The capital market is a market where individual and institutional buyers and sellers engage in the trading of financial securities like bonds, stocks, derivatives etc. It is that part of the financial market that moves medium to long-term funds from surplus (excess) to the deficit (lacking) areas. This transfer of funds is often through instruments (documents or certificates) showing evidence of these investments.
The capital market has a primary and a secondary market. New issues of stocks and other securities are traded in the primary market while existing or previously-issued securities are exchanged or traded in the secondary market. The capital market can also be divided based on the type of security traded e.g. the stock market and bond market.
Who is involved?
Some of the major players in the Nigerian capital market include;
- The Securities and Exchange Commission (SEC)
- Nigerian Stock Exchange (NGX)
- Commercial Banks
- Stock brokers
- Trustees
- Issuing houses
- Registrars.
- Insurance companies
- Pension funds
- Institutional and individual investors
Classification of instruments under capital market
The instruments traded in the capital market include Debt Instruments used by either companies or governments to raise funds for capital-intensive projects e.g. FGN Bonds, State Bonds, and Corporate Bonds etc. Equities (e.g. common stocks) and Derivatives such as futures, forwards, swaps etc.
Understanding the characteristics of capital market
- Brings savers and investment opportunities together to facilitate economic growth and development.
- The capital market provides long and medium term funds at a reasonable cost.
- Capital market involves different intermediaries such as brokers, depositories etc.
- The market operates freely but under the guidance of government policies e.g. regulators include the Securities and Exchange Commission, the Nigerian Stock Exchange etc.
Nigeria’s growing economy needs considerable funds to fully explore the opportunities opened up by the government reforms, development plans and global changes. The capital market has a job of plugging that gap for productive economic purposes. In an age of unpredictable crude oil revenues, disruptive technologies, a global pandemic, local currency devaluations and a buildup of Ponzi schemes investors remain largely on how the market evolves to further attract capital while driving Nigeria’s economic growth and development.
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