By Chidinma Iwuoha & Mustapha Toheeb.
Introduction – One of the essential aspects in the growth and evolution of any Nation is Economic development. It is associated with enhancement of standards of living, employment, and general well-being of the citizens of that nation. Integral to this process are Capital Markets through which savers are linked to borrowers, enabling investment and growth. The function of Capital Markets cannot not be overlooked as it creates liquidity, provides efficiency in the supply of funds, and monitors companies.
Capital markets operate almost the same way in most countries. The major differentiating factor being the regulatory bodies involved and the legal framework surrounding these markets and its transactions. In Nigeria, the Securities and Exchange Commission is the main regulatory body for the Capital Market and in the United States likewise, the Securities and Exchange Commission oversees transactions in the Capital market.
This article seeks to breakdown what Capital markets are and how they operate with a focus on the secondary market. The article will go on to explore the challenges faced by the Nigerian Capital market and to check if such challenges are addressed with the coming of the Investments and Securities Act, 2025. It will consider what can be learned from the U.S. Capital market with regards to the challenges faced in the Nigerian Capital market or note if these challenges mutual.
It should be noted that the term ‘Capital’ as used in this article does not include regulatory capital, but is comprised of various financial instruments.
What are Capital Markets?
A capital market is a financial market where long-term debt and equity securities are bought and sold. Capital markets include any marketplace where participants can buy and sell financial assets, such as stocks, bonds, or other securities. It provides a platform for businesses and governments to raise funds for long-term investments, while investors can participate in the growth of these entities. These markets facilitate the flow of capital from savers to those who need it for productive use. To put it differently, capital markets connect providers of capital (investors) with users of capital (companies or governments) and these relationships are facilitated by financial institution or intermediaries.
Types of Capital Markets
There are primarily two types of capital markets: Primary Market and Secondary Market.
The primary market is where new securities are issued and sold for the first time. Companies, governments, or other entities raise capital by issuing stocks or bonds to investors. Initial Public Offerings (IPOs) are a well-known example of activity in the primary market.
Whereas in the secondary market, after the initial issuance in the primary market, securities are traded among investors in the secondary market. The stock exchanges (like the New York Stock Exchange or Nigerian Exchange Group) are part of the secondary market. Here, investors buy and sell existing shares; no capital goes directly to the issuing company.
Capital markets basically move through three phases to wit; Primary-Creation Secondary- Trading and Post Trade-Clearing & Settlement
Before we narrow our discussion to transactions that occur in the secondary market, we will look into the legal framework for Capital Markets both in Nigeria and the United States.
An Overview of the Laws Regulating Capital Markets in Nigeria
Some various laws and regulations govern and regulates the capital markets in Nigeria, the primary one being the Investment and Securities Act, 2025.
i. Investment and Securities Act, 2025.
The Investment and Securities Act (ISA) is the major law in the Nigerian capital markets. It provides a comprehensive framework for regulating investment and securities business in Nigeria.[1] The ISA contains the establishment of the SEC, the registration and regulation of capital market operators, the control and regulation of initial public offerings (IPOs), and the establishment of the Investors Protection Fund, among others. The purpose of the ISA is to control the activities of persons who are engaged or involved in the capital markets.[2] Additionally, the ISA also mandates the conduct of special and routine supervisory inspections and investigations of capital market operators. Furthermore, the ISA introduced the Investors Protection Fund which is a fund that is aimed at protecting subscribers against loss and damage arising from the default of issuers and their agents.
ii. Securities and Exchange Commission (Sec) Rules, 2013
The Securities and Exchange Commission Rules (SEC Rules) provide general and specific rules for market participants. It covers registration of market participants, issuance and trading of securities, disclosure of information to investors, etc. Non-compliance with the SEC Rules attracts sanctions, such suspension and revocation of operating licenses.
iii. Companies and Allied Matters Act, (CAMA) 2020
Another regulatory framework guiding the Capital Market activities is the Companies and Allied Matters Act (CAMA) 2020.[3] CAMA focuses on enhancing corporate governance, ease of doing business, and investor protection.[4] Also, it introduces provisions that simplify company registration processes, such as the providing for the promotion of electronic means of conducting business and strengthen mechanisms for corporate accountability, provisions aimed at protecting minority shareholders and improving disclosure requirements etc. These changes collectively contribute to a more robust and investor-friendly business environment, aligning with the broader goal of attracting investments and promoting a thriving capital market in Nigeria.
