FAQ ON TREASURY BILLS (T-BILLS)
- WHAT ARE TREASURY BILLS?
They are one of the Central Bank of Nigeria's (CBN)
short-term money market instruments used for monetary
control in the economy. It is used by the CBN to
"burrow" money from the "public"
- individuals and organisations.
- WHAT ARE THE KEY ADVBANTAGES
OF BUYING/INVESTING IN TREASURY BILLS?
- It is the SAFEST investment instrument available
in Nigeria today.
- It has the CBN backing.
- Your risk is practically zero for all volumes
of funds
- For its risk level, it has reasonable returns.
Much better than most regular savings account
and fixed deposits.
- Your interest is received up front and can
be re-invested with the principal if you so
wish.
- It is very easy to begin and to exit.
- You do not have to pay any charges to your
stockbroker for enabling you access this service.
- WHAT ARE THE CURRENT
INTEREST RATES?
These are set by the CBN weekly and your stockbroker
or bank can provide you the weekly rate.
- WHY USE A STOCKBROKER
INSTEATD OF A BANK?
- First, you need to use either because the
CBN does not deal with individual.
- However, banks bid for Treasury Bills while
stockbrokers technically do not. This alone
is capable of earning you a slightly higher
rate of return which is immensely significant
over a long term.
- The stockbroker charges you no commission,
COT or any other "fees" whatsoever.
The CBN pays the due commission to the stockbroker.
- DO I GET A CERTIFICATE
EVIDENCING MY INVESTMENT?
YES. The CBN issues an Investment
Note to you through your stockbroker or bank. Because
it is a near-cash document, it is safe for photocopy
as well as a covering letter specifying relevant
information.
- CAN I GET MY MONEY BEFORE
MATURITY IF I SO REQUEST?
YES. This is called "Discounting".
However, you will have to loose some earned interest
back to CBN. Since the CBN will no longer pay the
stockbroker/bank' commission, it will be deducted
from your balance.
AS a general rule, all these deduction affect your
earned interest portion unless there are unique
exceptions.
- IS TREASURY BILL BETTER
THAN SAVINGS OR FIXED DEPOSIT?
In most counts. YES.
- WHAT FEES DO I PAY FOR
THIS SERVICE AND HOW MUCH?
It depends on if you are buying through a stockbroker
or a bank. The commission payable on this service
is 0.5%. However, the CBN pays this to the stockbroker
and not the Investor. If you purchase through a
bank, you may have to pay other fees.
- WHAT IS THE MINIMUM
AMOUNT I CAN USE IN BUYING TREASURY BILLS?
The CBN fixes NGN10,000 minimum and subsequent lot
of NGN1,000. Due to the earning on this, most houses
fix their minimum for taking on a client account.
At FSL, minimum is NGN100,000.
- HOW DO I BEGIN?
- By being dissatisfied with present position
- By desire to move up a certain height
- Find and talk to a broker
- Probably open an account…e.g. NGN100,000.00
(At First Stockbrokers)
- You can click here
to fill our form.
- WHAT IS THE CAPITAL MARKET
(STOCK MARKET)
- A specialised market where shares are bought
and sold
- A market where long terms funds are sourced
through Equities and Debt Instruments.
These instruments are subsequently traded openly
in a Stock Exchange.
Instrument Traded: Shares (Equity Ownership
Interest in a business)
- Bonds
- Industrial Loans
- Derivatives (Rights Issue)
- WHAT IS THE STOCK
EXCHANGE?
It is often used synonymously with the Capital
Market.
It provides means by which individuals and institutions
can own and partake in the life of businesses.
Why Need a Stock Exchange?
A stock exchange is the place where companies
can raise money to make their businesses bigger
and better. Companies raise this money by selling
shares or stocks to investors. At the same time,
the stock exchange gives investors an opportunity
to invest in these companies and benefit from
any profits they may make. Government can also
raise money from stock exchange especially through
sale of development stocks, bonds etc.
- WHAT IS A SHARE OR A STOCK?
The words shares or stocks are often used interchangeably.
A share is what one has to own to become a member
of a company. When you buy a share in a company
you become a member of the company. Being a member
or shareholder means that you share in the profit
or loss of the company.
Companies issue shares. These shares stand for
the money which shareholders (who are the members
of the company) put down when they first invested
in the company.
Owners of shares (shareholders) are presumed
to own the company. If the company makes a profit,
the shareholders have the right to a share of
the profit, which is declared for distribution.
We call such a slice of the profit a dividend.
