I.
1961 * Income Tax Management Act, 1990
1962 *Exchange Control Act, 1990.
1962 *Trustee Investments Act, 1990

1962 *Capital Issues Committee of the Central Bank of Nigeria
1962 * Directive recalling Nigerian Investments Overseas back into the country
1962 *Savings Bonds and Certificates Act, 1990
1966 *Borrowing by Public Bodies Act. 1990
1967 *Capital Gains Tax Act. 1990
1968 *Companies Decree, 1968
1969 * Banking Act, 1990
1972 *Nigerian Enterprises Promotion Act. 1972 since Repealed
1973 *Capital Issues Commission Act. 1973 since Repealed
1974 *National Provident Fund Act: 1990
1975 *Industrial Enterprises Panel (Wole Adeosun)
1976 *Financial System

Review Panel (Dr. Pius Okigbo) set up in April to study the structure and operations of the
Nation's financial system and to make recommendations for improvement.
1976 *Pension Act, 1990
1977 *Lagos Stock Exchange transformed to The Nigerian Stock

Exchange ("NSE") on 2nd December following the Government White Paper on the
Okigbo Report.
1977 *Nigerian Enterprises Promotion Act (phase 2) 1977, since Repealed.
49
Report of the Panel on the Reriew of the Nigerian Capital Market
1978 * Securities and Exchange Commission ("SEC") Act,. 1979 since Repealed. SEC is a
Regulator or Government Agency that is empowered to conduct surveillance in securities
dealings, promote development and the protection of investors.
1985 * Second-Tier Market of the Stock Exchange launched to attract small and medium sized
business to the Stock Market
1985 * Second- Tier Foreign Exchange Market Act, 1990 since repealed.
1986 *Marketing Boards scrapped
1986 * First Issue of Federal Government of Nigeria Stock to be over subscribed.
1988 *Re-enactment of the Securities and Exchange Commission Decree, 1988.
1988 *Privatisation and Commercialisation Decree 25 of 1990 designed to re-orientate the

enterprise/s for privatisation and commercialisation towards a new horizon of performance
improvement, viability and overall efficiency.
1988 *Industrial Development Co-ordination Act, 1990 since repealed.
1989 *Repeal and enactment of the Nigerian Enterprises Promotion Commission Decree 9 of
1989.
1989 *Privatisation and Commercialisation of numerous public enterprises
1989 *First Unit Trust' launched in December.
1990 *Companies and Allied Matters Act, 1990
1991 *Banks and Other Financial Institution Decree 25 of 1991
1993 *Venture Capital (Incentives) Decree 1993
1994 * Privatisation of Banks

1995 *Repeal of the Nigerian Enterprises Promotion Commission Decree 1989 by Decree 16 of
1995 paving way for direct. foreign participation in the market.
1995 *Formation of (FSRCC) Financial Services Regulation Coordination Committee by The

Central Bank of Nigeria to provide a platform to resolve regulatory disputes between SEC, The
Stock Exchange and NDIC.
1995 * Promulgation ofthe Nigerian Investment Promotion Decree

16 of 1995.
1996 *Ogunlana's Panel on the Insurance Industry
1996 *Panel on the Review of the Nigeria Capital Market

appointed.
3.04. OBJECTIVES FOR THE ESTABLISHMENT OF THE NIGERIAN CAPITAL MARKET

The objectives for the establishment of a Capital Market in Nigeria are examined from the
following perspectives:-
- long term development planning before the advent of the organised Stock Market
- the establishment of the Stock Market, including the Second Tier Securities Market.
- the establishment of the SEC.
- the consistency of the above objectives and their relevance and continued relevance.
- the fidelity of the Agencies established for the above mentioned purposes.
The birth of a Capital Market in Nigeria may be traced back to
the country's Colonial Administration which in 1946 established a 1 O-year Development Plan for
Nigeria, under which long-term funds were raised in the United Kingdom and Nigeria for
financing small community improvement projects,. educational research and educational
infrastructure, and to induce private sector industrial and agricultural development.
3.05. A Local Loans Board was set up in 1946" and Regional Loans Boards followed in 1949.
Thereafter, development planning was by five year Federal and Regional plans, and savings
were mobilised through the Regional Marketing Boards as well as non-bank financial
intermediaries such as the Lagos Building Society and the Post Office Savings Bonds Scheme.
The Central Bank of Nigeria was created in 1958, to issue currency and to co-ordinate the
financial system, amongst other functions.

Popular thinking at the time was that political independence was incomplete without economic
self-determination and the institutions associated with it.
3.06. OBJECTIVES FOR THE ESTABLISHMENT OF

THE NIGERIAN STOCK MARKET
The Panel was informed by the Securities and Exchange Commission, in its Memorandum to the
Panel that the objectives for the establishment of the Nigerian Capital Market are the same as
the objectives for the establishment of Capital Markets everywhere else in the world. The
Memorandum stated the following as the objectives:
- the mobilisation of savings from surplus economic units for on-lending to deficit units to
ensure efficient and effective allocation of scarce financial resources.
- to create an avenue for the populace to participate in the economy
- to reduce over-reliance on the money market for industrial financing
- to provide seed money for venture capital development
- to promote solvency, efficiency and a competitive financial sector
- to encourage corporate financial discipline and accountability
- to provide long term financial sector requirements without increasing the" tax burden on
the citizens.
- to promote a Stock Market culture.
3.07. The Panel examined the above objectives in the context of the history of the Market and
found evidence from the CBN Publication TWENTY YEARS OF CENTRAL BANKING IN NIGERIA,
that at the time the Lagos Stock Exchange was set up, Nigerian citizens and associations who
had surpluses invested the same abroad in London. One of the objectives for the establishment-
of the Stock Market was therefore to provide avenues for such. investors with surplus funds to
invest locally.
3.08. Another objective which was confirmed by the Panel is that of providing an avenue for
participation by Nigerians in their economy. This was clearly the philosophy behind the
indigenisation and privatisation programmes of the 19708 and 1980s.
Report of .the Panel on the Review of the Nigerian Capital Market
3.09. Next, the Panel examined the issue of raising of money by Governments as one of the
objectives for the establishment of the Capital Market in Nigeria, and finds it to be a plausible one.
However, the Panel also found that even though in terms of value, the bulk of listed securities on
the Nigerian Stock Exchange (''NSE'') were for a while Federal and State Government stocks,
previous Governments do not appear to have made as much use of the Capital Market as was
possible. For example:
1. The first Federal Government Stock was floated in London

long before the establishment of the Lagos Stock Exchange.
2. The Central Bank of Nigeria was empowered by the Lagos Stock Exchange Act to issue and
trade in Federal Government Stocks, whether or not it is a member of the Exchange. The market in
Government Stocks does not therefore need the Stock Market.
3. The Borrowing By Public Bodies Act did not apply to the

local Capital Market.
4. The Government and Other Securities (Local Trustee Powers) Ordinance was promulgated in
1957, well before the Lagos Stock Exchange was formed, allowing Trustees to invest in the
securities of public bodies such as The Ports Authority, The Coal Corporation, The Railway
Corporation and the Electricity Corporation. None of these Bodies has raised funds from the Capital
Market locally.
5. For many years the Federal Government sold its Stocks on the Stock Market and they were
usually under-subscribed. Only one Issue has so far been fully subscribed, and that was in 1986.
The Federal Government has not offered any new stocks since then.
3.10. From the foregoing, the Panel is of the view that even though the objectives for establishing
Capital Markets as adduced by SEC may be of universal application, they were not necessarily the
objectives which the Nigerian Government had in mind when it laid the foundations for the
establishment of the Nigerian Stock Market.
3.11. Apart from SEC's views, the Panel has also noted the objectives, for the establishment of the
'Nigerian Capital Market as described at the inception of the Lagos Stock Exchange by the managing
director of Nigeria's premier development bank, The Nigerian Industrial Development Bank Limited,
(NIDB) which was one of the promoters and a Member of the foundation Council of the Exchange,
as follows:
- The mobilisation of savings for economic growth

- Diversion of capital from less productive sectors like
real estate to more productive sectors such as industries.
- To augment the banking system and reduce the dependence of Government on taxation
for economic development.
- To decentralise the ownership of assets and create a healthy private sector.
- Avoidance of excessive concentration of economic power in the hands of Government.
- Avoidance of excessive concentration of economic power in the hands of a small private
group.
- To encourage more even distribution of wealth.
- To facilitate co-operation between indigenes and aliens in fostering economic
development.
3.12. These objectives which were articulated at the time of the establishment of the Stock
Market appear plausible. In fact, the Panel found that the objectives are still very relevant
considering the fact that in spite of the progress made and the extent of success achieved, some
of the problems that were meant to be dealt with at that time still remain, viz:
- Scarce financial resources are still flowing into properties

- Economic power is still concentrated in the hands of Government
- There is still over-dependence on the banking sector
- The private sector is still not healthy.
- Nigeria is not attracting enough foreign investment
- There are still problems of distribution and concentration of wealth.
3.13. In addition to the above sources, the Panel also found that the objectives for the
establishment of a market for trading in stocks and shares in Nigeria are contained in the
Objects clause of the Memorandum and Articles of Association of NSE. Some
of these objectives were:
"….(a) To provide facilities to THE PUBLIC, IN

NIGERIA for the purchase and sale of funds, stocks and shares of any kind and for the
investment of money...
(e) To correlate the stock-broking activities of

its members and FACILITATE THE EXCHANGE OF INFORMATION for their mutual advantage and
for the benefit of their clients and to OFFER FACILITIES WHEREBY THE PUBLIC CAN BE
INFORMED of prices dealt in by members.
(f) To co-operate with the Association of

Stockbrokers and Stock Exchanges in other countries and to obtain and make available to
Members information and facilities likely to be of
advantage to them or to their Clients ......."
3.14. OBJECTIVES FOR THE ESTABLISHMENT OFTHE SECURITIES AND EXCHANGE

COMMISSION
As part of its findings, the Panel noted that Government appears to have had a different
set of objectives for setting up the Securities and Exchange Commission ("SEC") as distinct from
its objectives for setting up the Stock Market, Government's objectives include the following:
1. In 1962, just one year after the commencement of trading on the Lagos Stock Exchange,
The Federal Government, through the CBN established the Capital Issues Committee ("CIC") to
monitor the Stock Exchange, and the rest of the Capital Market, and to reach decisions on the
"timing. Price and amounts of all Issues by public companies". The Exchange was a member of
the Committee which remained in
operation until 1973 . .
2. The main objective of the CIC was "...to keep the absorptive capacity of the infant
Capital Market in check…" as per (SEC Memorandum to the Panel).
3. In 1973, the Committee was upgraded to a Commission with its own enabling decree,
but with the same functions.
4. These functions were enlarged by the Nigerian Enterprises

Promotions Decree of 1972 and 1974, and the focus was on
controlling the dominance of the economy by aliens rather
than in encouraging new investments by Nigerians and aliens
into the Capital Market.
5. The Commission was again upgraded to the Securities and Exchange Commission in
1978 with a decree of the same name, which was re-enacted in 1988, further enlarging the
functions and the powers of the Commission.
6. The Privatisation and Commercialisation Decree of 1988, and the Companies and Allied
Matters Decree of 1990, further reinforced and entrenched the powers of SEC over the . Capital
Market.
8. Although the various decrees gave power to SEC to develop the Market, the emphasis in
practice was on regulation and control. "keeping in check", rather than facilitating the
development of the Capital Market.
8. In the 1991 Budget, Government proposed a policy of deregulation, and the matter was
referred to an Inter-Ministerial Committee. Records of the deliberations of the Committee show
that while SEC and the NSE played imp0rtant roles in the proceedings, the conclusions of the
Committee may have been inappropriate as they lacked the inputs of market participants.