iv. Business Facilitation (Miscellaneous Provisions) Act, 2022
The Business Facilitation (Miscellaneous Provisions) Act 2022[5] has set objectives including the promotion of ease of conducting business in Nigeria[6], elimination of administrative bottlenecks and amendment of relevant laws to institutionalize all reforms to enhance legislation implementation. Salient provisions of the BFA relating to the Nigerian capital markets are highlighted below:
- Part 1(5) of the BFA amended section 149 of CAMA by inserting a new subsection (1) which states that the powers to allot the shares of a company are not exercised by the directors of a company unless express authority to do so has been given to the company in a general meeting or through the company’s articles. Where the directors of a company decide to allot shares to the public without express authority from the general meeting or the company’s articles, the allotment made will be deemed to be irregular and voidable on the part of the allottee.
- Part X(42) of BFA amended section 67 of the Investment and Securities Act 2007 by highlighting that no allotment shall be made of any securities of a company offered to the public for a subscription unless, in the case of a public company, the amount stated in the prospectus, as the minimum amount has been subscribed and the sum payable on application for the amount so stated has been paid to and received by the company, or in the case of a private company, through any lawful means, as SEC may by regulation prescribe. By this amendment, private companies can now issue shares to the public through lawful means as prescribed by SEC. Where a private company does so, it will now come under the regulatory purview of the SEC and will be subject to strict market standards.
V. Regulation and Digital Assets
The SEC released rules on the issuance, offering platforms, and custody of digital assets on 11th May 2022 titled the New Rules on Issuance, Offering Platforms and Custody of Digital Assets. The rules outlined aim to comprehensively address diverse facets of transactions involving digital and virtual assets within the Nigerian capital market, such as crypto currency trading, Security Token Offerings, Initial Coin Offerings, etc. This Rule contains; the issuance of digital assets as securities, encompassing regulations for entities seeking to raise capital through digital asset offerings, registration requirements for Digital Asset Offering Platforms (DAOP) and Digital Asset Custodians (DAC), respectively, regulations for Virtual Assets Service Providers (VASP), and Digital Assets Exchanges (DAX).
Notably, the Rules mandate that digital tokens representing assets such as debt or equity claims on issuers must be registered with the SEC before public issuance.[7] The document delves into eligibility criteria for entities issuing digital assets securities and outlines investor protection measures, including ownership requirements for directors and senior management. Additionally, it stipulates investment limits for digital securities, fundraising ceilings for digital securities, and exemptions to the registration of digital assets, emphasizing the SEC’s commitment to safeguarding investors and ensuring the integrity of digital asset transactions in the Nigerian capital markets.
Regulatory Framework in Capital Market in the United States.
The regulation of the capital markets in the United States is governed by a comprehensive framework of federal and state laws, primarily enforced by the Securities and Exchange Commission (SEC). These laws, enacted over decades, aim to promote transparency, protect investors, and ensure market integrity following major financial crises.
i. The Securities Act, 1933.
This is often called the “Truth in Securities Act[8],” this law primarily regulates the issuance of new securities in the primary market. This act mandates that companies publicly offering securities must register the offering with the SEC and provide investors with a prospectus containing detailed financial and operational information. It prohibits fraud and misrepresentation in the offer and sale of securities. It allows certain offerings to be exempt from registration, such as private placements to accredited investors or intrastate offerings.
ii. Securities Exchange Act of 1934[9]
This law regulates the secondary trading of securities, governing markets, brokers, dealers, and the conduct of financial professionals. It created the Securities and Exchange Commission to enforce securities laws. It mandates ongoing disclosure requirements for publicly traded companies, including filing annual reports (10-K) and quarterly reports (10-Q). It prohibits the fraudulent purchase or sale of securities based on material, nonpublic information.
iii. Investment Company Act of 1940
This Act[10] regulates the organization and activities of investment funds, such as mutual funds, for the benefit of investors. It requires investment companies with more than 100 investors to register with the SEC and disclose information about their finances, structure, and investment policies. It mandates specific governance rules, including requirements for independent board members and limits on leverage.
iv. The Jumpstart Our Business Startups (JOBS) Act of 2012
The Jumpstart Our Business Startups (JOBS) Act[11] loosened regulations to make it easier for startups and small businesses to raise capital. It created a category of “emerging growth companies” with relaxed reporting requirements for a period after their initial public offering (IPO). It expanded access to capital through crowdfunding and “mini-IPOs” (Regulation A+) for smaller companies.
v. The Sarbanes-Oxley Act of 2002[12] (SOX)
It was enacted in response to a wave of corporate accounting scandals that shook investor confidence in the early 2000s. Companies like Enron and WorldCom had manipulated their financial statements to hide massive debts and inflate profits, leading to catastrophic losses for shareholders and employees. SOX was designed to restore trust in the financial markets by tightening corporate governance and increasing the accountability of top executives. One of its most impactful provisions requires CEOs and CFOs to personally certify the accuracy of their company’s financial reports, making them legally responsible for any misstatements. This act also introduced stricter internal control requirements, especially through Section 404, which mandates that companies assess and report on the effectiveness of their financial reporting systems.