Shares in listed companies are traded on The NSE
on every working day of year.
- SOME FACTS ABOUT THE CAPITAL
MARKET
- Next to the Foreign Exchange Market, it is
a very significant investment window for long
term financial growth and return for every individual
(particularly women) and organisation.
- In any five years, research has shown it gives
returns that outpace inflation and better returns
over most other financial investment overtime.
- It is best for investors comfortable with
long term investments and returns.
- It is truly a "market" with its
attendant value fluctuations dependent on forces
of demand and supply.
- It allows for easy entry and easy exit.
- BRIEF HISTORY OF
THE NIGERIAN STOCK EXCHANGE
The Nigerian Stock Exchange was incorporated
on September 15, 1960 and it
commenced business on June 5, 1961 as the Lagos
Stock Exchange. In
December 1977, it became The Nigerian Stock Exchange,
with branches
established in different parts of the country.
At present, there are seven branches
of The Nigerian Stock Exchange. Each branch has
a trading floor. The branch in
Lagos was opened in 1961; Kaduna, 1978; Port Harcourt,
1980; Kano 1989; Onitsha, February 1990; lbadan,
August 1990 and Abuja Area Office in 1999. Lagos
is the Head Office of The Exchange.
The Exchange, which started with only 19 securities,
traded on its floors in 1961, now has 260 securities
made up of 17 government stocks/bonds, 49 industrial
loan (Debenture/Preference Stocks and 194 Equity/Ordinary
Shares of companies all with a total market capitalization
of approximately N620 billion as at September
24, 2001. Most of the listed companies have foreign/multinational
affiliations and represent a profile of the various
sectors of the economy, ranging from automobile,
banking, airlines, breweries, through pharmaceutical
to agro-allied, publishing, textile, petroleum
and insurance companies.
With the internationalization of The NSE, quoted
companies can now access funds from international
markets through Global Depository Receipts (GDR)
or American Depository Receipts (ADR) etc. using
their shares as underlying securities. Its operations
are automated. Specifically, there is Central
Securities Clearing System (CSCS) which takes
care of clearing, delivery and settlement while
trading has been changed from the Manual Call-Over
System Automated Trading System (ATS), a computerized
system.
It currently operates a T+3 settlement system
and further details can be got from www.nigerianstockexchange.com
- WHO ARE THOSE INVOLVED
WITH THE CAPITAL MARKET
- Regulators i.e. Securities and Exchange
Commission (SEC), the Nigerian Stock Exchange
(NSE).
- Investors i.e. individuals, organisations,
women, etc.
- Stockbrokers
- Registrars
- Spectators (e.g. some of you)
- Issuing Houses
- Banks and other Fund Surplus UNits e.g.
Pension Funds, Insurance Companies, etc.
- The stockbroker remains the most useful
market operator to the Investors, as it is
only through him/her that the investors can
buy and sell shares on the stock exchange.
- HOW DO I PARTICIPATE?
You can participate by buying
shares through:
- Primary Issue:- It is often advertised
in the news media and with posters in banking
halls and stockbroking offices. This is not
a regular event.
- Secondary Market:- This market occurs every
working day, and all you need is give purchase
orders to your stockbroker like FSL.
- Some Commitment (Money & Time):- Like
all things worth doing, you need a quantity
of this.
- WHAT ARE THE KEY BENEFITS
OF INVESTING IN SHARES?
- Capital appreciation
- Dividend Income:- A slice of the company's
profit in proportion to the units of shares
held.
- "Free Share" - Bonus.
- Saving Strategy for the future
- Leveraging Benefits i.e. you can use it
to burrow in the future.
- Emergency backup i.e. as a safeguard for
your financial future.
- Right to attend Shareholders meeting and
company's annual general meeting (AGM)
- Right to vote during AGMs
- Can give you a seat on a company's board
(if this is one of your targets,
talk to us).
- IF IT IS SO GOOD, HOW COME
PEOPLE CAN STILL LOOSE MONEY?
- Disregarding common sense in investment
decision
- Unrealistic Short-Term Expectation
- Dishonest Broker/Market Players
- Greed
- Improper Documentation
- Poor/Unprofessional Advice (Friends, old
wives tales)
- Adverse Market Cycle
- Change in Fundamental Company fortunes
or key Economic Indices
- Disregarding intuition and experience
- Refusal to retain sound professional services
or pay for profit making advice.
- Not reading relevant materials or attending
self-development investment/financial planning
seminar like those of the Institute
of Financial Planning.