The Panel has in this Chapter examined the objectives for which the Capital Market,
the Stock Market and the lead Regulatory Agency for the market were set up.
The Panel found that the objectives for the establishment of the Capital Market and
the Stock Market are still very relevant,
but that the focus and the objectives for the establishment of the Regulatory Agency
for the market were rather restrictive
and need to be amended in order to facilitate the “unlocking”
of Nigeria's vast economic potentials. .
CHAPTER FOUR
STRUCTURE, CONDUCT, AND PERFORMANCE

4.01 INTRODUCTION
This Chapter deals with the second aspect of the 1st Term of Reference and with the second part of the
9th Term of Reference which require the Panel:
"...To review............... structure, conduct and performance of the

Nigerian Capital Market and its contributions to the Nigerian
economic development ....... "
"...To examine the structure of the Nigerian Stock Exchange and its branches and their adequacy in the
context of the Federal Government Privatisation Programme and the policy of ensuring widespread
shareholding, and make-appropriate recommendations" .
The structure of the Capital Market is examined in this Chapter in terms of the numbers of institutions
and volume of activities in the Market over time. A review of how the business of the Capital Market is
conducted and the performance of the same in comparison with other Capital Markets of the world is
undertaken. In addition, the Chapter also examines the contribution of the Stock Market to the
indigenisation and privatisation programmes of Government and the policy of encouraging wide-spread
shareholdings.
4.02 MARKET STRUCTURE

The Major Capital Market Institutions
The main institutions of the. Capital Market include the CBN,
SEC and NSE, the Merchant Banks, Stock-Brokers, Registrars or Transfer Agents, Insurance Companies,
Unit Trusts and Pension Funds. The NSE which is based in Lagos:; has six trading floors whilst SEC also
has its headquarters in Lagos and a liaison office in Abuja. In 1994, there were 140 Stock-Brokers, and
177 quoted securities. This excludes the Government Stocks arid other fixed interest securities. By
1996, there were 162 Stock Brokers and 181 quoted securities. There were also 51 Merchant Banks and
over 65 Commercial Banks.
4.03 Table 2.1 shows the Structure of the Nigerian financial system including the Capital Market, in
terms of number and distribution of financial institutions. Attention is drawn in the Table to the large
numbers and varieties of financial institutions, as well as the numbers of listed securities over time, to
the growth of the Stock Exchange and its branches, as well as the increase in the number of Merchant
Banks and Stock-Brokers.
Charts 2.1, 2.2 and 2.3 show graphically the growth in the numbers of various types of listed securities,
as well as the growth in the membership of the Stock Exchange compared with listed securities. The
figures however do not show the fact that until 1994, the Stock Exchange had more non-dealing
members members (156) than dealing members (140) and that it was only in 1995 that the Exchange
did not have, as Members, more people and institutions who were not Stock-Brokers than there were
Stock-Brokers.
4.04 Securities
Market capitalisation at the end of 1995 was appropriately $2.098 billion, and with a turnover of 0.1 %,
approximately $2,098,000, or just over =N= 178,330,000, which is the amount of Stock Broking
business to be shared by more than 160 Brokers. This ranks amongst the lowest in the world.
4.05 Table 2.1 also shows the growth of listed securities as well as new Issues of Debt and Equity in
the Nigerian Capital Market from 1985 to 1994.Chart 2. 1 plots all new Issues in the market overtime.
'The new Issues curve shows two peaks which correspond to the major privatisation in 1988 to 1990,
and the privatisation of banks during 1993. The chart also shows that the issue of Government Bonds
has been on the decline, while the Issue of industrial bonds has been on the increase. Table 2.2 shows
the number and value of industrial securities listed from 1976 to 1994.
4.06 As at the end of 1995, the total number of shares quoted companies listed on the NSE was
N20.33 billion compared with N17.51 billion for the same period of 1994. (SEC Annual Report 1995).
Table 2.3 shows the amount of net new Issues as a percentage of market capitalisation for each year
from 19$0 to 1995. The proportion has been consistently below 10%, and following the sharp rise in
market capitalisation from 1993, the proportion has dropped even lower.
4.07 Transactions Costs

Transactions "costs" in the Nigerian Capital Market are reported to be very high, perhaps
amongst the highest in the world. Table 2.4a presents the current scale of listing fees by the NSE and
Table 2.5 shows the Scale of Charges approved by SEC from 1993 when Government embarked upon
deregulation to date.
4.08 Table 2.7 shows the components of Issue costs for a typical Capital Issue in the Nigerian Capital
Market. Attention is drawn to the Ad-Valorem charges imposed by SEC and NSE which are not
negotiable, are payable -in advance and are not dependent on the success or otherwise of the Issue
exercise.
4.09 Issuing Houses and Brokers also charge Ad Valorem fees, but these fees which are negotiable,
are based on performance and are paid according to progress. This is consistent with international
practice.
4.10. Ownership Structure

The pattern of the ownership of shares quoted on the Nigerian Stock Exchange shows that 25.14 % of
the shares are held by foreign investors, 21.67% of the shares are held by institutional investors, and
43.59% are held by individual investors. Table 2.8 shows the Pattern of Share Ownership in the NSE.
Table 2.6 shows the Summary of Market Capitalisation on the Nigerian Stock Exchange at the end of
1994 and 1995.
4.11 MARKET SEGMENTS

There are five main segments on the Nigerian Stock
Market, and they are as follows:
SEGMENT SECURITIES
Federal Government Stocks 24
Industrial Loans and Preference Stocks
Equities [in 23 sectors]
62
Second Tier Securities 163
Memorandum Listings. 20
State Bonds 4
Local Government Bonds
4
1
278
4.12 THE GOVERNMENT STOCK MARKET
Until 1986,
The Federal Government of Nigeria issued Stocks on a yearly basis through the CBN. All but one of the
Issues, and they used to be in three trenches corresponding to short term medium term and long term
duration, were under-subscribed and the
CBN had to purchase the "balance not taken up. The only Issue of Federal Government Stocks that was
fully subscribed which incidentally was the last one was issued in 1986. The Stocks are all listed on the
NSE, and the CBN re-purchases any of the outstanding Stock at the request of the holder, through the
customet's broker. In practice, a GOVERNMENT BROKER is appointed to represent the CBN, and this
position is rotated amongst brokers. The current duration of the appointment is three months.
4.13 The proceeds of the Issues of Federal Government Stocks issued in the past are on-lent to the
States for their development projects. In the course of its assignment the Panel was informed by the
Monetary Authorities of all the countries it visited, that their Governments routinely issue Stocks in the
domestic Capital Market, even when they have no need for funds, if only to provide benchmarks for the
private sector, and for the development of the Capital Market and a sound financial sector.
4.14 The Panel recommends this practice for immediate adoption by the Federal Government.
4.15 STATE BONDS

Federal and State Governments, parastatals, and companies in which the States and the Federal
Government or their Agencies have investments are authorised under. the Borrowing By Public Bodies
Act 1990, to borrow money outside Nigeria with the guarantee of the Federal Government. In addition,
States Governments are encouraged to raise capital from the Capital Market and quite a few have done
so, with varying degrees of success. The first state to attempt to raise money from the Capital Market
was the former BENDEL State Government, in 1977. The Issue was approximately 34% successful.
4.16 One Local Government, The Lagos'. Island Local

Government, has also raised funds successfully from the Nigerian
Capital Market..
4.17 The Panel noted that there is no Rating Agency in the Capital Market and recommends that the-
existence of such an infrastructure would help to evaluate securities and assess the calibre of borrowers,
thus helping to structure the securities for listing in the market.
4.18 The Panel also noted the absence of legislation similar to the
Borrowing by Public Bodies Act to provide for detailed arrangements and assurances as to repayment
and penalties for public agency debts in Nigeria, and agrees that the promulgation of such a law would
facilitate the growth of a Bonds Market in Nigeria.
4.19 The Panel however agrees with the finding of the Financial System Review Panel (Okigbo Report)
when it observed in Chapter Five, that the extent to which any particular segment of the stock market is
used depends more upon the availability of other forms of finance than upon anything else. In this
context the Panel noted with concern the heavy dependence of all sectors of the Nigerian economy on
short term finance from the Banking Sector, the distress in which may not be unconnected with the
strains imposed. by such dependence.
4.20 SECOND TIER SECURITIES MARKET

Following criticisms that the Nigerian Stock Market was not responsive to the needs of local investors,
especially indigenous businessmen who wished to raise Capital thereon for their businesses, the NSE
introduced the Second-tier-Securities market in
1985, to provide a framework for the listing of small and medium sized Nigerian Companies on the
Exchange. A total of six companies were listed on this segment of the Market by 1988. Between 1988
and 1994 twenty companies joined the Market in this sector, of their own volition.
4.21 MARKET CONDUCT

The Panel discovered in the course of its assignment that business is conducted in the Nigerian Capital
Market on the basis of obscure Rules and Procedures which are neither entirely clear nor generally
available. The main types of activity and how they are conducted are set out hereafter.
4.22. Buying And Selling Securities.

1. Persons and associations wanting to trade (i.e. buy and sell) in securities (stocks and shares)
have to identify and approach a Stockbroker. There are currently 162 such licensed brokerage
companies in the Nigerian Capital Market, going by the records of the NSE; and only 108, going by the
records of the SEC. Customers have to place their purchase orders and "deposit funds or place their sale
orders and deposit the title documents. These are receipted and the buyers/sellers complete Transfer
Forms, evidencing their signatures. The Broker sends the documents (script and transfer form) at his
own risk to the Transfer Agents (otherwise known as Registrars who are agents of listed companies,
to VERIFY the authenticity of the signatures and the title documents.
2. The Broker retrieves the documents from the Transfer Agent at his own cost and risk, and then
proceeds as follows:(a) If the documents and signature were found to be in order, and were stamped
"SIGNATURE VERIFIED" by the Transfer Agent he goes on to sell the shares on any floor of the Stock
Exchange.
(b) If the documents and signature were found to be incorrect, and stamped "SIGNATURE IRREGU-
LAR" by the Transfer Agent, the Broker returns the documents to their owner.
3. The SALE (or PURCHASE) is done on the floor of the Stock Exchange, by a sale to another Broker
or to another client of the same broker (Crossed Deal), and the deal is evidenced by the exchange of
BARGAIN SLIPS bought by each Broker from the NSE in advance. A copy of each of the bargin slips
exchanged by the Brokers is submitted to the NSE immediately by the Brokers as the deal is taking
place.
4. The Broker then prepares his CONTRACT NOTES (for all purchases and sales) for his customers,
but he also forwards a copy of each to SEC, to facilitate surveillance and the computation of the 1 %
charge due to SEC on all transactions taking place on the floor of the Exchange. The fee is now paid by
BUYERS only. In the event that some transactions resulted in the splitting of one share certificate, the
Broker has to approach the Transfer Agent for CERTIFICATION.
5. The Broker then forwards all the documents to the Stock Exchange for AUTHENTICATION, that is,
confirmation that the transaction represented by the documents were bonafide transactions which took
place on the floor(s) of the NSE. It is after such AUTHENTICATION that the Selling Broker DELIVERS t4e
documents (DELIVERY) to the Buying Broker who then LODGES the documents with the Transfer Agent.
Thereafter, the Transfer Agent prepares and the Broker collects the NEW CERTIFICATE, or evidence of
title, from the Transfer Agent when it is ready, and this has been known to take as long as three months
and often much
more. The new Share Certificate is forwarded to the customer by the Broker, or is collected by the
customer from the Offices of the Broker.
6. The Broker charges the Customer the following fees:
- Commission of 3% of value
- SEC charge of 1 % (Buyer only)
- Contract Stamp of 3/4%
- VAT of 5% of Brokers fee.
7. The Panel found, as is shown in Table 2.9, captioned "Nigerian Capital Market Settlement
and Delivery System", that the BROKER is central to the Capital Market process and that from the
existing Settlement and Delivery System,-the above charges together with the CONSIDERATION
(price multiplied by quantity) are due for payment by the Customer prior to or at the point of
purchase, if the Buying Broker is to be able to meet his own Settlement obligation to the selling
Broker.
8. The Panel also found that, as it is presently structured, the criticisms regarding delays and
lack of transparency levied against the Capital Market, would be neither uncommon, nor avoidable
and. that notwithstanding the wide range and extensive criticism of the Broker he still occupies a
Vital role an intermediary in the Capital Market process which' could not be ignored.
9. With the above as a background, the Panel conducted a review of the performance of Brokers
and the adequacy of their capitalisation for the efficient and effective performance of their duties
to the Capital Market and hence the nation. The Panel invited Brokers to complete a Questionnaire
and to submit data on their operations over the past five years. A summary of the responses is
presented in Table 2.15.
10.From a review of the evidence available to it, the Panel was unable to confirm the widely held,
view that Brokers are undercapitalised, and that their average capital is unlikely to be adequate
for an effective brokerage operation. The Panel also found that Brokers accept deposits from their
customers, and that most Brokers do extend credit to their customers for the purchase of
securities.
11. The Panel also noted that the Central Bank has not issued anyMARGIN REQUIREMENTS to
regulate the granting of credit for the purchase of shares and found that in the absence of such
margin requirements, the financing of trades by Brokers, places a severe strain on the Settlement
System and could lead to its breakdown.
12. Apart from the above the Panel found that most stockbrokerage companies are owned
predominantly by NONBROKER DIRECTORS who may have little knowledge of the profession and
practice and who are not involved in it. Even more fundamentally, the Panel found that the
volume of trading on the Stock Market is so low that the total commissions earned or to be earned
on such volume, even at the rate of3%, (which would be amongst the highest in the world,) are
not likely to represent fair return to all the Brokers in the market at any point in time. (Table
2.10).
13. Finally, the Panel concluded that these findings dictate the need for a total overhaul of the
Capital Market process, including the Trading, Settlement and Delivery System in the Nigerian
Capital Market.
4.23 Settlement And Delivery System

