THE OPERATIONS OF A TYPICAL STOCKBROKER AND AN ISSUING HOUSE

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Kellie Fowler
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1 THE OPERATIONS OF A TYPICAL STOCKBROKER AND AN ISSUING HOUSE A PAPER PRESENTED BY MR. AZU ODITA GENERAL MANAGER/CEO, NETWORTH SECURITIES & FINANCE LIMITED (A MEMBER OF THE NIGERIAN STOCK EXCHANGE) LAGOS, NIGERIA

2 Who is a Stockbroker Outline Requirements of a Stockbroker Services offered by a Stockbroker Relationship with other Stakeholders in the capital market

3 Who is a Stockbroker A licensed dealing member of an Exchange To deal in financial instruments available in the Money & Capital Markets Primary activity is in the capital market Dealing firms are the principal while the Authorized dealing clerks are the brokers/agents of the dealing firms Other features Registered with CAC and SEC Roles in the market depend on Capital bases, Expertise and Status of Registration Broker = N40 Million Dealer = N30 Million Broker/Dealer = N70 Million A broker transacts on behalf of customers only while a dealer transacts on behalf of his company

Other features Registered with CAC and SEC Roles in the market depend on Capital bases, Expertise and Status of Registration Broker = N40 Million

4 Requirements of a Stockbroker Integrity His Word is his Bond Innovation in value-added services e.g. Margin Trading, Security Lending, REPO transactions Know your Client (KYC) Excellent Analytical Skill Financial Training Fund Management & Administration Financial Supermarket - gain advantage of size & distribution network Offshore Alliance.

Margin Trading, Security Lending, REPO transactions Know your Client (KYC) Excellent

5 Services Offered by A Stockbroking Firm Not standardised Differs from one organisation to another Examples Stockbroking New Issues Research & Portfolio Management Bond Trading Credit Analysis

6 Stockbroking Receives and process transaction orders Individuals (buy & sell) Maintaining proper records of transactions Arranges nominal transfer Floor trading or dealing Acts as stockbrokers to new issues Custodian and control of securities

transactions Arranges nominal transfer Floor trading or

New Issues Introduces the Issue to The Stock Exchange Process the Application for Listing at The exchange Advise the Issuer on the pricing and market situation Circulates the offer document on the

7 New Issues Introduces the Issue to The Stock Exchange Process the Application for Listing at The exchange Advise the Issuer on the pricing and market situation Circulates the offer document on the floor of The Exchange and market the issue Provides the Certificate of Exemption Receives proceeds of Application Undertake the Listing of the company and issue on The Exchange Distribute the brokerage commission to other brokers who participated as receiving agent Usually undertaken on the floor

Provides the Certificate of Exemption Receives proceeds of Application Undertake the Listing of the company and issue on

8 New Issues Preparing Vending Agreement between Issuing house/stockbroker and company seeking funds Participate in the Appointment of Parties to Issue Preparing Placement Memorandum Preparing Activity Schedule and Time Table of an Issue Provide Underwriting services

Appointment of Parties to Issue Preparing Placement Memorandum

9 Roles of Stockbrokers in Funds Raising & investment Advice Advise and Assist Fund Seekers Builds on contacts with Institutional investors Advise companies on the type of securities that may be offered with the best chance of acceptance, amount and timing of issue Undertakes reorganization exercise for both public and private sectors Advice and participate in offer for subscription, mergers and acquisition, future expansion programme etc Assistance to Capital Providers Mainly institutional investors and high networth individuals Stockbrokers give advice based on their appraisal of a company and its security and available alternatives

and private sectors Advice and participate in offer for subscription, mergers and acquisition, future expansion programme etc Assistance to Capital Providers

10 Research & Portfolio Management Prepares and circulate periodic Research Report on a company or sector The objective is to seek undervalued stocks worthy of inclusion in the portfolio Analysing and supplying information on quoted companies to Stockbroking Department Maintaining company library and databases Ensures that up-to-date corporate and market information are available Securities prices, yield, Daily Official list, Annual Reports, Periodicals, Investment Bulletins, Macroeconomic information etc Evaluate clients portfolio Suggest buy/sell options to investors Accompany on Work-Visit to quoted companies

databases Ensures that up-to-date corporate and market information are available Securities prices, yield, Daily Official list, Annual Reports,

11 Buy and sell bonds Bond Trading Also, Staff in a Bond Trading Dept should be proficient in Money market operations (T/Bills, CPs, BAs and other short term instruments) Credit Analysis Assess the degree of liquidity and available line of credit of debtor-companies Role overlaps that of the Security Analysts Advise management on margin trading

instruments) Credit Analysis Assess the degree of liquidity and available line of