-
- WHAT
IS THE BEST STOCK TO BUY...BEST PRICE...BEST
TIME?
These are a function of many variables e.g.:
-
- It is a market and the cycle for each
listed security is different.
- The stocks or combination of stocks to
buy will also depend on your short and long
term objectives as well as how much money
is available for this.
- The general rule is a combination of stocks
bought regularly over a period of time.
- For a basic guide to list of available
stocks and possible prices, you can use
any of the daily papers.
- In view of all this, you need to talk
with a stockbroker or trusted adviser.
- HOW CAN I BE PROTECTED?
- First, get a broker you can accept, comfortable
with and afford to trust.
- Read, Dailies, Books, Library facilities
- Belong to or form an investments club.
- The existence of the CSCS that has come
with the automation of the capital market
has enhanced transparency.
- The Investors Protection Fund.
- HOW HEALTHY IS THE
NIGERIAN CAPITAL MARKET?
- Established in 1960 as LSE and became NSE
in 1977. it commenced business with only 19
stocks listed. Today it has about 195 stocks
listed.
- In July 1998, Trading on Rights (Our First
Derivative) commenced.
- In April 1999, commenced Automated (Electronic)
Trading System (ATS) on a T + 5 basis after
38 years of a manual trading system.
- All shares index growth - 1990 (5672:76).
2001 (Crossed 11,00 mark)
- ADB recent reports on market performance,
1st Africa, 3rd in the world (Total Return)
- Cross border listing 1999 of two South
African Firms. (M-NET/Super Sport).
- Improved settlement period to T+3.
- To enhance transaction transparency, it
opened its e-portal
in 2002
- The Internationalization of the Nigerian
Stock Exchange
- WHAT
IS THE CENTRAL SECURITIES CLEARING SYSTEMS (CSCS)
LIMITED?
This is one of the major outcomes of automated
(computerized) trading.
The Central Securities Clearing System (CSCS)
operates a computerized clearing, settlement
and delivery system for transaction in securities
listed on The Nigerian Stock Exchange. It is
the central depository for share certificates
of companies listed on The Nigerian Stock Exchange.
This feature has not only significantly enhanced
the speed of buying and selling shares for investors,
but also provides all investors a CSCS number
(similar to a bank account number) which enables
any investor to independently access
any information regarding his investment directly
from the NSE without necessary going through
his/her stockbroker. This further enhances transparency.
- WHAT IS THE FUTURE
OUTLOOK FOR THE MARKET?
The following are defining the potential
and future depth of the market:
- For 120,000 million people - only about
195 companies listed?
- New company listing (local & Foreign).
- Privatization.
- Active Bond Market.
- Derivative Trading
- Foreign Investment.
- Democracy (an enabling corporate environment)
- Current positive ratings by the International
Financial environment.
- HOW DO I BEGIN?
- By first identifying the need for an investment
window that guarantees future financial security.
- Find and talk with a broker to clarity objective
and agree on a strategy and game plan unique
to your situation.
- Probably open a Stock
Management Account …e.g. NGN50,000
or $US500 (At First Stockbrokers)
- Make a regular and consistent commitment
no matter how small.
- HOW DO I SELECT
A FINANCIAL ADVICER / STOCKBROKER?
It does not take long to be able to find out the
following:
- Competence:- Is he/she or are they competent?
Do they know what they talking about?
- Character:- Is he/she or are they credible?
of Integrity? What is their antecedent?
- Agreeable Terms:- Is the term of providing
service agreeable to you?
- WHAT SERVICES DOES
A STOCKBROKING FIRM PROVIDE?
A member firm's services are:
- Buying and selling of securities (Shares and
Bonds);
- Helping the investor to plan his investments;
- Research and advice on investment on which
shares to buy or sell and when is the best time
to do so;
- Securities management (looking after your
portfolio of shares).
- And much more depending on their depth of
expertise and financial clout. (See
services offered by FSL).
- WHAT ARE THE CHARGES FOR THESE
SERVICES?
When you buy or sell shares you pay a maximum
of 4% as total fees. This covers charges of the
stockbroking firm, VAT and those of all regulatory
agencies. These are spelt out in the contract notes
issued you by your stockbroker. Apart from this
specific charges, all other fees for various services
are as set by individual firms and hopefully subject
to negotiations.
- WHAT DOCUMENTATIONS SHOULD
I EXPECT TO GET WHEN I DEAL WITH A STOCKROKER?