A cornerstone of SOX is the creation of the Public Company Accounting Oversight Board (PCAOB). This independent body was established to oversee the audits of public companies, ensuring that auditors adhere to rigorous standards and maintain independence from the firms they audit. Prior to SOX, the auditing profession was largely self-regulated, which contributed to the conflicts of interest that enabled fraud. The PCAOB now sets auditing standards, inspects audit firms, and enforces compliance, all under the supervision of the Securities and Exchange Commission (SEC). Additionally, SOX includes provisions to protect whistleblowers and penalize those who retaliate against employees who report misconduct, further strengthening the culture of transparency and ethical behavior in corporate America.
How do Capital market transactions work?
When raising capital, companies or entities may issue new shares of a stock or bonds, with proceeds from investors going directly to the issuer to meet its current financial purposes. Original issues of stocks and bonds are not always accessible to individual investors, such as in an IPO of stock. Most individuals purchase stocks on the secondary market, where those who previously purchased stocks or bonds can re-sell the securities they hold. Once on the open or secondary market, the price of a security is generally always changing, reflecting demand in the market.
Simply put, in the secondary market, shareholders of a company sell their stock to other investors. Investors can buy and sell securities based on the prices determined by supply and demand; if there is high demand for a security, its price increases, and if there is low demand, its price decreases (bear market and bull market). This dynamic pricing mechanism helps to ensure that securities are priced efficiently and that investors receive fair value for their investments.
There are two types of secondary markets which are the exchange-traded markets and over-the-counter (OTC) markets. Exchange-traded markets, such as the Nigerian Exchange Group (NGX), New York Stock Exchange (NYSE) and the Nasdaq Stock Market, have centralized trading locations, while over-the-counter markets, such as the bond market, have decentralized trading locations. It is important to note that exchange- traded markets have low counterparty risks due to the uncompromising regulations regarding market securities while over the-counter markets on the other hand, have high counterparty risks since there is no regulatory authority or compulsion involved with this manner of trading. FOREX (Foreign Exchange) is a good example that comes under Over the Counter market.
There are various examples of secondary market transactions, including stock trading, bond trading, mutual-funds investment, options trading, etc.
Let’s consider Stock trading. An investor buys shares of a publicly traded company, such as Apple or Amazon, from another investor on the New York Stock Exchange (NYSE). The shares were previously issued by the company in an initial public offering (IPO) and are now being traded on the secondary market.
Picture this scenario, in Nigeria today. Assuming Ray wants to invest in the stock market. He opens a trading account with a stockbroker (e.g., ARM Securities, Bamboo, etc). He is interested in Dangote Cement Plc, which is already listed on the Nigerian Exchange Group (NGX), this means its shares are available on the secondary market.
Ray logs into his trading app and sees that Dangote Cement shares are currently trading at ₦410 per share. He places an order to buy 100 shares. Another investor, who already owns shares in Dangote Cement Plc, wants to sell 100 shares at ₦410. The stock exchange matches Ray’s buy order with the seller’s sell order. Once the trade goes through, Ray now owns 100 shares, and the seller gets paid ₦41,000 (minus any applicable fees).
From this simple transaction, we can note the following:
- Dangote Cement does not get money from this trade because it only benefited when it first sold shares in the primary market.
- This is a secondary market trade between two investors, not between investor and company.
- It happens through a stock exchange (the NGX), and is usually facilitated by licensed brokers. A list of licensed brokers in Nigeria can be accessed here.
Challenges of the Capital Market
Despite its potential, the challenges faced by the capital market both in Nigeria and the United States are mutual:
1. The Nigerian capital market is evolving rapidly, but the regulatory framework still struggles to keep up. This misalignment between market realities and regulatory requirements creates a lively ground for market participants’ high-risk ventures and scammers’ fraudulent activities.