The Settlement and Delivery System in the Nigerian Capital Market is set out in Table 2.9,
captioned "'Nigerian Capital Market Settlement and Delivery System". The processes are mostly
manual and depend on a cumbersome communication system based on individually generated
correspondence and dispatches. Transactions, when they are reported, are reported twice, similar
to the NASDAQ style, but unlike the New York Stock Exchange pattern which reports a transaction
only once, either as a sale or as a purchase.
There are large volumes of 'Questionable Trades', or transactions which Brokers contest with one
another, particularly over delays in delivery and the recovery of benefits which may be lost in the
interim. These reconciliation problems also delay cash settlement. Similar reconciliation problems
exist between Brokers and their clients, and between Brokers and the various Transfer Agents.
Having regard to the above, the Panel concludes that the existing Settlement and Delivery System
does not meet the needs of the Capital Market or of the aspirations of the nation.
Table 2.10
SECURITIES AND EXCHANGE BOARD

OF INDIA (SEBD
RULES AND REGULATIONS
1. Securities and Exchange Board of India (Bankers to an issue) Rules and

Regulations, 1994.
2. Securities and Exchange Board of India (portfolio Managers) Rules and
Regulations, 1993.
3. Securities and Exchange Board of India (Stock Brokers and
Sub-Brokers) Rules and Regulations, 1992.
4. Securities and Exchange Board of India (Underwriters) Rules and
Regulations, 1993.
5. Securities and Exchange Board of India (Mutual Funds)
Regulations 1993.
6. Securities and Exchange Board of India (Registrars to an issue and Share
Transfer Agents) Rules and Regulations, 1993.
7. Securities and Exchange Board of India (Debenture Trustees) Rules and
Regulations, 1993
8. Investors Grievances - Rights and Remedies.
9. Compendium of Primary market intermediaries, mutual
funds & Foreign Institutional investors (As on 30th June, 1995).
10. Securities and Exchange Board of India (Insider trading)
Regulations, 1992.
11. Securities and Exchange Board of India Consolidated Guidelines for
disclosure and Investors protection.
12. Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations 1994.
13. SEBI and Investors Protection, Development and Regulation of
Securities Market.
14. Securities and Exchange Board of India (Foreign Institutional Investors)
Regulations, 1995.
15. Securities and Exchange Board ,of India Act 1992.
16. Securities and Exchange Board of India.(The Gazette of
India Extra Ordinary Notification Mumbai, the 16th Ma~, 1996)
17. Securities and Exchange Board of India (Merchant Bankers) Rules and
Regulations,1992.
Source: Securities and Exchange Board of India.
4.24 1. New Issues

1. For new Issues, customers approach Issuing Houses (These are Merchant Banks and Brokers)
licensed as such by SEC. The Merchant Banks also have to obtain registration as Ordinary Members of
the Stock Exchange. Issuing Houses usually advise their clients on the structure of any proposed
transaction and prepare documentation to be forwarded to both the Stock Exchange and SEC. Issuing
Houses are therefore a crucial part of any proposal to use the Nigerian Capital Market as the engine of
economic growth and development.
2. Fees are negotiable, from 0.5% to 1 % for Advisory work to between 1 % and 2.5% for Issuing
House services. Both the Stock Exchange and SEC have to approve the offer documentation but the
primary responsibility for determing the contents of a prospectus belongs by law to SEC. Issuing Houses
have complained of delays on the part of SEC in approving documents, and regards the NSE in issuing
the requisite Certificates of Exemption.
3. The Panel was informed, and it accepts that the efficiency of the Market would be improved by
the existence of clear and unambiguous Guidelines on documentation requirements for all Capital
Market activities. In this context, the Panel recalls that some countries such as India have resolved this
problem successfully by publishing detailed Guidelines such as those issued by the Securities and
Exchange Board of India. (SEBI) (Table 2.10).
3. A public Issue may be made in Nigeria by 'Prospectus in accordance with disclosure requirements
set out in the Companies and Allied Matters Decree of 1990. "CAMA" The Issue is open for three to four
weeks on average, receiving agents (this includes all Banks and. Brokers in the country return
completed documents and funds received at the end of two weeks after the date of closure, while:
allotment returns are compiled by the Issuing Houses and are submitted to SEC not later than 10 weeks
after the date of closure, implying in effect a total period of 16 weeks from the completion of application
to the receipt of the funds by the Issuer. The Panel received and examined Memoranda suggesting that
the time during which public Offers are open in Nigeria is too short and that it be extended.
4. The Panel considers, based on the practice in other markets that

Offers can, and should be concluded in two weeks without
sacrificing efficiency or transparency.
5. The Panel recalls that SEC has always had an interest in shares pricing on the primary
market, and that the Capital Issues Committee was set up in 1962, to undertake this function, which
was further reinforced during the indigenisation and privatisation exercises. Pricing on the primary
market was until 1993 determined by SEC using a model based on the capital, Station of the average
profit after tax for the past five years capitalised at imputed rates of return ranging from 10% to 30%,
depending on the type of business. With the advent of deregulation in 1993, SEC no longer determines
prices; Issuing Houses and their clients may now determines securities prices but SEC requires them to
justify their prices to it
6. In addition, SEC is to determine which Issue and what proportions of it may

underwritten, SEC also directed that under-writing fees should not exceed 2.5% of consideration.
7. Proposals for the Allotment of shares still have to be submitted to SEC for approval.
8. The panel was advised and it is able to confirm that the cost of Public Issues in Nigeria
is probably one the highest in the world. The panel found the major components of such cost consistent
with the structure of costs in other Capital Marketers, the items which appear excessive and which need
to be addressed are as follows:-
SEC Registration Fee 1%

Stock Exchange Listing Fee 1.25%
Both fees are based on market capitalisation, they are paid in advance, they are not dependent upon
success, and they are not negotiable or negotiated.
9. Printing costs appear to be high, and so also is the cost of the protraction of Issue and
of the financing it.
10. The other fees payable to professionals etc. are consistent with the pattern in other
parts of the world, though they could be further reduced by competition.
Report of the Panel on the
The Review of the
DENNIS ODIFE Nigerian
Panel Report on Capital Market
the REVIEW OF THE NIGERIAN CAPITAL MARKET, 1996
12. The Panel also noted that underwriting capacity in the Nigerian Capital
Market is very low, and that the terms "UNDERWRITING" and "UNDERWRIT
as far as Capital Markets are concerned, do not have the same meanings in other
Capital Markets. Issuing Houses would not necessarily be described as
UNDERWRITERS as they would in other Capital Markets. It is important that the
Nigerian Capital market develops underwriting capacity and that its Issuing
Houses, or merchant and investment banks learn to co-operate in the
underwriting of Issues as this will promote efficiency, transparency, lower
transactions costs, and ultimately, their prosperity.
13. The Panel notes that in some countries such as India and the United States
of America, for example, Merchant banks or Investment Banks may also engage in
under writing and are not permitted to extend short term credit. The Panel
recommends this practice for study and for possible adoption as a way of building
up the underwriting capacity of the Nigerian Capital Market.
4.25 Pricing On The Secondary Market

1. Traditionally, pricing on the secondary market was left to the
Brokers and the Exchange. It was widely believed that Brokers determined such
prices.
2. An official of the Stock Exchange presides over Call-Over with power t

accept or reject any price without any explanation.
Senior officials of the Exchange also intervene on the Trading

Floor of the Exchange from time to time during trading resulting in massive
3. upwards or downwards movement of share prices.
4. The SEC recently intervened in the secondary market to direct the Exchange
to raise the minimum allowable increases in thee price of the shares of a
company on the Exchange in any single day, from 20 kobo, to 5%, with n
upward limit. The result IS that is prices could rise by 100% m one day, If'. I
necessary.
5. The Panel is unable to reconcile recent increases in the Stock

Market Index to other measures of performance such as GDP or with inflation.
6. Recent public concern

about the lack of transparency in pricing on the Stock Market appear therefore to
be justified. (SEC Memorandum to the Panel).
4.t6 MECHANISM FOR PRICE MAKING

Even though the Lagos Stock Exchange Act of 1961 defines stock broking to
include 'stock jobbing', there are no jobbers in the Nigerian Stock Market; there
are no price makers, and trades are based on prices quoted by brokers using
their best judgement as they deem fit, since clients usually direct that trades be
made 'AT BEST, meaning at the best possible price. The Panel found that from
time to time, the Management of the Stock Exchange inteIVenes in the Market to
urge brokers to move up or to reduce particular prices, or even to move up the
general level of prices, whenever, in the opinion of the Stock Exchange, events
occur which warrant such movement.
From evidence available to it, the Panel believes that the function of the Stock
Exchange is to provide a framework where as many parties as possible can be
present, and for disseminating information for purposes of price discovery, and
not to enable the Management of the Exchange to direct what the price should
be. The Panel considers as unsatisfactory a situation in which the Management of
the Stock Exchange should allow its own private judgement to routinely replace
the collective judgement of the Market which it is its duty to establish in the first
place.
The Panel is satisfied that the foregoing obseIVation does not invalidate
mechanisms for market recovery after a crash.
4.27 MERGERS AND ACQUISITIONS

The Securities and Exchange'Commission is responsible for the approval of all
Mergers and Acquisitions. The Panel is of the view that matters of fair
competition, unfair trade practices, and monopoly practices will arise with
increasing frequency as the economy evolves, and that they deseIVe to be given
more attention in the interest of the efficiency of the market. The Panel notes
that there is no agency in the country resp~nsible for determining the trend
towards monopolies in th~ econ.omy, the existence of monopoly and anti-
competitive practices, or the effect on the nation of particular mergers, and
combinations, or to draw the attention of Government to the withdrawal of
investors from particular sectors and activities, and what impact such could have
on the nation.
The Panel is not persuaded that this function is currently being performed by any existing agency, and
observes that the function being performed by SEC is an administrative one having to do with the
securities created, and therefore recommends that the new function described herein, be entrusted to
another body created specially for the purpose.
4.28 INDIGENISATION AND PRIVATISATION

