How to Invest in the NSE (Nigerian Stock Exchange)
The NSE welcomes interests from Nigerians and non-Nigerians alike on its platform. Over the years of operation, the NSE has evolved into a highly accessible market for both investors and dealing members.
THE 5 EASY STEPS
Investing in the NSE has undergone a thorough process of simplification over the years, from the classical paper-based methods to the electronic methods of registration and onward trading. While both methods are still available for market stakeholders, the electronic means has come to be a preferred means of participating in the NSE giving the ease of access, and reduced paperwork it offers. Whichever option an investor prefers, here are 5 easy steps to becoming a part of Nigeria’s capital market.
1. Research and decide on a preferred stockbroker
A stockbroker is an appointed agent who is authorized to execute, buy or sell instructions on an investor’s account. Within the purview of the Nigerian stock market, a stockbroker will refer to a broker-dealer firm that is a dealing member of the NSE, and is registered with the SEC.
In deciding a stockbroker important factors to consider include their ease of access, their affordability (since some firms place a minimum amount for opening an account), their integrity/reputation, and their status with the NSE/SEC. Make sure to confirm a stockbroker’s status with NSE and SEC before opting for any.
2. Open an account on the CSCS (Central Securities Clearing System)
To participate in the NSE, all investors have to be registered on the CSCS. CSCS Ltd is an associate company of the NSE. The system is an electronic database that records ownership of Nigerian securities. On registration, the systems assigns you an account number that will accompany every Nigerian stock trade you execute.
Opening an account on the CSCS is done through the platform provided by your stockbroking firm (typically, stockbrokers update client registration on their platforms, automatically in the CSCS registry).
To register with a stockbroker, clients have to fill the registration form issued by the broker (either online or manually) and provide KYC (know your customer) documents namely; means of identification (PVC, National ID, Driver’s License or International Passport), proof of residential address (bill or receipt no later than 3 months), passport photograph and electronic signature (if filling the form online).
For non-Nigerian residents, notarized means of ID and proof of residential address will be required.
3. Fund your account and Trade
Your stockbroker will provide you with their bank account details and they will fund your account as soon as any payment you make is confirmed. Investors trade on the floor of the exchange only through stockbrokers. Trade instructions issued by investors are received by stockbrokers either by traditional order papers (sent usually by email, fax or courier), or from online trading platforms. Online platforms have become mainstream for trading on the NSE.
However, for non-experienced investors, caution must be taken while using these platforms to avoid uniformed trading (or trading out of impulse) which could result in avoidable losses. For this category of investors, it is important to seek advice from your stockbroker before trading. Also for long term investors, who do not necessarily need to trade on a regular basis, using traditional trade order papers may be considered ideal.
4. Collect benefits on your investments
There are 3 ways through which investors make money; dividends, capital appreciation (rise in price of a share) and bonus shares. Most companies pay a final dividend at the end of the financial year while some others pay an interim dividend around the middle of the financial year. Paying dividends to shareholders, however, is not compulsory.
When profits soar, a company can decide to reinvest part of this profit to create new shares (equaling the added value of the company) and then reward shareholders with these extra shares as bonus or scrip issue. As a shareholder you can decide to retain your bonus shares or sell them, converting them to cash.
5. ‘Recreate’ or Reinvest, your choice!
This is the step where you decide to do something recreational with your earnings like go on a Bahamas holiday, buy a new sports car, or even pay that MBA tuition, or on the other hand, reinvest. Take your time, make your choice.