FREQUENTLY ASKED QUESTIONS (FAQ)
A firm or a person who buys and sells securities on behalf of investors for a commission called "brokerage". The commission charged is regulated by The Stock Exchange.
A person or an institution who uses his savings or borrowings to buy securities.
Securities are any form of ownership that can be easily traded on a secondary market, such as stocks and bonds. It also includes their derivatives, such as futures contracts, options, or mutual funds.
Stocks and Shares are used interchangeably. However, there is a minor distinction between stocks and shares.
Stocks are a share of the ownership of a company. Initially, they are sold by the original owners of a company to gain additional funds to help the company grow. The owners basically sell control of the company to the stockholders.
Blue Chip Stocks are stocks that are issued by large, well-established companies such as Nestle, Chevron and Guinness Nigeria Plc. These stocks have long histories of financial growth, earnings and of paying consistent dividends.
Value Stocks are generally regarded to be under priced compared to the relative financial strength of the company which they are issued by. Often the company has fallen out of favor for one reason or another, but continues to have solid financial earnings.
Growth Stocks are generally issued by companies with solid growth potential but have less of a track record of earnings success. Growth stock companies tend to have sales and earnings that are increasing faster than the average company, although they usually pay small or no dividends.
Although these companies do not typically pay dividends, they do retain earnings and reinvest them in order to fund company expansion.
Shares are the unit of ownership interest in a corporation or a financial asset. While share are often used to refer to the stock of a corporation, it can also represent ownership of other classes of financial assets such as mutual funds.
You have to be 18 years and above to qualify to buy shares in Nigeria. However, parents buy shares for their wards in their own names and later transfer them to the children when they attain the legal age of 18 by nominal transfer.
Yes, an investor may transfer shareholdings to a relation, where they bear the same surname the transfer is known as nominal transfer. Even in the case of a dead shareholder, his shares can be transferred to his children or sold as the case may be, by a stock broker.
They are legal documents representing a promise by the company or by government (incase of a bond) to pay back a loan plus certain amount of interest over a definite period of time.
Bond is a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and governments to finance a variety of projects and activities.
Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents...
Debenture is a debt instrument that is not secured by physical asset or collateral. It is backed only by the general creditworthiness and reputation of the issuer.
Corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.
Stock can be bought and sold on The Nigerian Stock Exchange through Dealing Members known as Stockbrokers.
That depends on what you want from your investments. The stocks quoted or listed on The Nigerian Stock Exchange range from Government stocks to ordinary shares and their dividends vary from low to high. The important thing is to determine your own objectives first, discuss with a stockbroker and then invest accordingly.
These are new shares made fully- paid by the capitalization of reserves and allotted free of charge to ordinary shareholders in proportion to their existing holdings. In this process, fractions of shares sometimes arise and are often aggregated and sold, after which a cash payment in respect of the fraction is made to every shareholder entitle to it.
XSC is a financial expression for “without the scrip”. A stock that is purchased during the without the scrip period will not earn a scrip/bonus declared in that period for its new owner.
A stockbroker charges a commission called “Brokerage” The charges vary, depending on the kind of services provided: however, charges by Stockbrokers are controlled by the Council of The Nigerian Stock Exchange.
PURCHASES
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RATES
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VAT
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TOTAL
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BROKERS COMMISSION
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1.5% of Consideration
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5% of Brokers Commission (or 0.075% of Consideration)
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1.575% of Consideration
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SEC FEES
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0.6% of Consideration
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Nil
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0.6% of Consideration
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CSCS FEES
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0.1% of Consideration
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5% of CSCS fee (or 0.005% of Consideration)
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0.105% of Consideration
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STAMP DUTIES
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0.075% of Consideration
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Nil
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0.075% of Consideration
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TOTAL
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2.355%
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SALE
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RATES
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VAT
|
TOTAL
|
|
BROKERS COMMISSION
|
1.5% of Consideration
|
5% of Brokers Commission (or 0.075% of Consideration)
|
1.575% of Consideration
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NSE FEES
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0.5% of Consideration
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5% of NSE fee (or 0.025% of Consideration)
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0.6% of Consideration
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CSCS FEES
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0.45% of Consideration
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5% of CSCS fee (or 0.0225% of Consideration)
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0.4725% of Consideration
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STAMP DUTIES
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0.075% of Consideration
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Nil
|
0.075% of Consideration
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TOTAL
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2.6475%
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Consideration refers to the price of the shares purchased, i.e. unit price times the quantity of shares purchased
- Dividend which is part of company’s profit.
- Bonus shares – i.e. extra shares fully paid out of reserve which is distributed to existing holders.
- Capital appreciation as market prices of shares increase.
- Right to attend meeting of shareholders and participate in its deliberation as voting members.
- Use of share certificate as collateral for bank borrowing.
- Provide professional advice on the selection and management of investments.