Indigenisation
The growth of the Nigerian Capital Market owes a lot to
INDIGENISATION, which is the name used to describe the programmes under which foreign investors
were obliged by law to sell portions of the equity in their local companies to Nigerian Citizens and
Associations. The laws were the Nigerian Enterprises Promotion Decrees of 1974 and 1977. The laws,
which were replaced in 1989, were, finally repealed in 1995 by the Nigerian Investment Promotion
Decree. Foreign investors were obliged under these laws to sell 40% to 50% as the case may be of the
equity of their companies to Nigerians, either by private placement or by public Issue with or without
quotation on the Stock Market. Most of the companies whose shares are listed on the Stock Exchange,
did so as a result of these laws. The prices at which the shares were sold were determined- by SEC, and
the formula used by SEC for the purpose tended to result in relatively low prices, which were resented
by the foreign investors but were a source of joy and profit for those Nigerian Investors who were able
to purchase the shares, as most Issues were over-subscribed.
4.29 Privatisation
The Federal Government embarked upon its programme of
Privatisation and Commercialisation in 1988, folloWing the promulgation of the Privatisation and
Commercialisation Decree of the same year. The Programme was implemented for Government by THE
TECHNICAL COMMITTEE ON PRIVATISATION AND COMMERCIALISATION, of which the Director-General
of SEC was a member and lasted from 1988 until 1994, when the shares of the Federal Government in
the banks were also privatized, or sold to the public.
The Programme introduced a number of new features to the Capital Market, with regard to widespread
share ownership, better control of issue costs, and accountability for surplus or returned money.
Overall, the execution of the Privatisation Programme was quite transparent, and enhanced its
acceptance by the public.
Clearly, the Programme also aroused shareholder awareness and participation in company general
meetings. It also sharpened shareholder awareness of delays and defects in the Settlement process, and
public sensitivity to the lack of information and knowledge regarding the Capital Market and Capital
Market activities.
The Panel is convinced that the privatisation would not have been possible, nor could it have succeeded
without the NSE and the Oapital Market.
4.30 The Panel could not help but take note of the information it obtained from the Public Sessions
which it conducted in different parts of the country, and from the Memoranda which it received, that
members of the public are increasingly frustrated by the complexity of the delivery and Settlement
System when they attempt to sell their shares or to retrieve their dividends, and that unless these
problems are resolved, many of them may feel disenchanted towards further privatisation programmes.
4.31 SUPPLY OF INFORMATION REGARDING

THE MARKET
One of the objectives of the Nigerian Stock Exchange as contained in its Memorandum and
Articles of Association, is the supply of information to the public regarding the Market, and the
performance of the Market will also be assessed in this contex. The Panel learnt from the information
supplied to it by the Exchange that The NSE was, in 1987, the 4th Stock Exchange in the world to be
.connected to the Reuters Network, through which information about it is transmitted to the rest of the
world. The Panel is unable to reconcile this with the briefings by the International Finance Corporation,
'IFC', during its overseas study tour, that some of the information regarding the NSE supplied to it by
itself and SEC could not be reconciled with one another, and therefore were unreliable.
The Panel has noted and examined reports of rec.ent initiatives by the NSE regarding innovations
proposed or contemplated, and finds that they are grossly exaggerated. .
4.32 PERFORMANCE AND ECONOMIC

CONTRIBUTION
All available evidence confirms that the Nigerian Capital
Market has made substantial contributions to the development of the economy, and that the economy is
better off with than without it. The performance of the Capital Market is however to be evaluated not
only in the relative but in the absolute sense.
Table 2.11
MARKET CAPITALISATION ANND GDP 1985 – 1995
Year Market capitalization

GDP at current Market Prices
=N= Billion =N= Billion
(2)as % of
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
SOURCE: SEC ANNUAL REPORT, 1995
Table 2.12
THE NIGERIAN STOCK EXCHANGE ALL-SHARES INDDEX (1991 - 1995)
JANUARY
FEBRUARY
MARCH
APRIL
MAY 23,100.8
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
4.33 Table 2.11 shows the Ratio of Market Capitalisation to Gross Domestic Product from 1985 to
1995. Table 2.12 shows the Performance of the Nigerian Stock Exchange All-share Index on a monthly
basis from 1991 to 1995. Table 2.13 shows the Comparative Performance of the Nigerian Capital Market
with other Emerging Markets.
4.34 Table 2.14 shows a Comparative Ranking of the Performance of the Nigerian Capital Market with
other Capital Markets based on the data in Table 2.13. The comparison shows the following:
(1) The performance of the Nigerian Capital Market is at the bottom of the scale on all counts except
dividend pay-out.
(2) On this item of dividend yield on which the Nigerian Capital Market appears to lead other
emerging markets, the implication is that capital flight is prevailent.
4.35 The Panel is therefore unable to reconcile the views of SEC and the Stock Exchange (in their
respective 11emoranda to the Panel) that the Nigerian Stock Market has performed well by all
international standards, with the findings especially in Tables 2.13 and 2.14 which shows that the
Nigerian Stock Market is one of the lowest ranked in the world in terms of performance.
CHAPTER FIVE
REGULATORY AND SUPERVISORY STRUCTURE OF THE NIGERIAN CAPITAL MARKET
5.01. INTRODUCTION
This Chapter examines and reports on the Panel's 10th Term of Reference which is:
........................ …To review the role of the regulatory and or supervisory agencies and the adequacy of
the regulatory/supervisory oversight process, including the number and adequacy of self-regulatory
organisations established for the purpose .....
5.02. ISSUES
In carrying out its assignment, the Panel asked itself the following questions:
1. How has the Nigerian Capital Market been regulated?
2. What is the structure of regulation and which are the principal institutions?
3. What philosophy guides the regulation of the Nigerian Capital Market?
4. What laws, regulations, norms and practices guide the regulation of the Nigerian Capital Market?
5. How effective has the regulation of the Nigerian Capital
Market been?
6. What is the political oversight process presently existing for the regulation of the Nigerian Capital
Market?
7. What Self-Regulatory Organisations are in place and how have they performed?
5.03. The Panel obtained and studied a regulatory map of the financial system prepared by the
Research Department of the Central Bank of Nigeria and published in a document titled "THE NIGERIAN
FINANCIAL SYSTEM" Series No. 9501 of June 1995 at Page 12. The said regulatory map reproduced
below as. diagram 3.1 enumerates six Supervisory And/Or Regulatory Authorities placed on the same
level and all reporting to the PRESIDENCY as being responsible for the regulation of activities on the
Capital
Report of the Panel on the Review of the Nigerian Capital Markel
Market These are namely: the Central Bank of Nigeria ("CBN"), the Nigerian Deposit Insurance
Corporation ("NDIC"), the Securities and Exchange Commission ("SEC"), the Federal Ministry of Finance
("FMF"), the Nigerian Insurance Supervisory Board ("NISB") and the Federal Mortgage Bank of Nigeria
("FMBN"). What is perhaps significant to note is that the diagram in question indicates that the Capital
Market is under the joint regulation of four Bodies i.e. the CBN, the NDIC, SEC and FMF.
5.04 The Panel is unable to accept this map as being a true and fair Regulatory framework of the
Nigerian Capital Market.
5.05 For the purposes of this assignment, the Panel was able to establish that there are three main
Oversight /Regulatory Bodies directly responsible for the supervision and the management of Capital
Market institutions and their activities in Nigeria. The three institutions comprised the following:-
1. The Federal Ministry of Finance

The Federal Ministry responsible for the Capital Market is the
FEDERAL MINISTRY OF FINANCE. Both the Securities And Exchange Commission and the Nigerian
Stock" Exchange have some reporting relationship to this Ministry.
2. Securities and Exchange Commission (“SEC”)
The SEC which is the apex Regulatory Body for the Capital
Market was established under the Securities and Exchange Commission Act, 979 which was later
repealed and replaced by the Securities And Exchange Commission Act] 990. Its functions were to
determine, amongst other things, the prices at which securities of all public companies and all
enterprises and companies with alien participation are to be sold, to conduct surveillance in securities
dealings, promote Capital Market development and protect investors.
3. The Nigerian Stock Exchange "NSE"

As already discussed in Chapter Three and subsequently in Chapter Seven, the NSE was granted a
"Monopoly" status by virtue of the Lagos Stock Exchange Act 1961 which restricted the practice of Stock
broking" in Nigeria to its Members and gave the Body the responsibility to regulate-the conduct: of its
Members, to grant quotation and listing for securities and to present quarterly Reports through the
Governor of the CBN to the Federal Minister of Finance on various matters.
5.06. OTHER AGENCIES WITH REGULA TORY ROLES

IN THE CAPITAL MARKET ARE AS FOLLOWS:
1. The Corporate Affairs Commission "CAC"

The CAC administers the Companies and Allied Matters Act,
1990 ("CAMA") except Chapter XVII which is administered by SEC. To some extent, therefore, all public
quoted companies are regulated by the CAC for example as regards the contents of their Prospectus
when "Going Public" and the issuance of a Certificate of Exemption where appropriate.
2. The Central Bank of Nigeria ("CBN")

The CBN Plays several significant roles directly and
indirectly within the Capital Market. Fur example, it licenses and monitors all the banking institutions in
the country. It sets out the terms and conditions for the issuance of Federal Government Stocks. The
CBN is also expected to indicate the levels of interest rates in tii~ ~conomy, etc. Apart from the abo\'e,
certain roles ofthe CBN as one of the Regulators~o~ the Capital'.j,farket have been criticised. For
example, how 'dill the CBN justify the arrangement where it provides budgetary al!qcations for SEC
annually without insisting on SEC being accountable to it for the money or to account on its income from
other sources. The CBN was also required to send comments on the performance of the NSE to the
Federal Ministry of Finance as it may do under the law.
3. The Ministry of Commerce and Tourism
The Companies Act 1968, section 393, required the NSE to give a report yearly to the Minister Of Trade
(now Commerce) on every member of the Stock Exchange. The extent to which such reporting was
done and the use to which the reports were put is not known. This type of provision is nowhere to be
found in the Companies and Allied Matters Act 1990. The Ministry however now has responsibility for
Nigeria's only Export and Import Bank, NEXIM, and is also responsible for the development of
Commodity Markets.
4. The National Insurance Supervisory Board

This is the Agency set up under the Federal Ministry of Finance to regulate and supervise the insurance
industry in Nigeria. The significance of a Body like the NISB is best appreciated considering the role that
insurance companies could play as providers of long term funds.
5. The Issuing Houses Association of Nigeria
This is a private trade organisation which was only recently
Report of the Panel of the Review of the Nigerian Capital Market
licensed or registered by the SEC. It cannot therefore be seen, strictly speaking as a Self Regulating
Organisation.
6. The Federal High Court
Banking, Corporate Finance, Foreign Exchange and
Corporate Take-Overs and Business Combinations come under the purview of the Federal High Court.
5.07. BACKGROUND TO CAPITAL MARKET

