The role of central bank in the development of capital market

Topics: Economics, Stock exchange, Stock market Pages: 29 (7372 words) Published: November 7, 2013
Oyetade P Oluwatoyese

The role of the Nigerian Capital Market in raising or mobilising medium to long term funds for both micro and macro development sub-sectors have been commendable in recent times. The main institutions in the capital market include – the Securities and Exchange Commission (SEC), which is the apex body and serves as the regulatory authority of the market; the Nigerian Stock Exchange (NSE); the Issuing Houses; and the Stock Firms. Stressful development demand in modern times, as well as the need to respond to multi-variant global investment challenges, have widened and sharpened the role of the Central Bank in the Capital Market operations (Onosode, 1998). Definitely, a Capital Market is the market for resource intermediation for capital input, i.e., the financial market in which medium and long-term credit is available for whole and sub-sector economic development. Capital Market is a market for long-term company loan capital and share capital and government bonds. The capital market is concerned with those who are short of fund and need to borrow for long-term purposes. Also, those who have fund surplus to the immediate requirements and wish to lend or invest these funds over long periods or lend funds to the Capital Market. This is known as financial intermediary. The Capital Market together with the Money Market, which provides short-term funds, is the main source of external finance to industry and government. The financial institutions involved in the Capital Market include – the Central Bank, Commercial Banks, the Saving Investing Institutions (Insurance companies, Pension funds, etc.), Issuing Houses, and Merchant Banks. The Capital Market is categorised into two and they are: the primary market, which is responsible for new insurance securities; and the secondary market, which is involved in trading of existing securities. The Capital Market comprises of the following: the Nigerian Stock Exchange (NSE), the Nigerian Bank for Commerce and Industry (NBCI), Nigerian Industrial Development Bank (NIDB), Nigerian Agriculture and Cooperative Bank (NACB), etc. The Capital Market in Nigeria has not only been influenced by financial system but also is the government incentive measure in terms of long-term investment policies that guarantee funds and tangible capital for both micro (small) and macro (large) use. The market can be described as government-oriented. According to (Onosode, 1998), complexities in the economic system; internationalisation; privatisation; fraudulent and sharp practices; etc. have collectively challenged the efficiency, strength and the credibility of the Capital Market. The role of the Central Bank towards the efficiency and the development of the Capital Market must ensure that the market is properly structured to serve the private and public interest as well as protecting local and foreign investment. The role of the Central Bank of Nigeria in the Capital Market is to ensure up-to-date infrastructural development and guarantee for sustenance, an atmosphere which encourages economic security and inflow of foreign investment. Finally, the role of Central Bank of Nigeria to the Capital Market development will be analysed through the parameter of efficiency in the market in terms of safety and protection of investment, general growth of the market, as well as the economic system.

Securities were known to have been floated in Nigeria as far back as 1946; the basic institutions for the operation of a capital market were not created until the Central Bank of Nigeria was established in 1959. The Barback committee appointed in May 1958 was asked to consider all means whereby the buying and selling of stocks and shares could be facilitated. The committee found reasons in the country favourable for launching a Capital Market including a Stock Exchange Market because of the increasing volume of savings in the...

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