THE IMPACT OF STOCK EXCHANGE MARKET ON THE GENERATION OF CAPITAL FOR COMMERCIAL BANKS

CHAPTER ONE

INTRODUCTION

1.1.      BACKGROUND TO THE PROBLEM 

A stock exchange is a form of exchange which provides services for stock brokers and traders to trade in stock, bonds and other financial instruments and capital events including the payment of income and dividends by Joseph Penso a writer of stock trading. Securities traded on a stock exchange includes shares issued by companies unit trusts, derivatives, pooled investment. Usually, there is a central location at least fork record keeping, but trade is increasingly less linked to such a physical place as modern markets are electronic network, which gives them advantage of increasing speed and reduced cost of transaction. Trade on an exchange is by members only.

The Nigeria stock exchange was established in 1960 as the Lagos stock exchange. In December 1977 it became “The Nigeria Stock Exchange with branches established in some of the major commercial cities of the country. At present there are six branches of “The Nigerian, Stock Exchange, each branch has a trading floor, the branch in Lagos was opened in 1961; Kaduna 1978; Kano 1989; Onisha 1990; Ibadan 1999 and Abeokuta branch. Lagos is the head office of “The Exchange. An office has just been opened in Abuja. The exchange started operation in 1961 with 19 securities listed for trading, the stock exchange and most of the nation stock broking firms and issuing houses are staffed with creative financial engineer that can complete anywhere in the world.

Therefore, the market has in place a network of intermediating organization that can effectively and creditably meet the challenges and growing needs of invested in Nigeria. Integrity is the watch word of “The stock Exchange”. Market operators subscribe to the code; “Our word is our bond”. Thus, public trust in the Nigeria stock market has grown tremendously with about three million individuals investors, (including foreigners who own about 47%), the initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market.     

A stock exchange is often the most important component of a stock market. Supply and demand in stock market are driven by various factors as obtainable in all free markets. The importance of stock exchange market in the generation of capital for commercial banks has now become very necessary and important element of every economy. They serve a vital purpose of accumulation of savings and their availability for productive purposes. Infact the rise of joint stock companies and commercial bank and the sustained performances would have been impossible in the absence of stock exchange, against this general background, the researchers will examine the impact of stock exchange market on the generation of capital for commercial banks in Abeokuta metropolis. 

1.2        STATEMENT OF THE PROBLEM

In recent time, the Nigeria Stock Exchange has been involved in one crisis or the other. The researchers are thus concerned if the stock exchange will be able to fulfill its roles. The questions therefore are:

How effective are the promotional strategies used by the corporate bodies in creating awareness for their services in stock exchange market?

How dynamic and effective is the pricing policy of the stock exchange market as regards the quoted commercial banks?

What effects do government regulations have on the stock exchange market as regards the commercial banks?

1.3        PURPOSE OF THE STUDY

This study intends to access the impact of the stock exchange market on the generation of capital for commercial banks in Abeokuta metropolis. Specifically the study will:

i.                    Identify the major problems facing the stock exchange market in generating capital for commercial banks in Abeokuta metropolis

ii.                  Find out the roles of the stock exchange market in the generation of capital for commercial banks.   

iii.                Determine if the stock exchange market has any significant effect on the capital base of commercial banks.

1.4        RESEARCH QUESTION

The following questions were raised to guide the study:

i.                    What are the major problems facing the stock exchange market in generating capital form commercial banks.

ii.                  Is there any significant effect of the stock exchange market on the capital base of commercial banks?

1.5        SCOPE OF THE STUDY

The study will look into the meaning and operations of the stock of exchange. Additionally the study will cover the activities of commercial banks on the stock exchange and how they raise their capital. Finally, the study covers the roles of the stock exchange market in helping commercial banks to raise capital.  

1.6        SIGNIFICANCE OF THE STUDY

The study will be beneficial to stock-brokers because the findings will enable them identify the challenges facing the stock market and how to tackle them. Additionally, company executives will find the study useful as the findings will reveal to them, strategies for improving the performances of the companies on the stock exchange market. Government bodies will equally benefit from the study as the finding will help them design a parameter to critically evaluate the performance of the stock exchange. Finally, business scholars and future researchers will benefit from the study as it will help to create a data base for them.  

1.7        OPERATIONAL DEFINITION OF TERMS

CAPITAL: Funds sources from the stock exchange to start or boost a commercial business.

      COMMERCIAL BANKS: Accept deposits from the public and they are as well making a lot of profits when the money is lend to the public inform of loan and overdraft.

      SHARES: An individual portion of a company’s capital owned by a single shareholder. It is a unit of capital measured by a sum of money.

      STOCK: The bundle of shares which can be transferred into fractional amounts. Stock can be quoted per 100 nominal value, stock are not issued but convented from shares issued.

      STOCK EXCHANGE MARKET: A stock market which provides services for stock brokers and traders to trade stocks, bonds and other securities.  Stock exchange also provides facilities for issuing and redemption of securities and other financial instruments and capital and including the payment of income and dividends.