REGULATION GENERALLY
The regulatory structure of the Capital Market of any nation derives from, and also draws
from the history, politics, economic, and social norms of the nation. For these reasons, the Capital
Market in each country has a distinct national character, which is also reflected in its regulatory and
supervisory structure. The regulatory framework of the Capital Market of the United States of America
derived from the depression of 1929 to 1933 which dented public confidence in the USA Capital Markets
and thus gave birth to the most stringently regulated Capital Market in the world. In addition to the
quasi-Judicial regulatory Agency known as the Securities and Exchange Commission, every State in the
Union has its own securities regulation laws. It is in the process of navigating these numerous legal
requirements which often vary from state to state, that Issuers of securities in the USA have to prepare
what has come to be known as "blue-sky" Memoranda, as a part of their Public Offer documentation.
5.08 Another example of the need to adapt institutions to local conditions is revealed in the history of
the German Central Bank, the Bundesbank. This institution was created in the wake of the devastation
of the German economy after the Second World War and the inflation which ravaged that country. The
German Central Bank was thus granted autonomy to ensure monetary stability at all costs, so that the
Germans would never again suffer the sort of inflation which they experienced after the war.
5.09 In the UK on the other hand, the instrument setting up the Bank of England was only one page
long. The Capital Market of the UK was also very informal and until 1986, the UK did not have a Body
akin to the Securities and Exchange Commission of the United States of America. Even when it did set
up its new two-tier Regulatory Framework it adopted a framework which was designed to capture the
unique aspects of the economy of the United Kingdom and ensure that it continued to play the role of an
international financial centre. "The Financial Services Act of 1986"
Report of the Panel 011 the Review of the Nigerian Capital Market
thus captured the entire range of Capital Market activities.
5.10 It is quite evident from the above that no developing country should
adopt the regulatory structure of an advanced nation such as the USA for itself
unless it is satisfied that there is a strong fit between its economy, society and
institutions and that of the advanced nation in question. Naturally therefore,
while most nations have adopted USA style Capital Market Legislation, they
have modified their own local equivalent carefully to suit local Market
conditions.
5.11 Nigeria set up its own Regulatory Framework, first, as a "public utility" or
monopoly along the lines of the London Stock Exchange. Within one year, in
1962, the Federal Government through CBN established The" Capital Issues
Committee", as the first purely Government Regulatory Agency set up to
oversee the Public Issue aspect of the work of the Stock Exchange. In 1973, the
Capital Issues Committee was transformed into the Capital Issues Commission,
with a focus which was not the enlargement of the Capital Market, but the
pricing of securities for the protection of the investors who where considered
unsophisticated.
5.12 In. 1979, the Capital Issues Commission was transformed into a US style
Securities and Exchange Commission, but the focus was still on the
determination of prices of securities to be sold to the
.Nigerian public or in companies with alien participation. SEC's other functions
included overseeing the NSE and other market Operators, but by its own
admission it was, in 19960 still finding it difficult to oversee the NSE which it
accuses of "subtly evading supervision"
5.13 CAPITAL MARKET REGULATION IN NIGERIA FOR THE FUTURE

For emphasis it may be stated again that the regulation of the securities
markets is a vital component. of the regulatory and supervisory structure of any
economy; and that the objective of regulation is to make the Markets clean and
efficient so that the public can feel reasonably assured about its integrity. For
this purpose, the Rules of the Market and standards expected of the Operators
must be clearly spelt out and understood, and the penalties for not faithfully
abiding by them must be obvious since all violations will be found out and
appropriate sanctions diligently applied, without fear or favour.
5.14 For a start, therefore, in designing the structure of regulation, the framework of the Capital
Market should be defined in a manner which captures all Capital Market transactions and "investment
business". For example, "insurance business" is considered to be a Capital Market Activity in the UK
where insurance companies and their agents play significant roles in savings mobilisation, whereas it is
not so included in the USA where insurance companies do not playas significant a role in the Capital
Market particularly, as regards savings mobilisation.
5.15 It would appear that because the Nigerian SEC was modeled after the SEC of the USA it may
have ignored the Nigeria insurance sector which was, in the early years of the NSE in Nigeria, as in the
UK, the prime agents of capital mobilisation. In the context of our discussion it should also be noted that
even before the advent of organised markets for trading capital, traditional African, and indeed Nigerian
communities have in the past and up till now used collective gang work systems for creating wealth, as
in building houses, and cultivating farms. Savings were and are still mobilised in most rural and urban
communities through an investment business activity in the form of "DASHI" or IIESUSU" as well as
"CO-OPERATIVES" "COMMUNITY DEVELOPMENT ASSOCIA TIONS" and "WELFARE UNIONS". Such
activities have from ancient times thrived in Nigeria, and have played considerable roles in the
mobilisation of capital and the converS1Oil of such capital into "investments" in economic activities, as
well as in social and other forms of infrastructure.
5.16 A large informal sector has existed and continues to thrive outside of what has been defined as
the formal Money and Capital markets in Nigeria, making the statistics contained in the published
national income accounts suspect. Official policy so far appears be to consider the informal sector, at
best as an insignificant nuisance, and at worst, as an illegality. Current speculations that the informal
sector may be as much as 60% or more of the entire economy, suggest that the Capital Market in
Nigeria requires to be re-conceptualised, so that an appropriate regulatory structure is devised.
5.17 THE ROLE AND RESPONSIBILITIES OF THE

FEDERAL MINISTRY OF FINANCE ("FMF")
The Panel wrote to the Federal Ministry of Finance to provide it with a copy of the regulatory map of the
Capital Market and thereafter met with the Honourable Minister of Finance to ascertain the views of the
Ministry-on its role in the economy as well as the reporting relationship of various Agencies with the
FMF.
5.18 The overall responsibility of the FMF over the country's economic and financial policies (including
the laws and institutions) was confirmed to the Panel. The Panel also learnt that for reasons of efficiency
some of the functions of the FMF have been delegated to other Agencies like the CBN and SEC.
5.19. Under present arrangements, the supervision of the Capital Market falls under the jurisdiction of
the Home Finance Department of the FMF. The Inter-Ministerial Committee set up by the FMF in 1991
considered this "Oversight" position to be weak and unsatisfactory. The Committee at page 13, para.
3.4.3(v) of its Report recommended, inter-alia, as follows:
"In view of the rapid developments in the economy and the dynamics of the Capital Market, it would be
appropriate to have a
specialised Unit in the Federal Ministry of Finance to be charged with the responsibility of monitoring the
affairs of the Capital Market. This Unit should monitor the
Capital Market on a continuous basis…”......
5.20 The Panel after due deliberation endorsed the views of the 1991 Inter-Ministerial Committee.
5.21 THE SECURITIES AND EXCHANGE

COMMISSION ("SEC")
Governing Law
The SEC derives its power from the SEC Act, 1990 from the following other legislation, that is, the
Privatisation and Commercialisation Decree 1988, Companies and Allied Matters Ac( 1990 ("CAMA")
Board of the Commission

Section 2 of the SEC Act provides for a Board of 8 Members as follows:
- A Chairman appointed by Mr. President
- A Representatives of the NEPB
- 5 Persons to represent the public, appointed by the National Council of Ministers on the
recommendation of the Minister of Finance and the Director-General.
The panel has since learnt that the last Board of the
Report of the Panel of the Review of the Nigerian Capital Market
Commission was dissolved in 1986, and that since then no new Board as been reconstituted. The panel
further found that SEC has operated since then with an “EXECUTIVE COMMITTEE” of departmental
directors who are not substitutes for the SEC Commissioners to be appointed under the decree and an
external Chairman, the last of whom was removed in 1994, when the Boards of all Statutory
Corporations were dissolved.
5.22. As regards the Governance of SEC, the Panel noted with concern that the use of an '~in-house"
Executive Committee to run its affairs was not an acceptable alternative to having a properly constituted
Board as required by the enabling Act. The Panel's conclusion in this regard is that the
political)'Oversight" process over the activities of SEC has been minimal, if at all, in the last decade or
more.
5.23. QUORUM FOR MEETINGS

The quorum for the meetings of the Commission is four. Decision is by simple majority with the
Chairman having a second and casting vote. The Panel found that since 1986, this aspect of the law has
not been complied with in that at no time until the period under review did the SEC Board have up to
four Members.
5.24 DIRECTOR-GENERAL/CHIEF EXECUTIVE

Section 18:1 of the SEC Act provides for a Chief Executive to be appointed for SEC known as a Director-
General. He is to be appointed by the National Council of Ministers on the recommendation of the
Federal Minister of Finance.
5.25. COMPANY SECRETARY

The SEC act somehow did not provide for a company Secretary for the Commission. However,
Sections 18.3 and 18.4 provide for a Secretariat to be headed by the Director-General, who is thus both
Chief Executive Commission Secretary.
5.26. FUNCTIONS OF THE COMMISSION

(1) The Commission is empowered' to act both as a Regulator and as the developer of the Capital
Market:: W this regard SEC is to act as Chief Adviser to the Federal Government on matters concerning
the Capital Market.
(2) The specific functions of SEC are set out in Sections 6, 7 and 8, and range from price
determination, to the registration of Stock Exchanges and Market 'Operators, to the regulation of
markets, trading practices, as well as mergers and acquisitions.

(3) The Panel found that SEC has not issued clear Guidelines in advance on all aspects of its activities
to guide the Market and ensure transparency. Instead, SEC prefers to respond to issues on a case by
case basis, leading to possible arbitrariness and subjectivity.
5.27 POWERSOFTHECOMMISSION
The Commission is given power under Section 24 to take action necessary to protect' the public and
investor interest. The exercise of this power may have led the Commission to establish the
ADMINISTRATIVE HEARING COMMITTEE, ("AHC") of SEC in Nigeria the records of whose proceedings
are published b) the Commission as "PROCEEDINGS AND DECISIONS OF THE ADMINISTRATIVE
HEARING COMMITTEE, 19931994".The Panel found that even though the expression. "AD MINI S TRA
TIVE HEARING COMMITTEE" was not contained in the enabling Decree, the similarity to the practice in
the United States of America after which the Nigerian SEC is modeled and which has a similar
Committee is too strong to ignore. The Panel examined the practice of the "ADMINISTRATIVE I
HEARING COMMITTEE" in the USA, and found that, in the USA, the Committee is headed by a Common
Law Judge employed by the SEC, and that the Committee is a Court of Competent Jurisdiction whose
decisions are appealed against to the Court of Appeal.
5.28 The Panel examined the composition of the ADMINISTRA TIVE HEARING COMMITTEE of SEC in
Nigeria and found that not only was it headed by a person with no legal qualification and competence, it
could not operate in accordance with the usual procedure and practice in the Nigerian courts. Elsewhere
such Bodies are headed by eminent legal personnel in order to ensure that justice is properly dispensed.
This matter is fully examined in Chapter Ten dealing with the Resolution of Disputes within the Capital
Market generally.
5.29 FUNDING AND ACCOUNTS

Right from inception, the Panel found that SEC has been funded by the Federal Government through the
Central Bank of Nigeria According to SEC the statutory funding from the Central Bank accounts for only
10% of its requirements, and that the balance is raised from market related charges. SEC does not
justify its budget before any other Agency of Government, and is from this point of view accountable to
no one.
The SEC Act requires it to submit its Annual Report to the Minister of Finance, but it would appear that
the records submitted are too scanty to make any meaning or to form the basis for decision making.
The Minister "of Finance is not obliged to lay such SEC Report before the National Council of Ministers or
the PRC, which would have been desirable in order to give the decision makers a chance to oversee
what is going on in the Capital Market. Unfortunately the Decree did not provide for the manner in
which the Accounts of the Commission were to be prepared, and to whom they were to be submitted.
5.30 The Panel reviewed copies of the Annual Report of the Commission, which contains detailed
records of its activities during the year with regard to the capital market, and various statistics on the
performance of the market. The annual reports includes only the Balance Sheet and the Abridged
Income and Expenditure Account for each year, without the benefit of notes or the details on the
accounts.
5.31 FINDINGSAND.RECOMMENDATIONS
1. That the regulatory map of the Nigerian CapitA1 Market is not generally available or
universally known and accepted as it should be.
2. That the Securities and Exchange Commission, as the apex regulator for the Capital
Market has been under-supervised and has not been accountable to any body.
3. That by its own admission, SEC was unable to supervise the Stock Exchange.
4. That the Financial Statements of the SEC lacks transparency.
5. That the mechanism for regulatory interpretation and

dispute resolution in the Capital Market suffered from the absence of a competent
Board for the Commission for the past 10 years.
6. That the operation of the ADMINISTRATIVE.
HEARING COMMITTEE without competent judicial personnel was never and could never have
been intended by the enabling Decree.
7. That the Panel came to the conclusion that an apex regulatory body modelled after the
SEC of the USA is unsuitable for Nigeria.
CHAPTER SIX
6.01 INTRODUCTION
This Chapter deals with the 9th Term of Reference, which obliges the Panel:
" .................... To examine the structure of the Nigerian Stock