- Act as issuing Houses and Portfolio Managers.
- Assist companies to raise money on the capital market.
As members of The Nigerian Stock Exchange change, they agree to and are regulated by a body of Rules and Regulations which dictate their relationship with The Nigerian Stock Exchange, their clients and other members.
The regulating of Stockbrokers activities is done to protect the investing public and maintain public confidence in the buying and selling of securities.
If you have a stockbroker, you can give them the mandate to act on your behalf by contacting the Registrar of the company that owns the stock in question.
The ATS refers to the Automated Trading System of The Nigerian Stock Exchange. The system became operational in April 1999 and replaced the call-over trading system.
Automated trading refers to a procedure whereby dealers on the trading floor of the stock exchange enter buy and sell orders for shares into an electronic trading system. The trading system is designed to generate trades automatically when selling and buying prices match
This is the Clearing House Number assigned to every shareholder at the first point of entry into CSCS system by completing CSCS – R005 shareholders particulars. Shareholders are to provide the same CHN to all subsequent stock broking firms they have transactions with for ease of reference.
CSCS is an acronym for the Central Securities and Clearing System Limited, the Company that provides central clearing services for dealers that trade on The Nigerian Stock Exchange.
It was incorporated in 1997 and has since provided central clearing services for investments in The Nigerian Stock Exchange. Central clearing refers to a process whereby the registration, clearing, settlement and delivery processes are centralized thereby reducing the cost and time involved in processing trades on the stock exchange.
Dematerialization is an offshoot from the application of central clearing. It is a central process where the registration of shares is handled by a computer without a share certificate having to be issued by the company.
Demobilization refers to the lodging of share certificates with the central depository with the understanding that the shares would be immobilized and can therefore not be withdrawn. Therefore, subsequent trades on the immobilized shares would only lead to the transfer of units of the shares from the account of the seller to that of the buyer electronically
A system where a number of investors pool money together and invests collectively in shares and bonds; with each owning a unit, with the value depending on those items owned by the fund.
A unit trust allows modest investment to be diversified away from a holding in a single or small number of companies. It gives the combined benefits of diversification, security and a sufficient weight of assets to ensure cost-effectiveness and merit the attention of leading fund managers. The trustee is normally a major bank and is the legal holder and custodian of the securities
Once a certificate is deposited with the Depository, it is immobilized and can therefore not be withdrawn.
He gets a receipt/acknowledgment.
He/she instructs his/her stockbroker to sell from the stockholdings in CSCS system. He/she executes a transfer form which his/her stockbroker will forward to the CSCS along with the allotment forms after trading.
Yes. The investor is free to change from one stock broking firm to another. A stockbroker should ask his/her client if he/she has bought shares through CSCS before completing shareholders particulars which should be completed only once. The shareholder should give subsequent Houses he deals with the Clearing House Number (CHN) assigned to him at the first point of entry into CSCS system.
Yes, he can.
Statement of stockholdings is issued every quarter to all shareholders free of charge. Any request for statement outside the quarterly statement which attracts a fee of N100.00 can be obtained as and when requested.
The stockbrokers are expected to request for their clients stock position. However, since transparency is one of the cardinal focuses of CSCS, A shareholder can request for his statement of stockholding from CSCS in writing by attaching a fee of N100.00.
The shareholder’s name and account number must be specified in the letter. At the point of collecting the statement of stock position, the shareholder will be required to show proof of ownership.
An investor should note the following procedure for obtaining loan:
1. The lender can confirm from CSCS the statement of stockholding issued to a shareholder/prospective borrower or write CSCS for as status report of a prospective borrower’s shareholdings in CSCS system. For a fee of N100.00, the confirmation of the statement or the issuance of a status report will be done and communicated by CSCS to the lender.
2. A memorandum jointly signed by the parties requesting CSCS to place lien on a specific quantity of the holdings should be forwarded to CSCS limited. Also, a signed transfer form by the borrower stating the units and the securities affected by the lien and undated letter signed by the borrower authorizing the lender to sell in the event of default, must be given to the lender.
It is essential that the memorandum be registered at the Stamp Duty Office.
3. Upon the receipt of the memorandum referred to in two (2) above, the shareholding would be moved into a CSCS Reserved lien. Account with the interest of the lender NOTED. This will be communicated to the parties.
4. Where the borrower defaults or fails to discharge his obligations under the contract, the lender at the expiration of the loan due-date shall:
- Inform the borrower of his default and the lenders intention to proceed to execute the transfer form to realize the benefit of the contract.
- The lender will write CSCS to remove the lien to enable sale to be effected and attach evidence of (a) above.
- CSCS will be obliged to remove the lien on the holdings upon such instruction from the lender after the expiration of the loan due-date and inform the parties accordingly.
- The lender after (a-c) above can then give a copy of the undated letter and the transfer form completed by the borrower to a specific quantity of the holdings.