IF you want to grow your wealth by way of investments in the Nigerian Stock exchange, one major channel is the stock market. This may seem like common knowledge but it is worthy of note that very few individuals in Nigeria actually understand the intricacies of the stock market and how to start investing in it.
A stock is a unit of a share of a company. It signifies ownership in a company and represents a claim on its assets and earnings. The stocks or shares of quoted companies in Nigeria are traded on The Nigerian Stock Exchange (NSE or The Exchange).
The Exchange offers listing and trading services, licensing services, market data solutions, ancillary technology services and more. It operates a fair, orderly and transparent market that brings together the best of African enterprises and approximately 7 million investors from around the globe.
To start investing in shares, an individual must select a stockbroker licensed by NSE and registered with the Securities and Exchange Commission (SEC). A stockbroker is an appointed agent who is authorized to execute buy or sell instructions on behalf of his/her client (investor). Stockbrokers and custodians have a fiduciary responsibility to their clients which implies management and safekeeping.
In addition, an individual (or institution) must then open an account with the Central Securities Clearing System Plc. (CSCS). CSCS facilitates the delivery (transfer of securities from seller to buyer) and settlement (payment of bought shares) of securities transacted on the approved Nigerian exchanges. It enables securities to be processed in an electronic book-entry form thereby substantially reducing the period it takes a transaction to commence and end. CSCS issues central securities identification numbers to investors required for the clearing, delivery, and settlement of transactions.
Typically, a stockbroker will require some information from you. This is a Know your Customer (KYC) mandate from the regulators and is aimed at ensuring a safe market. You will be required to submit valid identification, utility bills, passport photographs, a completed account opening form and the CSCS form. This information will be used to open a trading account for you. After opening your trading account, your stockbroker will provide you with its bank details so that you can fund your account. Once your account is funded, you can start trading.
A stockbroker will only execute a trade on your account when he has been authorized by you. This authorization is called a mandate. Some stockbrokers will require that you fill and sign a mandate form while some will collect email mandates. Email mandates must come from the registered email address you had provided your stockbroker during the KYC documentation phase. Once a mandate is received, the stockbroker will execute your trade and send you a contract note showing buy and sell prices, commission and fees charged. The settlement process of shares into your account takes about 4 days and is typically referred to as t + 3 days. If you have sold shares, the proceeds from the sale should come into your account during this time frame.
In selecting a suitable broker to represent your interests as an investor, you should confirm the broker’s status with both The NSE and SEC. The Nigerian Stock Exchange frequently publishes a list of active and inactive stockbrokers that you can rely on to trade shares.The NSE also recommends investors meet with the broker-dealer firm to determine whether the services they offer match their specific needs.
Stocks are risky investment instruments and investors are advised to get professional help from a certified and licensed stockbroker, investment advisor or financial advisor when choosing stocks for their portfolios.
First published in the Nigerian Stock Exchange FB Page