Exchange and its branches, and their adequacy in the context of the Federal Government privatisation
programme, and the policy of encouraging wide-spread share-holding, and make appropriate
recommendations…”
The adequacy of the Nigerian Stock Exchange and its branches in the context of the Federal
Government privatization programme and the policy of encouraging wide spread shareholding had
earlier been dealt with in Chapter Four.
6.02 LANDMARKEVENTS
1960 Lagos Stock Exchange formed
1961 Public trading of shares began
1977 The Nigerian Stock Exchange replaces the Lagos Stock Exchange
1978 Kaduna Branch of the Nigerian Stock Exchanged opened
1980 Port-Harcourt Branch of the Nigerian Stock Exchange
1989 Kano Branch of the Nigerian Stock Exchange opened
1990 Onitsha and Ibadan Branches opened in February and August respectively.
6.03 ORIGINS OFTHE NIGERIAN STOCK EXCHANGE ("NSE")

Initial work towards the establishment of a Stock Market in Nigeria began with the debate
in the House of Parliament in 1957 as part of the preparations for independence and "the economic
emancipation" of the black man. The debate was about the need for Nigerians to participate in the
management of their economy, and in particular to participate in the private sector dominated by aliens.
This led to the setting up of the Barback Committee to examine ways of ...fostering a shares market
in Nigeria.
6.04 Following the Barback Report, a private company known as The Lagos Stock Exchange, limited
by guarantee and having a share capital, was established and incorporated in 1959. Seven individuals
and Associations signed as initial Promoters, and their identities reveals that the promotion of the
company was not only an exercise in Government cum Private Sector co-operation, but was also a
unique exercise in the blending of expertise, as follows:
Mr. Akintola Williams - a Chartered Accountant;
Chief Odumegwu Ojukwu - a prominent businessman from the East;
Chief Adebayo Doherty - a prominent businessman from the West;

Alhaji Shehu Bukar - a civil servant with the Ministry of Commerce
and Industry, Kano, and later a Federal Minister;
John Holt Limited - a major trading company;
C.T. Bowring & Co. - a leading insurance broker in the country

Investment Company of
Nigeria Limited - the name of Nigeria's premier development bank
(Which later metamorphosed to the Nigerian Industrial
Development Bank Limited owned jointly by the Central
Bank of Nigeria and theWorld Bank)
Three of the Subscribers to the Memorandum and Articles of Association were expatriates.
6.05 It was this incorporated body that Government granted a "monopoly" in 1961 under The Lagos
Stock Exchange Act, which is still in force:
- to restrict the practice of stock broking, including stock jobbing, in the securities granted
quotation by the exchange, to its members.
- to admit members, regulate ~hem and report its activities quarterly to the Minister of Finance
through the Governor of the Central Bank, and
- to report to the Minister through the Governor whenever the Council of the Exchange rejected
an application for membership.
6.06 EARLY HISTORY
The NSE depended for its survival in the early years on the CBN and NIDB, which housed it and
underwrote its initial expenses. The assistance from the CBN in the form of subventions, amounting
from 1963 to 1965 to NI4,OOO.OO. In addition, the CBN continued to list the Federal Government
Stocks which it issued from time on behalf of the Federal Government on the Lagos Stock Exchange,
to which it paid substantial annual listing fees even though the Stock Market added no value
whatsoever to the stocks. Up till the present, the willingness of the CBN to repurchase the stocks at
any time, gives government stocks the semblance of liquidity which is lacking in corporate and state
Government Bonds.
6.07 MEMBERSHIP OF NIGERIA STOCK EXCHANGE

Apart from the Founders, who are thus the initial Members of the Exchange, the Act, having restricted
the undertaking of stock broking business to stock brokers, envisaged that its Members could be
individual, firms or corporate bodies. The distinction to be drawn is that whereas firms are
partnerships, corporate bodies are limited liability companies. In most parts of the world, especially in
the UK and the USA, stock-brokerage firms operated mostly as partnerships. They were obliged to
become limited companies in the UK as part of the 'big bang' of 1986, to improve their capacity to
raise capital.
6.08 In Nigeria, stock-brokers were all obliged to incorporate as limited liability companies from the
onset, presumably because there were no Nigerian individuals who had the expertise, and who
could operate partnership firms, like accounting firms, solicitors, and other
professionals. Thus, Article 3(a) of the revised Memorandum and Articles of
Association of the Exchange restricted the membership of the Lagos Stock Exchange
to dealing members only. It provided, however, that in exceptional cases,
knowledgeable individuals would be admitted to membership, to improve the blend of
expertise available to the Exchange. Section 6 of the Lagos Stock Exchange Act of
1961 requires the Chairman of the Exchange to report to the Minister of Finance,
through the Governor of the Central Bank, whenever the Exchange rejected an
application for membership.
6.09 The Panel has examined the composition and growth of the Membership of the
NSE as it is obliged to do under its 9th Term of
Reference and has endeavoured to understand how it had evolved over the years
whilst at the same time it has tried to ascertain the extent to which the letters and
spirit of the law have been observed.
6.10 The Exchange appeared to be wary of a council and membership dominated

by brokers for reasons which have not been admitted. There is evidence however that
up till 1987 the Exchange had an anti-competitive provision which made the first
Stockbrokers permanent members of Council. In 1987, the Exchange dispensed with
this provision when it adopted a Code of Conduct for its members.
It was also noted that during the first 15 years of its existence, no new brokerage
companies were admitted to membership and that in their place, knowledgeable
individuals to be admitted in exceptional cases were generously admitted to
membership. The result was that in all years until 1995, there were more ordinary
members admitted in exceptional cases than there were Brokers admitted to trade in
listed securities.
The proportion of brokerage companies in the total membership of the Exchange in
selected yeaI5 was as follows:
YEAR PROPORTION OF BROKERS

TO TOTAL MEMBERSHIP
1961 43.0%
1987 27.5%
1988 31.3%
1989 34.85%
1990 38.85%
1991 42.97%
1992 47.29%
1993 47.78%
1994 47.78%
1995 52.26%
It was therefore only in 1995 that brokerage companies achieved a simple numerical superiority in
the members of the Exchange.
6.11 The Panel found that for most of the time the Exchange has had many more Ordinary
Members than Dealing Members. The Exchange has also had more members than it has listed
securities. When account is taken of the fact that the Ordinary Members have little or no knowledge
of, and are not involved in stock-brokerage business except to attend Annual General Meetings, to
vote and to be voted for, with regard to the Council, the only conclusion to be drawn is that the
nature of the Organisation became radically altered over time and in a manner that is inconsistent
with the Lagos Stock Exchange Act. In other words, the nature of the Organization to which a
"monopoly" was granted by the State was altered in a manner that appears contrary to the public
interest.
6.12 The Panel noted and was surprised that in a country as vibrant as Nigeria, in the 36 years that
the Exchange has operated the NSE has never reported turning down any Application for Membership.
6.13 The Panel's investigation revealed that what actually happened was that the Exchange was run
like a 'closed shop', and applicants had to apply with a form available from officials of the Stock
Exchange, who made sure that only those selected by them, got forms, applied and were admitted.
Those who could not obtain forms could not apply, and so the Exchange could not report to the
Minister of Finance if it had turned down any application for membership as required by Section 6 of
the Act. The Panel concluded that this style of managing the affairs of the Exchange did not appear to
be in the public interest.
6.14 GOVERNANCEOFTHENSE
The Act setting up the Lagos Stock Exchange places it under the Federal Minister of Finance in a
direct reporting relationship through the Governor of the CBN. The CBN itself we may recall is
charged with responsibility for promoting a sound financial system.
6.15 As already mentioned elsewhere in this Report, the Central Bank of Nigeria set up 'The Capital
Issues Committee' in 1962, one year after the establishment of the Stock Exchange, to oversee the
pricing, amounts and timing of new Issues in Nigeria. The Stock Exchange was a member of the
Committee which was transformed into the Capital Issues Commission in 1973 with its own enabling
decree. This Commission was itself transformed into The Securities and Exchange Commission in
1978, by a decree of the same name.
6.16 The SEC decree was re-enacted in 1988, replacing the 1978 decree and changing the
composition of the SEC board and giving it more powers. The SEC decree empowered the SEC to
register and to license stock exchanges and their branches as well as market operators, and also to
license new stock exchanges. It also empowered the SEC to act as the regulatory apex of the capital
market, to ensure fair and equitable trading and the orderly development of the capital market. SEC
was also to determine securities pricing and to undertake surveillance of the market.
6.17 The Companies Act of 1968 (now replaced by the Companies and Allied Matters Decree of
1990) required every Stock Exchange in Nigeria in section (393), to furnish to the Minister of
Commerce and Industry, at least once every year a list
"... showing with respect to each person who, at the date on which the list is furnished, is a member
of the stock exchange, his name and business address and the style
under which he carried on business.......... "
A similar provision does not appear to have been retained in the 1990 legislation.
6.18 GOVERNING COUNCIL

The Governance and Management of the Exchange is vested in a Council which now consists of not
less than twelve and not more than twenty-eight members, drawn up approximately as follows:
Ex-officio All past presidents

Branches 3 members each
Stockbrokers 8 members elected by the Council to represent stockbrokers
Individuals Management 6 others elected in their individual rights Management
Director-General
6.19 The foregoing shows that the stockbrokers are not permitted to elect their own representatives;
even more fundamental is the fact stockbrokers cannot be Members of the Council which elects their
representatives. In effect, it is the individuals who are not involved in and have no knowledge of stock
broking who are to elect the representatives of stockbrokers. Up until 1987, three Stock Brokers had
permanent places on the Council of the NSE. These permanent Brokers on NSE Council were removed in
1987. A new Code of Conduct was adopted which barred Chairman of quote companies from becoming
Council Members.
6.20 On the whole the Panel found that brokerage companies are under-represented on the Council of
the Exchange and that their highest representation on the Council is the current quota of 8 Members or
28.6% of the Council, not to be elected by themselves directly, but to be selected for them from their
Membership by the Exchange. The criteria for this selection is not spelt out anywhere.
6.21 MANAGEMENT OF THE NSE

The day to day management of the Stock Exchange has been in the hands of the Chief Executive
Officer, initially styled "Secretary", and subsequently, renamed Director, and then Director-General.
The various Chief Executives of the Exchange, from inception to date are hereby indicated:
Years Chief Executive Designation Duration

1961-1964 Mr. G. T. Griffin Secretary 4years
1964-1975 Prince M. A. Odedina Secretary 10 years
1975-1979 Apostle H.I. Alile Director 4 years
1979-to date Apostle H.I. Alile Director-General 17 years
6.22 In 1961, Mr. Daisi of the CBN was seconded to the Exchange to understudy and assist Mr. Griffin.
He was designated Assistant Secretary. Mr. Daisi left in 1962, and was replaced by Prince M. A. Odedina
who became Secretary when Mr. Griffin left in 1964. Prince Odedina served till 1975, when he resigned
Council then appointed Mr. (now Apostle) H.I. Alile to the position of Director in 1975: Mr. Alile became
Director-General in 1979 whip the Lagos Stock Exchange was transformed to the Nigerian Stock
Exchange.
6.23 DEPARTMENTS AND COMMITTES

