CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The term “the Stock Market” is a concept for the mechanism that enables the trading of company stocks (collective shares), other securities and derivatives. Hence, the purpose of Stock Exchange (also called the Exchange) is to facilitate the exchange of securities between buyers and sellers, thus providing a market place (virtual or real). The real market place is the physical locations where transactions are carried out on a trading floor, by a method known as open outcry. The virtual kind of market is composed of a network of computers where trades are made electronically via traders at computer terminals. (Okafor 1983: 89, Okafor 1996: 90, Kee 2000: 2).

Facilitating the exchange process of stocks at both the real and virtual stocks markets are the participants – namely brokers and jobbers. Both types of participants are involved in the marketing of stocks. The brokers which this study is mainly interested in are the most numerous group of participants in a stock exchange. (Ayna, 2006:3).

Brokers are agents, that is, men on commission who execute orders on the floor of the Exchange on behalf of clients. The commission received is usually a fixed percentage of the total consideration for orders executed (Tajudeen, 1992:41). The brokerage function according to James and Henry (1990:48); Okafor (1993:88) is highly specialized in developed stock exchanges where the volume, value, and frequency of transactions impose a strict division of labour.

In the Nigerian Stock Exchange though, an emerging one, the strict division of labour is not practically observed mainly due to what experts term as “double capacity system”. The double capacity system permits a combination of both broker and jobber functions. This observed by Okafor (1996:91) “is the dominant system in developing countries where market volume may not justify functional specialization”.

In the strict marketing sense, brokers (agents) do not take title (ownership) to goods and services being traded on behalf of their clients. But for them to really make enough commission for orders executed on either the floor of the exchange or electronically on behalf of clients, they are involved in the marketing of various stocks, Ayna (2006:3). Apart from the facilitating function of brokers in the exchange process of stock between sellers and buyers, brokers’ role in the marketing of stock is both advisory and communicative. Irrespective of the structural and operational mode of a broker (whether he/she operates as an individual entity or under a brokerage firm), he/she is under obligation to provide and disseminate stock market information to the clients. The stock market information include trading statistics, all share index, company investment ratios and company news (financial Statements and Corporate Actions) Onah, 2002:18). The basis of this marketing communication function of the broker in his/her effort to market Stocks is to furnish investors with adequate and accurate information that will help them make better investment decisions (Kee 2000).

Biased information or inaccurate stock market information may well surely have adverse effect on investors as observed by Warren Buffet (2005:3) thus:

With each passing year, the noise level in the Stock Market rises. Television commentators, financial writers, analysis and marketing strategists are overtaking each other to get investors attention. At the same time, individual investors, immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet despite all these available information, investors find it increasingly difficult to make profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned to investing for their children’s education and their own retirement 15 become frightened. Sometimes there appears to be no rhythm or reason to the market, only folly.

Based on the above scenario one question many people keep asking is, “How does one make money investing?”

There are many different approaches on how accurate information can be provided to investors. Two basic methods often used are classified either as fundamental analysis or technical analysis. Fundamental analysis refers to analyzing companies by their financial statements found in SEC filings, business trends, general economic conditions, and so on. Technical analysis studies price action in markets through the use of charts and quantitative techniques to attempt to forecast price trends regardless of the company’s financial prospects (Ayna, 2006:30).

However, it is the duty of the stockbroker as a major industry player, to provide both the technical and fundamental analysis of stocks of various companies to his clients. Hence, from what we have offered on the preceding paragraphs one can contextually say that marketing of stocks has to do with planned and systematic identification, anticipation, satisfaction of investors, wants, and needs profitably.