Legal Framework for Capital Market in Nigeria

 Distinction between Capital Market and Stock Market:

There is sometimes seeming conflict in understanding whether the capital market is the stock market and vice versa, this work attempts to highlight the major distinctions and similarities while also covering the legal and regulatory framework for the Capital Market in Nigeria.

Capital Market: A broader financial market that enables the buying and selling of long-term debt and equity securities, such as stocks, bonds, and debentures. It facilitates the mobilization of long-term funds for investment in businesses, projects, and governments.

Stock Market (Equity Market): A subset of the capital market, focused specifically on the buying and selling of company stocks (equities).

Simply Put, The capital market is where companies go to raise financial capital (money) in general. The stock market is exclusively where investors trade stocks (shares of ownership in publicly traded corporations). Companies can raise money on the capital market by selling shares of stock in the company or by issuing bonds.

Regulatory Framework for Nigerian Stock Exchange (NSE) now Nigerian Exchange Group (NGX):

1. Securities and Exchange Commission (SEC): The primary regulator of the Nigerian capital market, responsible for overseeing the NGX and ensuring compliance with securities laws and regulations.

2. Nigerian Exchange Group (NGX):The operator of the Nigerian stock exchange, responsible for providing a platform for buying and selling securities.

3. Investment and Securities Act (ISA): The primary legislation governing the Nigerian capital market, which sets out the rules and regulations for the issuance, trading, and investment in securities.

4. SEC Rules and Regulations: Detailed rules and guidelines issued by the SEC to implement the ISA and govern the capital market.

5. NGX Rules and Regulations:Rules and guidelines specific to the NGX, governing listing, trading, and settlement of securities.

6. National Council on Privatization (NCP): Oversees the privatization of state-owned enterprises, which may involve listing on the NGX.

7. Financial Reporting Council (FRC): Responsible for setting accounting standards and ensuring compliance with financial reporting requirements.

8. Central Bank of Nigeria (CBN): Regulates the banking sector, which interacts with the capital market.

In Simpler terms, we can say The capital market and stock market are often used interchangeably, but there's a distinction between them:

Capital Market:

- A broader market that enables the buying and selling of long-term securities (more than a year)

- Includes stocks, bonds, debentures, and other long-term debt instruments

- Facilitates capital formation for companies, governments, and other entities

Stock Market:

- A specific segment of the capital market where publicly traded company shares are bought and sold

- Focuses on equity securities (stocks)

- Provides liquidity for shareholders and enables price discovery

Regulatory Framework for Nigerian Stock Exchange (NGX):

1. Securities and Exchange Commission (SEC):

    - Primary regulator of the Nigerian capital market

    - Sets rules and guidelines for the NGX and market participants

2. Nigerian Exchange Group (NGX):

    - Self-regulatory organization (SRO) responsible for operating the exchange

    - Oversees listing, trading, and settlement of securities

3. National Assembly:

    - Responsible for enacting laws and regulations governing the capital market

4. Federal Ministry of Finance:

    - Oversees the capital market and provides policy direction

5. Central Bank of Nigeria (CBN):

    - Regulates market participants, such as broker-dealers and investment advisers

6. Financial Reporting Council (FRC):

    - Oversees financial reporting and accounting standards for listed companies

7. Investment and Securities Tribunal (IST):

    - Adjudicates disputes and enforces securities laws and regulations

This framework aims to protect investors, maintain market integrity, and promote a fair and efficient capital market in Nigeria.