New instrument imminent in the capital market
From Gbenga Agbana, Port Harcourt
THE Nigerian Stock Exchange, its clearing house, the Central Securities Clearing System (CSCS) and members of the Chartered Institute of Stockbrokers (CIS) at the weekend concluded arrangements to present a proposal to the Central Bank of Nigeria (CBN) on the introduction of a new product into the capital market.
Tagged: Margin Account. It is a device under which investors who operate accounts with stockbrokers open a special account, which he or she can purchase with loan more than what is deposited with the brokers.
Specifically, under the arrangement, a customer may purchase securities by paying for them in full, or they may choose to borrow some money because they want to buy a larger volume. The amount borrowed is referred to as "margin".
The ability to purchase on margin means that you are using the power of leverage to extend your positions. This means that you can increase your return without increasing your investment.
"The power of leverage is clearing demonstrated by the margin accounts. Dividends, bonus and all other forms of return (including capital appreciation) accrue to the margin account holder not the firm".
Preparatory to the proposal to the CBN, the Director-General of the Nigerian Stock Exchange (NSE), Dr. Ndi Okereke-Onyiuke, according to Mr. Nicholas Okoye, head of strategy and derivative markets, has directed him (Okoye) to train some of the workers of the Exchange on the nitty-gritty and workability of the new product.
Though Okoye, who presented a paper on "Dynamics for Operating and Maintaining a Marging Account" at the yearly conference of the Chartered Institute of Stockbrokers, held in Port Harcourt at the weekend, admitted that some stockbrokers have been operating similar accounts before, he noted that it is not being regulated.
Okoye said: "The director-general has mandated me to train some of our staff in a department on this margin account. We agreed to approach the CBN on it.
Commenting on the operations of the margin account, the Managing Director of BGL Limited, Mr. Albert Okumagba, challenged stockbrokers, NSE and the institute to make the product work immediately, noting that banks have in the past used various means to take positions in the stock market.
