Legal and Institutional Framework Regulating Public Offering of Securities in the Nigerian Capital Market
Chapter One
OBJECTIVES OF THE RESEARCH
This research aims at achieving the following objectives:
- To appraise the concept of public offering of securities in Nigerian Capital
- To examine the legal framework regulating the public offering of securities in the Nigerian Capital
- To consider the role of institutions saddled with the responsibility of regulating public offering of securities in the Nigerian Capital
- To appraise the role of other capital market participants in the public offering of
- To analyze the contributions to the Nigerian economy of funds raised in the capital market, through public
- To make useful suggestions and recommendations for ensuring successful public offers, especially the Initial Public Offer (IPO).
CHAPTER TWO
DEFINITION OF CAPITAL MARKET
“Capital Market” is defined in Blacks Law Dictionary as “a securities market in which stocks and bonds with long-term maturity are traded.1 The Securities and Exchange Commission (SEC) in its “Capital Market Glossary2, defines Capital Market” as “financial market which trades in medium to long term financial instrument (stocks and bonds) with maturity period in excess of one year. It is a network of participants, instruments and facilities, which function basically to facilitate efficiently, the flow of savings into long-term investments for socio- economic development”. Capital Market can also be described as a regulated market. It is a specialized and technical market, where the trade in medium and long-term financial instrument (securities) is carried out in a special way, in specific and specialized places known as exchanges or trading floors, under the superintendence of the private and public regulators. By definition the Capital Market is an integral part of the of the financial system in which capital is mobilized, and channeled from surplus economic units to deficit economic units for socio-economic development. The Capital Market is thus a market for long term funds and securities, whose tenor extends beyond one year. These securities include ordinary shares preference stocks, corporate debenture, federal government eligible development bonds, states and local government’s revenue bonds, mortgage bonds and long term loans. Whereas the money market is the market for short term funds and securities, including treasury bills, treasury certificates, negotiable certificates of deposits, commercial paper, short term bank loans and overdraft as well as other funds of less than one year duration. When juxtaposed with the money market, capital markets signifies the market through which medium and long term funds are raised by corporate entities and governments.
NATURE OF THE NIGERIAN CAPITAL MARKET
The Capital Market, as has been stated earlier, constitutes a major source of long-term low interest cheap source of funds for economic development. It also provides investment opportunities for interested persons, not withstanding their income bracket or business acumen. It is a market in which individuals and corporate bodies (including governments) participate in income yielding activities without going through the rigorous process of setting up businesses and managing same with all the attendant problems.
The Nigerian Market principally consists of two broad segments. These are: The primary market and the secondary market.
CHAPTER THREE
LEGAL FRAMEWORK REGULATING PUBLIC OFFERING OF SECURITIES IN THE NIGERIAN CAPITAL MARKET
The Capital Market has been variously described in this work as constituting a major source of long-term, low interest and cheap funds for socio-economic development. It provides investment opportunities for interested persons not withstanding their income bracket and managerial capacity.1
It has also been stated that “it is a market in which individuals and corporate bodies, participate in income yielding activities without the hassles of setting up a business and running it and this is done mainly through the offering of securities for sale to the public”. For the kind of market that is capable of providing the opportunities described above to thrive, there must be rules and regulations, guiding participants. Such rules may be made by the participants themselves or by the National Assembly or government.2 It is the aggregate of these rules and regulations guiding operations in the market, particularly in relation to public offering of securities to the public that constitute the “legal framework regulating such public offering of securities and operations in the Nigerian Capital Market”.
CHAPTER FOUR
THE NIGERIAN REGULATORY REGIME GENERAL
Whilst our indigenous customary law system had its own concept of “security” as in secured credit transactions, the concept of company securities is essentially of foreign origin, the evolution of which is directly tied to the development of the corporate form of business enterprise.
