Basic Stock Exchange Language You Must Learn

Basic Stock Exchange Language You Must Learn
This section is meant to help you understand basic language of the stock market anywhere in the world. Your level of understanding of the operation of the stock market shall be enhanced and your curiosity further awakened to learn more about stock exchange’s vocabulary. Mastery of this language is enough to turn you into a highly sought after expert and attract many people to you like sugar is attracted to ant.

Shares
This is the unit into which the total capital of a company is divided. Your holding or share/portion represents equal part of ownership in relationship with the ownership of others. The ownership you claim depends on how many units of shares you hold at any point in time.
Other words with same meaning include equity and stock.

Share Holder
A share holder is a person who owns part of the stock of a company. He is entitled to the profit and loss of the business. Other benefits of a share holder include bonus, right issues, dividend, attendance at annual general meeting, opportunity to become a member of the board of a company etc.
Share holders have been organized into pressure group whose code of conduct have been designed by the Nigerian Stock Exchange management to further the interest of share holders and to positively influence board of companies in taking sound business decisions.

Share Certificate
This is a piece of customize paper given to investors or share holders by registrars of companies in which they invest. The certificate shows evidence of your part ownership of the company stating categorically the number of units you are holding and the period it was issued.
Share certificate is often given to investors who buy shares through public offerings like Initial Public Offering (IPO). E.g. Dangote Sugar IPO of November 2006.

Share Worth
Your share worth is the currency worth of your total holding in a company at any given time. The worth could be in naira or dollar.
If you have 5,000 units of shares in Ikeja Hotels for example at a current price of N5, your share worth is 5,000 * 5 =N25,000.
Any increase in the price of the share will definitely shoot up your share worth and vice versa.

Capital Appreciation
An increase in the share price of a company over time is referred to as capital appreciation. This increase could happen immediately after the completion of an IPO, lifting of technical suspension, restructuring of shares etc.
Investors who engage in long term investment often benefit from capital appreciation e.g. UBA moved from N10 in 2004 to 53 by October 2007.

Stocks
This has a similar meaning with the shares you own in a company. This term is however applicable when the company shares are listed on the stock exchange for trading.

Classification Of Shares
Shares are classified based on certain rules and conditions for investment by share holders. The rules determine the time and how dividend would be paid.
Shares are classified into ordinary shares, preference shares and convertible preference shares.


Ordinary Shares
Shares sold to the public through IPO are often called ordinary shares. It allows participation by investors of all shades and interests. E.g. Zenith Bank IPO of 2004 was sold as ordinary shares to the public at N10.60k

Preference Shares
Shares sold to certain categories of preferred investors before a company is listed on the stock exchange is called preference shares. Such investors are usually highly rated investors who can invest huge amount to shore up the capital base of the company. E.g. Oceanic bank sold preference shares to Dangote and other investors at N3.00 before listing it on the exchange at N6 in 2005.
When preference shares are sold, a private placement is said to be made.

Convertible Preference Shares
Investors could convert their preference shares obtained during private placement to ordinary shares. The investor decides when and why that is done. It might be to partake in dividend payment of ordinary shares or to secure voting right at AGM which preference share holders do not enjoy.

Company Register
The registrar of a company is the firm that stands between the company selling shares to the public and the share holder. The registrar issue out share certificates and keep the data of the share holders. E.g. Zenith registrar is the registrar to Dangote Sugar IPO issued in November 2006.
Any problem arising from missing share certificates, error in names and dividend payment is usually handled by the registrar.

Capital Market
This is another name for the stock market or stock exchange. E.g. Nigerian stock exchange (NSE), New York Stock Exchange (NYE) etc.
The stocks of quoted companies are traded daily on the capital market. It is where companies seek for funds to run their businesses or enlarge their services.

Money Market
This refers to banks and other financial institutions which deal mainly in cash and loan to investors seeking for funds to run their businesses. Instruments such as cheque, bank draft, money order are features of the money market.

