BLOCKCHAIN TECHNOLOGY AND THE PERFORMANCE OF THE NIGERIAN CAPITAL MARKET – PART III

To Catch up on Previous Post

The Nigerian Capital Market

“The Nigerian capital market has since been the meeting point for buyers and sellers of shares,
bonds, stocks and for the exchange of other intrinsic commodities for the purposes of raising capital for
the running the business operations…” (Praise & Maria, 2019) . The Capital Market is regarded as
the cornerstone for every financial system since it provides the much-needed funds for financing,
economic growth and government spending. This position was opined by (Nwankwo, 1991) , that
“Capital market offers a variety of financial instruments that enable economic agents to pool,
price and exchange risk. Through assets with attractive yields, liquidity and risk characteristics, it encourages saving in financial form. This is very essential for government and other institutions in need of long-term funds”. He further stated that, “capital market is a place for mobilization and intermediation of long-term funds” (Nwankwo, 1991). This was aptly described by (Strumeyer & Swammy, 2017), “The main function of global capital markets is to match capital savers with capital needers”. This was further re-iterated by (ENORUWA, EZUEM, & NWANI, 2019) that,” The Capital market is a highly specialized and organized financial market and indeed essential agent of economic growth because of its ability to ease and muster investment and savings”.

In furtherance, “Capital market performance is seen as an essential and/or a good indicator for measuring a country’s economic strength” (Praise & Maria, 2019). Highlighting the importance of the performance of the Capital Market to Economic growth, The Security and Exchange Commission stated that, “The Nigerian Capital Market therefore has a role to play in meeting the capital needs of the nation including mobilizing and channeling of medium to long term investment funds which is crucial to any nation’s economic growth and development, particularly for financing infrastructure.” (SEC Nigeria, 2013). This was further argued that “Recent empirical research linking capital market development and economic growth suggests that capital market enhances economic growth and development.” (Balami, 2015) He opined further that countries with well-developed capital market system tends to experience higher economic growth than countries without. It goes without saying then that, performance of the capital market is quite key and central to economic growth. And for the Capital Market to perform effectively, then it needs to be up to date with global trends and technology and be able to be competitive on the global stage. This was aptly stated in SEC’s vision for the Nigerian Capital Market as, “To be Africa’s most modern, efficient and internationally competitive capital market that catalyses Nigeria’s emergence as a top 20 global economy” (SEC Nigeria, 2013).

Performance Indices of the Nigerian Capital Market

Based on its importance in accelerating economic growth and development, the governments of most nations tend to have keen interest in the performance of its capital market. The concern is for sustained confidence in the market and for a strong investor protection arrangement. In this light, there are several measures that is used to measure the performance of the Capital Market, to ensure that its growth trajectory is on course and to know the impact on the economy of the nation. With the advent of Blockchain, it is imperative to identify key performance indices that would be readily used in assessing the impact of Blockchain on the capital market. According to (ENORUWA, EZUEM, & NWANI, 2019), the indices used to measure the performance of the Nigerian Capital Market are listed below:

  1. Market Capitalization: Also known as market value is the share price times the number of share outstanding. It is a way of determining the actual value of a company. According to (SA’ADU, 2014), “ Capitalization is usually considered as reflecting the worthiness of a company used by the investing public to determine the credit worthiness of a firm in terms of investing in such companies”.
  2. All Share Index: a quick measure to judge the overall direction of the market and the scope of its movement.
  3. Stocks Traded, Total Value: the total value of share traded during the period. This indicator complements the market capitalization ratio by showing whether market size is matched by trading.(Ekezie, 2002) stated that, “the volume of transaction is an important indicator in technical analysis as it is used to measure the worth of a market moves”.
  4. Total New Issue: a security that has been registered issued and is being sold on a market to the public for the first time. Although initial public offerings are the most known new issues. Securities that can be newly issued include both debt and equity.(Anyanwu, 1996) stated that,” New issues refer to when a company which tries to raise funds by issuing additional shares or initial public offer to the general public to subscribe for their shares”.
  5. Listed Domestic Companies: Domestically incorporated companies listed on the country’s stock exchange at the end of the year.
  6. Total Listed Equities: Total amount of preferred stock equity added to the amount of common stock equity.
  7. Government Stock (bonds): It is a bond issued by a national government, generally with a promise to pay a periodic interest payment and to repay the face value on the maturity date.

Of all the listed performance indices, we would dwell on a select few that can readily fit into a Blockchain based Capital Market Ecosystem. This is because research is still on-going, and it is a novel idea in the Capital Market. As aptly captured by Friedman, (The Potential of Blockchain and Why it Matters to Push the Boundaries, 2016), she stated that, “At NASDAQ…we were starting to discover how impactful the technology could be on the transfer of any asset, including securities, and began to imagine a new world of post-trade clearing and settlement…We are excited to explore the opportunities it provides… our clients and the ecosystem of global markets.”

To Be Continued.

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