Stocks and the capital market.

The present capital market/stock exchange has a humble beginning. For instance, the 13th century commodity dealers gathered inside the house of one man called Van der Burse in Holland, where from the term bourse was used to denote stock exchanges. The idea spread quickly and soon opened in Ghent and Amsterdam.

Later, the Dutch joint stock companies which let shareholders in business ventures and get a share of their profit and losses emerged. In 1602, the Dutch East Indian company issued the first shares on the Amsterdam stock exchange. It was the first company to issue stocks and bonds.

Shares and stocks are bought and sold at the capital market. The term capital market is generally referred to as an arrangement where shares, medium and long funds are traded. Stock, shares or equity mean the same thing. Share refers to a little part in the ownership of a business/firm concern. Shares are classified into two, viz, the ordinary shares and the preference shares. Ordinary share capital is the foundation of any company’s financial structure. It is otherwise called equity share capital. The ordinary shares have the following characteristics:

1. It must have a nominal value (i.e. it is described as one dollar or fifty cent share)

2. The income of the ordinary shareholder is the residual (that is after prior claims have been met) profit of the company.

3. The only way an ordinary shareholder can withdraw his capital from the company is by selling the share in the capital market through accredited broker.

4. In the event of winding up, the ordinary share holders are entitled to the proceeds of the whole of the residual assets of the company. Thus may be very large amount of it may be nothing at all.

Preference shareholders as the name implies are the first to buy shares before others; they are also the first to receive dividends and are liable to get refunds first in case the company goes bankrupt. The preference shareholder, unlike the ordinary shareholder has fixed dividends, whether the company made huge profits or not.

Companies that want to raise funds through the capital market for the first time, after meeting the requirements of the stock exchange and the securities and exchanges commission and approval given by the government will issue an “initial public offer (IPO)” which is subsequently called “public offers” although the same procedure is followed as in an initial public offer. The approval will be given after they have convinced the government on what they want to use the money for, either for branch expansion, upgrade of facilities, etc.

During the course of the approval, the number of units of the shared and prices at which it will be sold will be allotted. Shares bought through public offer is done in the ‘primary market’ while those bought and sold through a stock broker at the floor of the exchange is done in the ‘secondary marker’ i.e. buying from those that already have but want to sell part or all of their shareholding in a company.

 Apart form public offers, companies can also raise funds through what is called private placements. Here, the companies don’t advertise to the public, rather, they meet very rich individuals who will invest their money. To ensure that investors’ money is safe and protected from fraudulent Directors or folding of companies, the public offers are underwritten to guarantee the security of investors’ money. Underwriting is a term used to explain that some firms/companies have undertaken to pay back the shareholders in case their money is not utilized properly or diverted to some other use.

But if you are really into stock/shares business, then you must have an account with the CSCS. CSCS is the short form for central securities clearing system. The CSCS account enables you to convert your share certificate into money before it can be utilized. It is called liquidity. To have a CSCS account, you must have a stockbroker who will manage your shares on your behalf. The stockbroker will at your instruction sell of some units of your shares when the prize has appreciated to an extent and reinvest it in some other stocks. Now, it is becoming necessary that every shareholder must have a CSCS account because the Securities and Exchange Commission wants to phase out share certificates very soon and that means that dividends will be credited directly to your CSCS account and other transactions done there.

 All in all, it is recommended that you consult a stockbroker, a banker or other professionals when dealing with shares as that will prevent many problems encountered by shareholders. A stockbroker is a person or firm that buys and sells securities on behalf of investors for commission. The commission paid to the stockbroker is called brokerage. They undergo special training on how to buy and sell shares and carry out necessary documentation. They are members of chartered institute of stockbrokers and stock exchange. Stockbrokers carry out the following services:

v Buying and selling of shares and bond.

v Advisors to their client and capital market players.

1. Investment planning for clients.

2. Recovery of lost share certificates and expired dividend warrants.  

3. Portfolio management for clients.

4. Helping companies to plan their listing and quotation on the exchange for trading of their shares.

5. Upgrading clients with current market information.

In case you don’t hare anybody to refer you to a good stockbroker or give you advice on stocks and the capital market, or if you need my e-book on "how to invest wisely on shares", you can call me for assistance on +2347036288612 or e-mail me at esheya@yahoo.Com.

CHARGES AND FEES FOR BUYING AND SELLING OF SHARES

Buying charges:

1.          Brokers commission

1.5% of consideration

2.          SEC fee

0.60% of consideration

3.          CSC fee

0.10% of consideration

4.          stamp

0.075% of consideration

5.          VAT (5% of Brokerage)

0.075% of consideration

6.          CSC VAT

0.005% of consideration

TOTAL 2.355% OF CONSIDERATION

SELLING CHARGES

1.          Broker’s commission

1.5% of consideration

2.          NSE fee

0.05% of consideration

3.          CSCS Fee

0.45% of consideration

4.          Stamp

0.75% of consideration

5.          VAT (5% of Brokerage)

0.75% of consideration

   6.    CSCS VAT

0.0225% of consideration

  7.      NSE VAT

0.025% of consideration

TOTAL 2.6475% OF CONSIDERATION

 

            DEFINITION OF TERMS

1.          NSE

National stock exchange

2.          Sec

Security and exchange commission

3.          CSCS

Central securities clearing system.

4.          VAT

Value added tax.

5.          Consideration

       The cost of total quantity bought or sold.

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