Changing Landscape of Nigeria’s Capital Market



Following the evolution of Nigeria’s financial system, the capital market has developed into five different exchanges, writes Obinna Chima

The origins of the Nigerian Capital Market date back to colonial times when the British Government ruling Nigeria at the time sought funds for running the local administration. Discovering that funds derived from agriculture produce, marketing and solid mineral mining were inadequate to meet its growing financial obligations, the colonial administration decided to expand its revenue base by reforming the system of revenue mobilisation, taxation and other payments.

It also saw the need to raise funds from public sector to cover temporary shortfalls in funds availability. Hence, it found it necessary to establish a financial system by setting up the basic infrastructure for its take off pending the development of an organised private sector. In 1957, the government and Other Securities (Local Trustees Powers) Acts were enacted. This law specified the types of securities in which trust funds may be invested. It also clearly defined the powers and responsibilities of trustees. By the end of the year (1957), the colonial administration had promulgated the General Loan and Stock Act and the Local Loan (Registered Stock and Securities) Act on the recommendations of the Barback Committee.

Today, there are several Exchanges in Nigeria. They are: the Nigerian Stock Exchange (NSE), The Abuja Securities and Commodity Exchange (ASCE), FMDQ OTC and the NASD Plc. Like in other clime, these Exchanges were set up for different reasons. For example, the NASDAQ was created in response to concerns from the United States Congress in the 1960s that its Securities and Exchange Commission (SEC) had been lax in supervising stock trades, and had not adequately enforced rules against large securities companies.

Nigerian Stock Exchange

There is no doubt that the Nigerian Stock Exchange (NSE) has contributed immensely to the development of the capital market. The Lagos Stock Exchange was registered as a business name in 1960 and incorporated under section 2 cap. 37, on September 15, 1960 through the collaborative effort of the Central Bank of Nigeria (CBN), the business community and the Nigerian Industrial Development Bank (at the time known as Investment Company of Nigeria Limited (ICOM).The objectives of the then Lagos Stock Exchange as specified in its memorandum and Articles of Association were 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, to control the granting of a quotation on the stock exchange

in respect of funds, stocks and shares of any company, government, municipality, local authority or other corporate body, to regulate the dealings of members’ interest and with their clients and to investigate any irregularities or alleged irregularities in the dealings of members and their clients, any complaints made against members by other member, or any other parties provided that such differences, disputes or complaints shall relate to or touch on the stock broking business or activities of such members, and to deal with them and to decide upon such irregularities, differences, disputes or complaints and to take necessary steps for the enforcement of its decision and awards. Trading operations commenced from the CBN building on June 5, 1961 after the enactment of the Lagos Stock Exchange Act of 1961.

As at today, the NSE has 13 branches in Lagos, Kaduna, Port Harcourt, Kano, Onitsha, Kaduna, Ibada Abuja, Calabar, Ilorin, Abeokuta, Oweri, Bauchi and Yola, all linked online real time. The Exchange started operations in Lagos in 1961 with 19 securities listed for trading. The exchange has also deployed best in class trading technology called X-Gen. The Executive Director Market Operations and Technology, NSE, Ade Bajomo, who during the launch of the platform on September 30, 2013 said, “Today, we are trading live on X-Gen and this is a result of a focused, disciplined and intensive 12-month project involving the NSE, its technical partners and the broker dealer community. We believe that the successful implementation of this modern, world-class trading technology suite is a significant development that will change the experience of doing business in not only the Nigerian capital market but in Africa.”

2008 Crisis

Before the 2008 crisis, the Nigerian stock market rose from a modest traditional securities dealing to an explosive growth phase occasioned by the financial sector reforms of 2004, with its major emphasis on the recapitalisation of banks and insurance companies. Despite fears about its relatively under-developed nature, the Nigerian Capital market confounded sceptics by absorbing the various rounds of capital raising predominantly by Nigerian banks and in so doing, gained attention from the international investing community, particularly as a result of the spectacular returns recorded by investors in Nigerian stocks subsequently. With many hedge funds and asset management companies scouring the globe for profitable returns on their idle pool of funds, Nigeria offered a ready destination for Foreign Institutional investment inflows. The All Share Index or ASI surged at an average of 37 per cent annually, with a record high of 66,000 basis points in 2008 from 8,000 in 2000 and market capitalisation crossed the N13 trillion threshold in March 2008.  However, the Oscar N. Onyema led administration was ushered into office in 2011 and birthed a transformation agenda that experts argued has brought the NSE back into global reckoning.


Following the 2008 stock market crisis, most companies that did private placements failed to list on the NSE as promised, a situation that further dampened investor confidence. This was what primarily gave birth to the NASD OTC. The NASD was approved by the Securities and Exchange Commission (SEC) to operate an over-the-counter (OTC) in Nigeria. It trades unlisted securities.

To buy or sell shares on NASD OTC market, potential investors are encouraged to contact a licensed stockbroker. The NASD stockbroker list are categorised into two namely Broker/Dealer Firms and Broker Firms. Stockbrokers provide investors with other available information on unlisted shares. The NASD OTC market facilitates transactions through two independent trading platforms: Leased trading platform and BITS.

Recently, the League Management Company (LMC) and NASD OTC Securities Exchange signed a Memorandum of Understanding to partner towards actualising the listing of NPFL Clubs in the secondary capital market.