Department
up to 1994 the Exchange conducted its business through three departments, namely: Administration
and Secretarial, Quotations and Second-Tier Markets, and Research and Information Services. The
Administration and Secretarial Department handles personnel management and the issue of Finance and
Accounts and provides secretarial services to the National Council of the Exchange.
6.24 The Quotations Department is responsible for the analysis and scrutiny of applications from
companies seeking quotation on the Exchange. It ensures that quoted companies comply with the
disclosure requirements of the Exchange and adhere to accepted accounting standards in the
preparation of their financial statements. The Second- Tier Securities Market section of the department
oversees all aspects of the promotion, quotation and dealings on the securities of companies which are
quoted on the SSM of the Exchange.
6.25 The Research and Information Department handles the production and publication of the Stock
Exchange daily official list and Stock market price index. It researches, monitors, and documents any
transaction or deal struck on any of the Trading Floors of the Exchange. It is the liaison centre between
the Exchange and the press, the public and other corporate bodies.
6.26 In 1995 a new department, The Surveillance Department was created as a full department to
undertake the functions of surveillance in the Market.
6.27 COMMITTEES
The Council of the Exchange functions through a number of Committees, the most important of which
are; The Quotations Committee and the Disciplinary Committee.
6.28 INVESTOR PROTECTION

In the early years of the NSE, Brokers were required to maintain security deposits akin to Cash
Reserves paid by banks to the CBN. These deposits were in the form of Government Stocks, or other
marketable securities. The amount of the deposit was NI0,000.00 in 1980, and brokers earned interest
on it. The Exchange subsequently increased the amount of the deposit and required that it be in cash
from NI0,000.00 to N50,000.00 and then to N200,000.00 and currently N500,000.00.. The deposits
were to remain refundable to Brokers, but no mention was made of the payment of interest on these
deposits, and no account was ever
rendered to contributors of the funds (i.e. the Brokers).
6.29 In 1995, the Exchange set up an Investors Protection Fund, and converted the Brokers deposits
which were until then refundable into non refundable levies. A Trust Deed was eventually put in place
for the purpose in November 1995. On enquiry the Panel was informed by the Exchange that the
scheme had actually been in place since 1961, and that the funds had been growing since then.
However, the Trust Deed did not reveal the history of the funds in its custody which may be in excess of
N93,000,000.00
6.30 The Panel has examined the Investors Protection Scheme and the relevant Trust Deed in detail
and finds both the scheme and the document to be unsatisfactory for the following reasons:
(i) The existence of the Protection Fund is not known to the supposed beneficiaries. In the thirty six
years of the existence of the fund no investor had claimed or I as been compensated under it.
(ii) The fund is not accountable to the contributors who are the stockbrokers. Two brokers are
amongst the Trustees but these are selected by the Exchange to represent the brokers.
(iii) The auditors are to report to the Council of Exchange and not to the Trustees.
6.31. SUBSIDIARIES AND AFFILIATED COMPANIES

The Stock Exchange is a non-profit organization established under Cap. 45 of the Companies Act (now
Companies and Allied Matters Decree of 1990) and it has, consistent with best practice in other parts of
the world, established profit making subsidiaries and affiliates to enable it exploit opportunities which
have commercial possibilities, and which ultimately, make it more financially independent, and which
assist it to offer excellent services and still keep transaction costs as low as possible.
These companies are:
Company Percent Ownership
- Naira Properties Limited 40%
- Coral Properties Limited 100%
- Central Securities Clearing System Limited 51%
Naira Properties Limited

This Company is jointly owned with the Daily Times of Nigeria PLC and was the vehicle established to
finance the construction of the Stock Exchange House.
Coral Properties Limited

This company which is wholly owned by the Stock Exchange was primarily
established to own an office block in Port Harcourt.
6.32. THE CENTRAL SECURITIES CLEARING SYSTEM LIMITED

This is a new company established by the Stock Exchange to promote
and own the Central Securities Clearing System Limited. The Panel has learnt
from the Stock Exchange that the company has a share capital of
=N=50,000,000.00 owned by forty-five shareholders, as follows:
Name Number of Shareholders
The Nigerian Stock Exchange 1

DNSE Nominees (Stock-broking Firms -40) Registrars 1
Merchant Banks/Issuing Houses 4
Other Companies 5
Staff Pension Fund 6
Individuals (Must have contributed to the
Development of the Capital Market) 20
45
6.33 The Stock Exchange has obtained some of the funding for this project
from international agencies, but a substantial amount is still required.
6.34 The Panel has examined the details of the Clearing Scheme proposed by
the Stock Exchange and is unable to recommend it as being worthy of offici.al
support as requested for by the NSE in their Memorandum to the Panel for the
following reasons:
1. The share-holding structure of the company suggests that the scheme is

meant for private enrichment rather than to serve the market.
2. The structure of the ownership suggests that the Exchange does not
fully understand the role of a clearing system in the
Capital Market.
6.35 The Panel understands from the information supplied by the Exchange,
that the Exchange is modeling the Nigerian clearing system after the Stock
Exchanges of
Malta
Lahore
Ahmedabad
Slovenia, and
Bucharest.
Teheran
6.36 The Panel finds from its study of foreign Capital Markets and from the
aspirations of the Nigerian people, that these models are not likely to meet the
needs of the nation.
6.37 TRADING, CLEARING Al\D SETTLEMENT

SYSTEMS
Trading on the Exchange is by Call-Over system in the open outcry
tradition. The Chairman of Call-Over presides over Call-Over and may accept or
reject any price, and also allocates securities amongst brokers who indicate
interest in each security. All deals in quoted securities are to be made on the
floors of the Exchange, and nominal transfers may also be made between blood
relatives, but must still be put through on the floor of the Exchange. It is widely
alleged that this may not always have been so, and that substantial trading
takes place outside the floors of the Stock Exchange, but mostly with the
connivance of officials of the Stock Exchange.
6.38 The Panel wondered how with the system in place, it would be possible to
do any deal outside the floors of the Exchange, without the connivance of the
SEC. The Stock Exchange on any given day.
6.39 SEC officials observe trading only on the Lagos floor of the Stock
Exchange, but "it is not clear that they maintain or can maintain an accurate
record of the transactions which take place on any or all floors of the Exchange
every day. No such record is, to our knowledge, available.
6.40 This state of affairs creates opportunities for fictitious transactions.
6.41 The Stock Exchange operates a settlement system based on T + 21 for

scrip (certificates and transfer forms) and T + 14 for cash. In practice, the year
is divided into two-weekly periods for purposes of inter-broker settlement. Deals
done in one period are settled at the end of the next period. In effect, the
average duration
before settlement is nearer 21 days than 14 days. This implies that settlement is
by T+21 for both cash and scrip. In any event, the constraint on the system is
the delivery of scrip which is on a T=21 days basis. In this context, it is
emphasised that a market is as efficient as it Settlement systems.
6.42 Trading, Delivery and Settlement under the framework of the Nigerian
Stock Exchange are also plagued by the following processes which were
reported upon in Chapter Three, namely:
(i) Pre Trade Commitments

(ii) Authentication
(iii) Certification
(iv) Transfer of Transitional benefits
Each Branch is governed by a Branch Council, which comprises of a Chairman

and a minimum of three and a maximum of five members and was expected to
be managed by a senior executive designated as Director, but this has now been
changed to Manager. The primary duty of the Branch is to receive, consider and
pass on applications for membership to the Exchange in Lagos. It was also
conceived in the early years that Branches would generate local interest in the
Exchange, and that such interest would result in listings, on both the second-tier
and on the Official List. Trading is also expected to take place simultaneously on
all floors of the Exchange, but the Panel found that this may not necessarily be
so. In practice, prices prevailing on the Lagos floor during one week are used for
trading on the Branch floors during the subsequent week, creating room for
arbitrage.
6.43 From all available evidence, the Panel found that as presently
conceptualized and constituted, the Branch exchanges have contributed only
very marginally to the development of the stock market in the following
respects:
(i) They are expected to contribute to education and public enlightenment

and they have no doubt made some contributions but the level of ignorance
about the stock market even in the cities in which the floors are located remains
very high.
(ii) They are hampered because they have to use ‘second hand prices’.
(iii) Limited trading is generated on the branch exchanges.
(iv) Little business is generated on the branch exchanges
J. Pensions Funds and other major investors linked to the Central Comp~ter at the Exchange but with
access to hmlted mformation on bid and offer prices as well as volumes.
~ Newspapers and other subscribers linked up to the

Exchange to have access to price and volume data.
2.City-wide
1. All Brokers in one city linked up to the Central Computer at the Exchange.
2. All other details as above
3. Building-wide 1. All Brokers on the same floor of the Exchange and linked to the Central
Computer of the Exchange.
2 All other details as in other scenario above.
OUESTIONS ON IMPLEMENTATION OF AN ELECTRONIC MARKET FOR NIGERIA
TABLE 12.04
ISSUE QUESTION ANSWER
Software India, Is it available? And if It

so,is available, from the USA, Canada
where? and the UK.
Hardware Is it available? Yes, they are sold by most

computer vendors.
Are they available?

Communication have 1. Yes they are available and been in
Networks Oil use by r$Dy Banks and Companies in
NIGERIA since
1984.
2. The technology i~ more Widely available ami the options are becoming unlimited.
I 216
3. NlTEL also has leased lines which can be combined with satellite networks to provide
Nation-wide connectivity allover the country.
Personnel
Are they available? 1. Several Nigerian firms have competent manpower to provide the
service.
. However, the practice all over the world is for the Exchange to . acquire and develop its
own inhouse it capability, so that it can modify software and make them proprietary, and
also to minimise cost and dependence on foreign personnel.
PART C
12.50 IMPLEMENTATION PROGRAMME
The Issues As already mentioned, Part C of this Chapter deals with certain issues
connected with the successful implementation of the Recommendations of the Panel. The
Panel is very conscious of the fact that poor implementation of its Recommendations can
lead to the failure of its entire Proposals. Consequently, the Panel, recommends a phased
Implementation Programme as set out below for adoption.
12.51 Phased Implementation

The Panel proposes that its Recommendations be
implemented in phases, approximately as follows:
Phase I Activities
One to Three Months Promulgatton of the Investment Services Decree 1996
Appointment of members of Implementation
Committee.
Phase II
Three to Fifteen Months Establishment of the following:
Investment & Securities Commission

