The origin, development and future prospects of government securities trading in Nigeria

Abstract

This paper provides the administrative, institutional, legislative and political background to the evolution of government securities trading in Nigeria and highlights the relationship between such securities, open market operations and discount houses. The paper then examines the future prospects of securities trading in Nigeria and proffers recommendations for enhancing the prospects. It is indicated that the CBN acted as the fiscal agent of Government in the management of public debt since its inception in 1959, issuing in succession the three marketable government securities currently being used-treasury bills, treasury certificates and development stocks. The Federal Government Development Stocks, introduced in 1959, were designed to provide long-term finance for government development projects, and later most of the proceeds were on-lent to State Government. Treasury bills, on the other hand, were introduced in 1960 to develop the domestic money market. Both instruments were• intended to create investment avenues for banks' surplus funds previously exported abroad and provide cheap source of credit for rapid economic development. In the same vein, treasury certificates of one and two-year maturities were introduced in 1968 to increase the range of money market instruments. Later, however, increased issues of all the securities were necessitated by government deficit financing needs. All the three instruments are shown to have registered significant growth over the years. The factors influencing growth trends, ownership distribution and the effect of issue or discount rates on security trading are examined. The relationship between government securities, open market operations and discount houses is traced to the fad that open market operations are conducted largely, though not exclusively, in government securities in the secondary market; and discount houses are principal dealers with which Central Banks conduct their open market operations. The paper concludes that the prospects of further development and profitability of securities trading in Nigeria are tremendous. It then offers recommendations for improving the institutional framework of primary and secondary marketing as well as for stimulating sustained growth of the money market for the enhancement of government securities trading.