MD/CEO of NASD Plc, Bola Ajomale said the partnership is significant to the extent that it was bringing football and the business community together for the mutual benefit of all parties.

“It is with a sense of excitement today that I announce that the NASD OTC Securities Exchange has reached an understanding with the major promoters of football in Nigeria – the League Management Company. Our Memorandum of Understanding marks the beginning of a merging of financial and sporting interests in an unprecedented manner in Nigeria, “he said.


The FMDQ concept was promoted by the Financial Markets Dealers Association (FMDA) in 2009 and sponsored in 2010 by the Bankers’ Committee. The Bankers’ Committee is chaired by the Central Bank of Nigeria (CBN), with the Nigeria Deposit Insurance Corporation (NDIC) and all the banks and discount houses operating in Nigeria as its members. The Committee resolved to operate all the over-the-counter (OTC) inter-bank market activities in fixed income and currencies under a Securities and Exchange Commission (SEC)-registered self-regulatory organisation, and be governed by this authorised body. As a securities exchange and self-regulatory organisation, FMDQ provides the following business services: Rules enforcement, data analytics, collateral management, product development, index construction, listings and quotations and data services.

FMDQ promotes market development in the Nigerian OTC financial markets, with a primary focus on the OTC markets – fixed income (money, repos, commercial papers, treasury bills, and bonds), currencies and derivatives. Recently, the Central Bank of Nigeria (CBN) made history in the Nigerian FX market as it becomes the pioneer seller of the Naira-settled OTC FX Futures contracts on FMDQ OTC Securities Exchange (FMDQ). The Naira-settled OTC FX Futures product, whilst of tremendous benefit to Nigerian corporates, is of immense importance and advantage to the CBN, the Nigerian FX market, and the nation’s economy as a whole.

The OTC FX Futures market will serve to minimise the disequilibrium in the Spot FX market and cause the rate to moderate; attract significant capital flows to the Nigerian fixed income and equity markets; and achieve exchange rate stability.

Managing Director/CEO of FMDQ, Bola Onadele.Koko said: “The Naira-settled OTC FX Futures product is a major milestone development in the evolution of the Nigerian financial markets. The Futures market is an opportunity to transform risk into certainty – a major paradigm shift in the financial markets landscape. This innovation provides opportunities for government, businesses, pension fund administrators, investors, individuals and others to hedge (not speculate) to cope with exchange rate risk.”

He added, “It also affords the CBN a greater opportunity to manage exchange rate volatility, thus achieving greater market confidence, liquidity, improvement in business planning, job security, employment, better allocation of resources, global competitiveness of the Nigerian financial markets, and all in all, a thriving economy.”


Nigeria’s pioneer agricultural commodities exchange, commenced the export of farm produce to global markets, following a deal it signed recently with Camscorp, another commodities exchange firm based in the UK. Its aim is to end Nigeria’s N250billion annual losses from its underutilised air freight export market. While countries like Kenya, South Africa, Benin Republic, Cote d’Ivoire, Ghana, Senegal, Ethiopia, Tanzania and Egypt are said to be participating in the trading of commodities such as fruits, fresh fish, vegetables and flowers through electronic exchanges, Nigeria, which produces these commodities in abundance, records zero participation.

“We traditionally trade soya beans, paddy rice and sorghum, but now we are starting a number of export crops, and ginger is the one that we are signing today,” Ayodeji Balogun, country manager of AFEX-Nigeria, said.

According to Balogun, “we already have contracts listed for cashew nuts and sesame seeds, and hopefully as we move along, we will be expanding our operations into other export crops that can help the country to diversify its economy and also increase the amount of non-oil dollar or hard currency generation.”


The Nigeria Commodity Exchange (NCX) was originally incorporated as a Stock Exchange on June 17, 1998.It commenced electronic trading in securities in May 2001 and was converted to a commodity Exchange on August 8, 2001 and brought under the supervision of the Federal Ministry of Commerce. The conversion was premised on the need for an alternative institutional arrangement that would manage the effect of price fluctuations in the marketing of agricultural produce which has adversely affected the earnings of farmers since the abolishment of commodity Boards in 1986.

Role of SEC in Market Devt

Meanwhile, experts have stressed that the number of Exchanges are good for the development of the market. They therefore urged the SEC to ensure proliferation does not hurt the market. Hence, SEC, analysts stated, must support the deepening of the capital market. Recent reforms by the SEC include new rules on margin facilities and corporate governance.

Others include the submission of annual audited accounts by banks to CBN/NSE not later than three months instead of six months provided by Companies and Allied Matters Act (CAMA); having compliance officers & CEOs as the only authorised signatories for all correspondences to NSE; the requirement for notification of NSE before trade execution of mandate of 1m units of shares and above; the yet to be implemented Market Maker rules and Straight Through Processing (STP), which will make transactions settle directly into clients’ accounts thereby eliminating brokerage firms as fund receivers/payers in trade (not yet operational).

However, analysts believe there is the need for specialisation and removal of ambiguity around licensing to ensure that specialisation is paramount at the developmental stage of the capital market to compete globally.

“There must be supervision of the exchanges to ensure that investors are protected. The SEC and the federal government should support the exchanges and ensure the full implementation of the capital market master plan to sustain the rising profile of the Nigerian capital market, “said analysts at Planet Capital Limited.