12 Accounts Unique to Stockbroking Transactions Clients Stock Account Clients Cash Account SEC Fees Accounts Contract Stamp Accounts Client Bank Deposit Account Brokerage Commission Accounts Agency fees Accounts Receiving Agent (Public Offer Accounts)

Accounts Client Bank Deposit Account Brokerage Commission

13 Back Office Operations Serves as the Engine house of operation Open account for the client in the Office and at CSCS Ensure that Contracts Notes, Statements of Accounts and other documentation are sent to clients Deal with enquiries and complaints promptly

that Contracts Notes, Statements of Accounts and other

14 Share Transfer Form Bargain Slip Contract Note Daily Official List Mandate Form Jobbing Book CSCS Deposit Form Required Documents R005 Shareholders Particulars Scrip Receipt Account Opening Form

15 Transacting in Larger Block of Securities for His own Accounts To benefit from price appreciation (Buy Low Sell High) Underwriting of New Issues The issue will be able to finance part or all of his project Provides liquidity and promotes transfer of ownership from his trading activities

Issues The issue will be able to finance part or all of his project

16 Opening An Account With A Stockbroker General Requirements Completion of of Client Account Opening form Initial Deposit (Not mandatory) Additional Requirements - Individual Passport Photograph Copy of data page on international Passport (Not less than 6 months) or Driving License or national identity card Copy of utility bill of not more than 3 month old

Individual Passport Photograph Copy of data page on international Passport (Not less

17 Additional Requirements - Corporate/Institutional Investors Certified True Copies of particulars of the company shareholding and Directors (Forms C02 and C07) Certificate of Incorporation Executed Signature Cards Passport photographs and copy of data page on international passport (Not less than 6 months) or Driving License or national identity card provided for each signatory Copy of Utility bill that should not be more three months old A copy of Board Resolution duly signed and sealed The details provided on the Account Opening will be used to open an account at the CSCS

(Not less than 6 months) or Driving License or national identity card provided for each signatory Copy of Utility bill that should not be more

18 A file is opened containing the documents provided which is passed to the Chief Executive Officer for approval Thereafter, an Accounting Officer is allocate for Relationship Management The initial deposit is accepted and a Mandate Form is given to the investor

an Accounting Officer is allocate for Relationship Management

19 Client s Profile To execute client s order, a Profile Form is completed The following information are contained in the Form Marital Status Telephone No, Bankers & Nature of Accounts Initial Purchase Previous Purchase Investment Objective This may be control, income, growth speculation Investment horizon - Short or long term Annual income, household income Networth and Nature of business

Purchase Previous Purchase Investment Objective This may be control, income, growth speculation

20 Accounting Procedure in Stockbroking Treatment of receipt Issue official receipt in acknowledgement Post the credit promptly into the clients account File copy of cheque in the bank file Deposit the cheque in the bank within 24 hours File the copy of the deposit slip in the bank file Payment on Client s Account Print out client s statement of account Obtain appropriate approvals Issue crossed cheque in the name of shareholder on the certificate Debit client s account with the value of the cheque Print Payment Voucher Sign off with appropriate signatories Detach cheque, make copy and attach copy of Payment Voucher The client or his representative must sign the Payment Voucher File the PV in the paying bank s file

Obtain appropriate approvals Issue crossed cheque in the name of shareholder on the certificate Debit client s account with the value of the cheque Print Payment Voucher Sign off

21 Human Resources Requirements There is no regulation as to the minimum number of staff in a stockbroking House The number of engaged staff depend on the capacity of the House Article 15 of the Rules and Regulations Governing Dealing Members states that Each Dealing Member shall and maintain a system to supervise and ensure compliance of the activities of its officers, Stockbrokers and employees

22 Relationship with other stakeholders in the capital market The relationships are well spelt out in The Green Book or Rules and Regulations guiding dealing members SEC Register the house with SEC To render periodic returns to the apex regulator To collaborate with the regulator at all times to ensure transparency, discipline and orderliness in the capital market, in order to boost confidence and attract local and international investors. To guide against market infractions such as unauthorized sale of investors shares To settle Commission on the buy side (0.30%)

23 Other Stockbrokers They can collaborate on New Issues by acting as Joint parties No dealing member shall institute legal proceedings to enforce a claim against another dealing member without first exhausting all procedures set out for dispute resolution

24 CONCLUSION I hope this little contribution and the approach adopted has given you an idea of the operations of a typical stockbroker in the capital market. Thanks you for your attention.

CORPORATE ACCOUNT OPENING FORM

2 Passport Photo for each Rep. CORPORATE ACCOUNT OPENING FORM Important Note: 1. Each and every column must be filled in BLACK INK 2. Each page of this form must be duly signed by the account holder (s)