Consequently, the regulation of securities in Nigeria is traceable to the advent of companies in Nigeria. English law was introduced into the colony of Lagos in 1861. There followed the famous reception laws by which general application in force in England on the 24th day of July, 1874 were made automatically applicable in Nigeria.1 After the Proclamation of the Northern and Southern Protectorates of Nigeria in 1900, the effective date for the reception of these laws were changed to the 1st day of January 1900.2 Consequently, as at 1900, the applicable companies and securities laws in Nigeria were the received English Companies Act 1862. Interestingly, no Nigerian enterprise sought registration under the Act using the facilities available in England.
CHAPTER FIVE
THE ROLE OF PARTIES TO A PUBLIC OFFERING OF SECURITIES
The Capital Market is one arm of the Nigerian Financial Market, the money market being the other. In every known market and indeed for any situation to be regarded as a market, there must be buyers and sellers.
In a typical market, sellers display their goods in such a manner that they can be easily noticeable and accessible to buyers. The buyers identify the goods and make their choices after physical examination and pricing of the goods they wish to purchase.
Although, they could be commissioned agents who could serve as intermediaries, in certain markets or cartel, the buyer has the opportunity to inspect the goods he wishes to buy in a typical market. The securities or capital market is in contrast, a specialized market, dealing in intangible goods, that do not lend themselves to physical examination before they can be purchased. The driving force in the securities market is basically, information, regarding investment opportunities, the returns derivable from investments etc. Herein lies the need for intermediaries or “Go- Between” to facilitate the process of providing investment information using their professional expertise and specialization.
CHAPTER SIX
GOING PUBLIC: PROCEDURE FOR PUBLIC OFFERING OF SECURITIES IN THE NIGERIAN CAPITAL MARKET
“Going Public” refers to the modalities by which a company becomes entitled to raise capital subscription from members of the public by publicly offering its securities to investors either through the Initial Public Offer (IPO), Offer for Subscription, Offer for sale or Private Placement. The process of going public with the Securities of a company by Public Offer is distinguished from the listing of issued securities on a Securities Exchange such as the Nigerian Stock Exchange. While the former (i.e. going public) refers to the Primary Market, the later (listing of issued securities in the Exchange Market) concerns the Secondary Market for securities. As stated earlier, a Private Company cannot make an open invitation to the public for the subscription of its securities2.
CHAPTER SEVEN
CONCLUSION
The Legal and Institutional Framework that will support an efficient securities market is a complex network of rules, regulatory institutions and several categories of intermediaries, each playing distinct and somewhat separate roles.
In assessing the legal and institutional framework of Capital Market regulation, two trends, roll into focus. There is the institutional framework of statutory bodies and agencies such as the SEC, CAC etc, and there is a body of regulations on the financial operations of the market. While legal framework refers to all laws, bye – laws, and subsidiary legislation establishing regulatory institutions, bodies or agencies, setting out their functions and scope of responsibilities, institutional framework refers to these bodies so established like the SEC, CAC, NSE, CSCS, CIS etc.
In prescribing an ideal legal or regulatory framework and institutional framework for a Securities Market, it has been argued that corporate structures would depend substantially on the legal structures with which the economy started and that corporate rules will themselves depend on these initial structures
BIBLIOGRAPHY
Published Books:
- Abugu, J. O. E.: Company Securities: Law and Practice, 2005, University of Lagos Press, Nigeria.
- Ako, R. M: Capital Market Manual, Published by: La – Rose Ltd. P.O.Box 4685, Garki, Abuja.
- Ayua, I. A.: Law and Research Methodology, 2001
- Guobadia, D. A.: Nigerian Institute of Advance Legal Studies, Lagos.
- Black’s Law Dictionary: Eight Edition, Thomson West, 2004, Byran A. Garner, Editor in Chief.
- Eleh, Z.M.N.: Know your Capital Market Inside out.
- Gower L.C.B.: Principles of Modern Company Law, 4th Edition (1979) Stevens and Sons Ltd., London.