Stock Exchange of Nigeria Limited
Central Depository Company Securities Clearing Company National Unit Trust Company Capital Trade
Points Commodities Exchange Rating Agency Commission Institute of Investment And Capital Market
Studies.
Phase III
From three to Eighteen Months
Establishment of the following: Monetary Exchange for Options; and Futures Trading
12.52 The Panel proposes that the three phases of Implementation would need to be accompanied by a
process of mass enlightenment through Seminars, Workshops, Lectures etc, in order to explain its
recommendations embodying new concept and institutions to Market Operators and all other interested
parties.
12.53 PART D
- THE WAY FORWARD
ENTREPRENEURSHIP: KEY TO PROSPERITY WITH TRANSPARENCY
In Chapter Two, the Panel found that Nigeria has a VISION for the future, and that the VI~ION is
contained in the words, PROSPERITY WITH TRANSPARENCY:- While the Chapter
recognised that there could be different rates 'and levels of prosperity, it left the decision as to the
appropriate level of prosperity to the aspirations of the Nigerian people, their leadership, their
resource endowment and their,deterQiination and willingness to sacrifice for the common good. It
held out transparency as a rallying and unifying point.
12.54 In examining the history of the Capital Market, the Panel found that the earliest development
plan for Nigeria was initiated by the Colonial Office in London, to raise capital in the UK and in
Nigeria for rural development and for the promotion of village projects, and to encourage private
sector participation in agriculture and industry. The Panel noted that thereafter, the Nigeria
Government consciously and deliberately created a Capital Market,
and a Stock Market, and that they grew largely as a result of
Government action, including programmes of indigenisation and privitisation. The prevailing
economic philosophy was for Nigerians and the Government to take over and command the
heights of their economy; to this end Government participated extensively in business, in the oil
industry, in cement mills, in breweries, in salt factories, in insurance and in banking, to name
only a few sectors, outside the pure public utilities.
12.55 The VISION for the future is however being articulated in the context of the current policy
thrust of Government towards withdrawing nom business, and allowing the private sector to lead
in ~conomic development.
12.56 On the political nont, the nation is in the midst of a transition to civilian rule and
democracy. These developments are consistent with happenings allover the world.
12.57 Unique to Nigeria however, are her large population and her abundance of the traditional
factors of production, land, labour and raw materials. Missing or in short supply are capital, and
knowledge of, (information about) technologies, markets and of products which are needed to
harness the traditional factors of production and to add value to them. Yet, if Nigeria is to achieve
any prosperit)', ( and she needs to achieve substantial prosperity if she is to be able to sustain
her large and rising population and keep her people peaceful and democratic in the years to
come), then the rate and extent of entrepreneurial development in the entire economy, and in
particular, in the private .sector must rise, a~ must the inflow of foreign investment.
12.58 It is to be recalled that very ,little foreign investment has come into Nigeria since the
promulgation oft6~ Nigerian Enterprises Promotion Decrees of 1972 and of 1977. Evqn though
these decrees have been repealed and have now been replaced by the Nigerian Investment
Promotion Commission Decree of 1995, substantial local investment is needed to complement
any foreign investment or pending such investment.
12.59 With all due respect to foreign investors and to foreign investment, It must be realised that the
purpose of foreign investment is not to develop the host country but to benefit the foreign investor, and
that the development~8f the host nation which results, is usually a. fortuitous accident.
12.60 The required increase in local investment in an environment of capital deficiency, will of necessity
be limited, both in absolute and in relative terms, and will have to be based on local or relevant
technology. This is the critical role of the entrepreneur, who is able to combine resources and to add
value to them, in new areas or in .aew ways. The harmony of the Nigerian Society requires that we
prosper together, and that family values and support are not sacrificed in the pursuit of prosperity. It
requires that women, children, as well as minorities, prosper, just as the men, the strong and the
majorities are expected to do.
12.61 In times past, societies tried to achieve such co-prosperity through affirmative action and through
policies of income redistribution which have not only not been efficacious, they are also now out of
fashion. But it is still left to every nation to determine the unique blend of policies which will yield the
greatest amount of prosperity in the most efficient manner. To achieve prosperity in this milieu
therefore requires that there be massive mobilisation of the people for entrepreneurship. People, men,
women and children have to be provided with information, and with knowledge; to enable them to use
the resources which abound around them to good effect, by adding value to them, to enable other
Nigerians and indeed nationals of other countries to be willing to pay for them. The proposed Capital
Trade Points, together with community banks and the Peoples Bank, will provide avenues for promoters
of viable projects to raise some of the needed capital.
12.62 Such mobilisation would require that special courses in economics and production methods are
introduced, notonly.in the banks and in Government, but more importantly, in school at the earliest
stages, and that vocational courses are taught regarding: the use of local raw materials wherever they
may -be. It would ~so require that the Ministry ef Commerce and or 'Trad(!.; is redesiated as t ' e Minist
0 Commerce and Foreign Trade or Exports. to combine with or to augment the efforts Qf the Nigerian
Export Promotion:Q6Uhcil, and NEXIM, with offices in all states of the federation, and\vith
representation in all Nigerian missions
abroad, to seek out markets for Nigerian goods and to make such
220
information available locally as an impetus to further entrepreneurship, and to

PROSPERITY WITH TRANSPARENCY.

That the Nigerian Capital Market should rank amongst the best in the world.
The country must proceed with confidence to modernise its market by
adopting the best and latest available technology.
ACKNOWLEDGEMENTS
In carrying out its assignment the Panel relied on the goodwill and assistance of organisations and
individuals too numerous to mention. Special mention is made however of the following;
*The Administrators of Lagos, Oyo, Rivers, Plateau, Kano, Kaduna, and Enugu States who hosted the
public fora held in their capital cities.
*The Commissioners of Finance of Lagos, Ogun, Oyo, Bdo, Imo, Rivers, Kwara, Plateau, Kano, Kaduna
States, and other members of the States Executive Counc11s for attending the public fora and for their
presentations.
*The US Treasury Department, and The Ministry of Finance of India.

* The World Bank, and The IFC in Washington, Lagos and Delhi.
*The Central Bank of Nigeria, the Bank of England, The US Federal Reserve, The Reserve Bank of India,
The Monetary Authority of Hong Kong and the Monetary Authority of Singapore.
*The Securities and Exchange Commission in Lagos, The US Securities and Exchange Commission,
(SEC), The Securities and Investment Board, (SIB), the Securities and Futures Authority (SFA), The
Securities and Exchange Board of India (SEBI).
*The Nigerian Stock Exchange, The New York Stock Exchange, The Philadelphia Stock Exchange, The
London Stock Exchange, The Hong Kong Stock Exchange, The Stock Exchange of Singapore, The Kuala
Lumpur Stock Exchange, The National Stock Exchange in Mumbai, The Bombay Stock Exchange, The
Delhi
Studt BAg"', aDd Th.. O-T-C Exchange of India.
*The Hong Kong Futures Exchange, The Singapore Intemational Monetary Exchange, (SIMEX), The
Kuala Lumpur Commodities Exchange, (KLCE), The Malaysian Monetary Exchange, (MME), The Kuala
Lumpur Options and Financial Futures Exchange, (KLOFFE).
*The Embassies of The Unitted States of America, The UK High Commission, the Indian and the
Malaysian High Commissions, aU in Nigeria.
*The Nigerian High Commissions in Washington, New York, London, Delhi, Indonesia (Singapore),
Malaysia, and Hong Kong.
*The Nigerian Federal Ministries of Finance, Foreign Afla1rS, Communications, NITEL PLC, and the
Bureau of Public Enterprises.
*NACCIMA, The Manufacturers Association of Nigeria and the Confederation of Indian Industry (CFI)).
*The UK Foreign Office in London, The ~ "nomist Intelligence Unit, and The Honourable Dr. Goodson-
Wicks, Member of Permanent for Wim~ledon in the House of Commons.
*The Depository Trust Corporation (DTC), The National Securities Clearing Corporation (NSCC), and The
Philadelphia Clearing CorP,oration.
,"
*The Quick & Reilly Group, JP Morgan Securities, Inc., Baring Asset Muagers
Limited, The Unit Trust of India, DBS Securities, JM Finance ~cIlnvestments Limited, SBI Capital
Markets Limited, Lazard Capital Markets!;Limited, ICICI
Securities Limited, Arthur Anderson Inc. (USA). ;.
* The Hong KODg Capital Market Association, The London Investment Bankers Association (LIBA), the
Futures and Options Association (FOA), and The American Bankers Association.
Members of the Panel remain eternally indebted to the senior ex~es of the above-Usted organisations
who gave very freely of their time and Ubrature, and to its guest speakers and to a participants in the
Review process
ANNEXURE)
SUMMARY OF NEW ISSUES IN THE NIGERIAN STOCK MARKET 1976-1994

Dennis Odife Panel Report On The Review of The NCM by MoF Sept 1996 - Abridged

Uploaded by

Copyright:

Available Formats

You might also like

Dennis Odife Panel Report On The Review of The NCM by MoF Sept 1996 - Abridged

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Dennis Odife Panel Report On The Review of The NCM by MoF Sept 1996 - Abridged

Uploaded by

Copyright:

Available Formats

The DENNIS ODIFE Panel Report on the REVIEW OF THE NIGERIAN CAPITAL MARKET, 1996

PANEL ON THE REVIEW OF THE NIGERIAN CAPITAL MARKET

For the Attention of Chief A. A. Ani (M.O.N.)

FINAL REPORT ON THE REVIEW OF THE NIGERIAN CAPITAL MARKET

Association of Nigeria, The Manufacturers Association of Nigeria, and some Financial

CHIEF DENNIS ODIFE

OTUNBA A.O. OGUNDE DR. AHMED ABDULAI

PRINCE LEKAN FADINA ALHAJI AMINU BADA DANBAPPA

MRS. M.A LASHMANN MR. O.G. ABIOSE

THE CAPITAL MARKET AND ITS RELEVANCE

1.01 Introduction ----------------------------- - ----------------------------------- 19

- PROSPERITY WITH TRANSPARENCY

2.01 Introduction-------------------------------------------------------------- ---- 30

HISTORY AND OBJECTIVES OF THE

3.01 Introduction -------------------------------------------------------------------- 47

STRUCTURE, CONDUCT, AND PERFORMANCE

4.01 Introduction ----------------------------------------------------------------- 57

REGULATORY AND SUPERVISORY STRUCTURE

5.06 Other Agencies within Regulatory Roles in the Capital

THE NIGERIAN STOCK EXCHANGE

Introduction - - - - - - - - - - - - - - - - - - ---- - - - - - - - -- - - - - - - - - - - - - - - 104

ADEQUACY OF CAPITAL MARKET LAWS AND REGULATIONS

7.01 Terms of Reference 6, 7and8- - - - - - - - - -- - - - - - - - - - - - - - -118

DISPUTE RESOLUTION IN THE NIGERIAN CAPITAL MARKET

8.01 Introduction---------------------------------------------------------------- 144

D. Operators and ¥embers of Public - - - - - - - - - -- - - - - - - - - - 146

THE APPROPRIATE CAPITAL MARKET FOR NIGERIA

9.01 Introduction----------------------------------------------------------------- 152

INCENTITIVE FOR THE CAPITAL MARKET

10.01 Introduction - - - - - - - - - - - -- - - -- - -- - - - - - - - - - - - - - - - - - - --- 176

10.16 E. Capital Gains Taxation -- - - -- - -- - - - - - - - - - - - - - 180

ENHANCING THE RESPONSIVENESS OF THE

11.01 Introduction -- - - -- - -- - - - - - - - - - - - - - - - - 189

11.18 The Institute of Investment and Capital Market

11.24 Funding -- - - -- - -- - - - - - - - - - - - - - - - -- - - - - - - - - - 197

THE NEW AGENDA

12.01 Introduction - - - - - - -. - - - - - - - - - - - - - - - - - - - - - - - -200

PART D - The Way Forward - .

12.63 Findings and Recommendations- - - - - - - - - - - - 221

1.1 Most Populous Nations of the World - - - - - - - - - - - 31

2.1 &2.2 Number listed securities and Dealings Members

The Nigerian Financial System

I. Summary Of New Issues In the Nigerian Stock Market 197601994

Report of the Panel on the Review of the Nigerian Capital Market

INTRODUCTION TERMS OF REFERENCE AND CONTEXT OF THE

1.02 STRUCTURE OF THE REPORT

- Minutes of the Meetings of the Panel

Report of the Panel on the Review of the Nigerian Capital Market

Report of the Panel on the Review of the Nigerian Capital Market

- PROSPERITY WITH TRANSPARENCY

2.03 THE LAND AND PEOPLE OF NIGERIA

Report of the Panel on the Review of the Nigerian Capital Market

2.07 Nigeria is a multi-ethnic, multi-religious and multi-lingual

Report of the Panel on the Review of the Nigerian Capital Market

Report of the Panel on the Review of the Nigerian Capital Market

2.10. THE FUTURE

Education: Pressure for more classrooms,' teachers and recreational facilities

Health: Pressure for more hospitals beds, drugs and personnel