2. Market Volatility: Economic uncertainties, fluctuations in oil prices, and political instability can lead to volatility in the stock market, affecting investor confidence in the capital market.
3.Limited Participation: Retail participation in the capital market remains relatively low, partly due to a lack of awareness and education about investment opportunities. The majority of transactions are dominated by institutional investors, which limits market depth.
4.Regulatory Challenges: Although the SEC has made significant strides, there are still concerns about the enforcement of regulations and dealing with fraudulent market activities. Ensuring transparency and protecting investor interests continue to be an ongoing challenge.
5. Investor Protection and Regulation: In the United States, another significant problem is the reversals in implementing investor protection rules, such as mandating clearing for Treasury markets, and a general desire to expand access to riskier private funds for retail investors, raise concerns about market integrity.
6. The get-rich-quick-or-die-trying mindset of younger Gen-X and Gen-Z Nigerians has created a fertile landscape for Ponzi schemes and other advance fee fraud or pyramiding adventures. The lack of diverse investment opportunities in the market has created a vacuum that Ponzi schemes have exploited. As a result, young and old investors fall prey to fraudulent schemes due to the allure of quick and “guaranteed” returns. It must be noted that the new Investment and Securities Act, 2025 has declared war against Ponzi scheme and also provided sanctions for those involved.
7 Another challenge is the lukewarm methods of engaging investors and stakeholders. The interaction process has been unfocused and clumsy. The existing channels for disseminating information and educating prospective investors are inadequate (the NGX could support school investor clubs nationwide), rather than leaving young and impressionable minds to schemes of Ponzi merchants.
8. The Nigerian capital market is evolving rapidly, but the regulatory framework still struggles to keep up. This misalignment between market realities and regulatory requirements creates a lively ground for market participants’ high-risk ventures and scammers’ fraudulent activities.
Conclusion
Capital markets remain a vital driver of economic development, serving as an avenue for mobilizing savings, enhancing liquidity, and channeling funds to productive ventures. The comparative study of Nigeria and the United States reveals that while both markets share a similar structural foundation, the effectiveness of their operations is largely shaped by regulatory efficiency, legal frameworks, and market depth.
For Nigeria, persistent challenges such as weak investor confidence, inadequate enforcement mechanisms, and limited market participation continue to hinder growth. The anticipated reforms under the Investments and Securities Act, 2025, represent a step toward strengthening oversight, improving transparency, and addressing structural inefficiencies. However, sustainable progress will depend not only on legislative change but also on consistent implementation and capacity-building within regulatory institutions.
The U.S. capital market demonstrates the benefits of strong enforcement, robust investor protection, and institutional trust. While not all lessons are directly transferable, Nigeria can adapt elements of this experience to build a more resilient and globally competitive market. Ultimately, the development of Nigeria’s capital market will require a combination of effective regulation, market innovation, and stakeholder collaboration to fully unlock its potential in driving national economic growth.
ABOUT THE AUTHORS
Chidinma Iwuoha is a recent graduate of the Nigerian Law school soon to be called to the Nigerian Bar. She has a background in academic writing and she is interested in exploring Corporate Law/corporate finance, Legal research/writing, Project management among others. To reach her, email: chidinmaiwuoha68@gmail.com or connect via LinkedIn:Chidinma Iwuoha.
Mustapha Toheeb is the founder of Lex Updates Publications. He is interested in advocacy, academic writing, legal writing/history, activism, and a plethora of positivism. To reach him, email: toheebmustapha15@gmail.com or contact/WhatsApp: 08106244073. You can connect via LinkedIn:Mustapha Babalola Toheeb.
[1] Dada, I. O. (2003). The Nigerian Capital Market: Developments, Issues and Policies. Spectrum Books.
[2] Ibid
[3] Companies and Allied Matters Act, 2020 (Act No. 3 of 2020)
[4] Umoru, H. (2020). “Senate Passes CAMA Amendment Bill” Retrieved from
amendment-bill/amp/ accessed 20 June 2022.
[5] 2022 (Act No. 5 of 2022)
[6] Chartered Institute of Stockbrokers. (2022).History of the Nigerian Capital Market. City Gentlemen Consult Limited
[7] Rule 30.0, Amended Digital Assets Rules
[8] 15 U.S.C. §§ 77a–77aa.
[9] 15 U.S.C. §§ 78a–78qq
[10] 15 U.S.C. §§ 80a-1–80a-64
[11] Pub. L. No. 112-106
[12] Pub. L. No. 107-204.