Stock Broker
This is a trained professional who specializes in buying and selling shares for investors at the stock exchange.
Investors who do not have a stock broker cannot trade on their shares.
Most stockbrokers run firms to take care of the interest of their numerous clients and keep the records and account of such clients. Examples include Cash Craft Asset Management and BGL Securities. They are members of the Nigerian Stock Exchange.

Stock Jobber
This is a member of the stock exchange through whom stockbrokers buy and sell shares. Stockjobbers operate daily register to reflect transactions they carry out on the floor of the exchange. The register is called jobber’s book.

Stock List
This is a list of companies quoted on the stock exchange showing their current price, volume of share holders, level of capitalization etc.
Stock list is published in newspapers, financial magazines e.g. financial standard and business times.

Central Security System
This is an independent arm of the stock exchange which keep record of share holders whose equities are tradable on the exchange. It also perform the following functions:
(1) Processes inter market transfer
(2) Provides depository for share holders i.e. demobilization of certificates
(3) Creates new account for fresh investors
(4) Gives identification number to stock brokers
(5) Operates as issuer of central securities and clearing house of the exchange
(6) Secures transactions of the stock market. It is the police of the stock market e.g. the detection of Nestle 310million scam recently and the fishing out of culpable brokers for appropriate sanctions.


Public Offer Privatization
Public offer privatization occur when Government decides to sell its holding in a company or the outright sale of the company to the investing public. This happens when Government is no longer satisfied with the performance of such agencies or when there is a change in the policy of Government.
Such companies are taken over by new managers who often turn around the fortunes of such companies. E.g. Con Oil, First Bank, NITEL, Union Bank, etc.
You should look out for this kind of offer in the future. It is a legitimate means of investing your money wisely for astronomical returns.

Initial Public Offer
This is the offer made to the public by companies coming to the stock exchange for the first time to be quoted as a public liability company.
The offer enables the public to buy into the company to provide capital for the company’s activities. E.g. Dangote Sugar
However, companies can be listed on the stock exchange without placing an IPO. E.g. Oceanic Bank was listed on the exchange in 2005 without and IPO.

Normal Public Offer
Established companies who seek more funds at the primary market to carry out well defined business plans offer shares to the public in form of normal public offer. A good example is First Bank, UBA and Union Bank.
Normal public offer could occur at any time in the history of a listed company subsequent upon approval by share holders at a General Meeting.

Stock Underwriter
This is a financial institution which undertake to buy certain percentage of an offer on issue during a public offer in case there is under subscription. The underwritten shares could then be traded on the floor of the stock exchange. E.g. the public offer of Japaul Oil of September 2007 was underwritten 100% by First Inland Bank and Future View Ltd.

Dividend
This is the interest or profit paid to share holders by companies after the financial report of the company has been given for a particular financial year. It could be paid once in a year, e.g. Zenith Bank, twice in a year, e.g. GTB or trice in a year e.g. Dangote Sugar.
Some investors patronize dividend paying companies for long term investment. E.g. GTB, First Bank, Dangote Sugar etc.
Prices of stock often fall after payment of dividend.

Dividend Warrant
This is a piece of paper likened to a cheque given to individual investors to cash their profit as share holders in a company. The registrar of the company issue the warrant to share holders stating the amount of dividend per unit of shares, the units of shares held by the individual and the total worth of the dividend.
The warrant also bears the tax deduction on the dividend and the duration of payment of the dividend. Any dividend not claimed within 6 months after the date of issue becomes invalid. You should not delay in converting your dividend warrants to cash after receiving it.

Right Issue
This is an offer given to existing shareholders of a company to increase their share holding or buy more into the company. This offer is not made available to the public. It could only be traded on the floor of the stock exchange if not claimed by the share holder.
Right issue is always given in proportion to correlate with the level of holding of each share holder. E.g. 1 for 4, 1 for 3 or 3 for 2.

Hybrid Offer
This is an offer issued simultaneously to the public and existing shareholder of a company. While the investing public have the opportunity to become investors in such companies for the first time, existing share holders also have the opportunity to increase their share holding sometimes at a subsidized rate. E.g. First Bank issued a Hybrid offer of 37 per share to the public and 33 per share to existing shareholders in August 2007.

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