It may vary depending on their style of operations,
but the most basic are the following:
- A Receipt (for your cash or cheque)
- A Broker; Contract Note (max of 2-3 weeks
after the receipt)
- A CSCS Statement (This is issued quarterly
by the CSCS through your broker. You can also
request for it independently as often as you
desire for a fee payment of NGN100 only).
- A regular statement of your account with your
broker. The regularity depends on the volume
of your transaction. (Please, do make time to
go though this statement).
- WHAT THREE KEY WAYS CAN I
BE SUCCESSFUL IN THE MARKET?
- Buy and Hold Long Term (Three-Five years
average: Best recommended strategy)
- Buy on Bad news & sell on good news
(Constrain Investing)
- Sell too soon - Baron Rothschild
- In all or any of these strategies, it will
be more than helpful to work with a professional
stockbroker.
-
- WHAT IS THE MINIMUM AMOUNT
THAT CAN BE USED IN BUYING SHARES?
You normally can buy or sell shares in lots
of 100. When you give your stockbrokers the
order to 'buy' or 'sell', he will buy or sell
your shares. He will buy or sell them through
The NSE's trading floor. The transaction is
done on the best price in the market that time.
You become the owner of the shares from the
time the deal is done.
After a few days you will get a broker's contract
note.
However, most stockbroking houses set a minimum
amount to open accounts with them. This enables
them to evaluate how serious you are at beginning
and most importantly at continuity. For FSL,
it is NGN50,000 or US$500.
- WHAT THING MUST
I REMEMBER TO DO WHEN I BEGIN?
- Talk often with your broker
- Keep an up-to-date file. Best if you can
keep all information received on your computer.
- Ask for these documents regularly (if you
do not receive as and when due):- Receipt,
Contract Note, CSCS Statement, Dividend Slips,
Bonus Certificate.
- Find a convenient way of ensuring you fund
your investment account regularly.
Often, timing of purchase can provide significant
advantages and benefits.
- Where you may not have the time to do all
this by yourself, you may require a PORTFOLIO
SERVICE.
- WHEN SHOULD I START?
'NOW'
- The Best Time to Have Started Investing Was
20 years ago...when you started your career
or studies.
- The Second Best Time is TODAY!
-
- DO I STILL GET A CERTIFICATE
WHEN I BUY & HOW DO I SAFELY KEEP IT?
All Certificates will be kept in one vault at
this depository. Because all the share certificates
will be in one place, an electronic database
is created to give all the shareholders' details.
This way, share transactions can be paid for
very safely. This is another benefit of the
CSCS.
In exchange , at the purchase of shares from
the SECONDARY MARKET, a certificate is no longer
issued. The CSCS issues a statement (similar
to a bank statement) to all investors evidencing
your holding in respective companies.
However, for purchase of shares through PUBLIC
OFFERS and RIGHTS ISSUES, physical certificates
are still issued. The same goes for Bonus offers.
- HOW DO I BECOME
A STOCKBROKER?
To be a stockbroker, you must register with
the Chartered Institute of Stockbrokers (CIS). You
must be a University Graduate or holder of Higher
National Diploma in any discipline. You must pass
the prescribed examinations of the institute. After
passing the examination, you will undergo training
in Automated Trading System (ATS). You will then
become a chartered stockbroker.
- WHAT MUST A COMPANY DO TO
BE LISTED ON THE NIGERIAN STOCK EXCHANGE?
Companies must make application to The NSE's
Quotation Committee if they want their companies
to be listed on the stock exchange. They must comply
with the NSE's listing requirements. The NSE is
a market where businesses and companies can get
primary capital. It provides a safe way of trading
shares on the secondary market. This is to enable
investors buy and sell shares and bonds.
WHY THE NSE SCREENS APPLICATIONS OF FUND RAISING
COMPANIES?
The NSE is very strict about the listing of
companies. The NSE's Quotation
Committee must approve the listing. The NSE and
Quotation Committee are strict about listing companies:
- To make sure that all businesses and companies
properly disclose matters related to activities
in which they are involved at the time of
listing and thereafter;
- To make sure that shareholders enjoy fair
and equal treatment in respect of their shares;
and
- To ensure investors' confidence in the
standard of disclosures, in the way the listed
companies are run, and in the market in general.
This is why the listing requirements and the rules
after listing are so strict. When applying for a listing,
a company will qualify for one of two possible listings:
the Main Market and the Emerging Market Securities
(formerly known as the Second-Tier Securities Market
- SSM).
Should you desire additional information/clarification,
we would be glad to help. Click
here.
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