The capital market has two entry points but one exit door for investors. It is through this mechanism that the capital raised by bodies corporate can settle down for long term use.

For entry, investors can access the capital market through the primary market or the secondary market. Both markets are actually mutually complementary. They trade the same financial instruments and both facilitate the essence of the capital market which is capital formation.

How does the Primary Market function? First, just like every other market, it is basically a mechanism where buyers and sellers interact to decide price and quantity while exchanging values. The peculiarity here however is that the asset exchanged is capital.

While the investor sells his capital, the body corporate (Public or Private Issuer) buys the capital under certain terms and conditions. In the Primary Market, the move to buy capital or raise funds from the investing public is first made by the fund raiser or body corporate.

To help in packaging, marketing and collection of the offer proceeds, the body corporate assembles a team of financial experts and Capital Market Operators (CMOs). A selling document, approved by the Regulatory Authorities, called “Prospectus” is then produced by the fund raiser which enable prospective investors to form opinion about the investment.

If an investor is satisfied with the terms of the offering and decides to invest by filling the application form and pays the appropriate amount to the fund raiser, a title document either in hardcopy or soft copy is issued to the investor as evidence of investment. That title document is a legal right that secures the investor’s claim to the investment.

It is otherwise called a “Security”. Having issued the security to the investor in exchange for money or capital, the fund raiser becomes known as “Issuer” of the security. From the foregoing, one can identify the function of the Primary Market as where Issuers who are government or companies raise funds from the investing public.

In other words, the money invested by investors in the Primary Market goes to either the issuing government or company to form the capital required to execute capital projects that generate productive employment and creation of wealth for the economy.

Different reasons may require or compel an investor who brought securities in the Primary Market to seek liquidity for his or her investment, even before maturity as in case of debt. Generally, recourse to the Issuer for redemption may be abortive because the investor’s fund would have been aggregated with funds collected from other investors for application in the Issuer’s business.

It may be impossible for the Issuer to strip his capital assets, thereby crippling the business, in order to prematurely redeem security for an investor out of the numerous others who invested. For this reason, a Secondary Market has arisen in the Capital Market where any security-holder can exchange his or her security for cash with another investor who buys.

Although the Primary and Secondary Markets are working towards the same goal of capital formation in the economy, role of the former is to generate securities while that of the latter is to provide liquidity to investors.

In formal Capital Markets, the transition of Securities from the Primary Market to Secondary Market follows a listing process whereby the newly issued securities are listed on the relevant boards of a Securities Exchange. Investors can access these boards on the Exchange to buy or sell directly or through their Stock or Commodities Broker on every working day.

In playing their complementary roles as buying points, the Primary Market and Secondary Market serve as alternatives to one another. This breed a healthy state of competition. When margins thin out in the Secondary Market, the Primary Market becomes an alternative investment destination because Issuers always try to issue at discount to the prices on Board. With the All Share Index (ASI) of NGX trending above 60,000, the Secondary Market for equities is now possibly getting fatigued and the stage is set for resurgence of the Primary Market.

Before automation of the Nigerian Capital Market through coming into existence of the Central Securities Clearing System (CSCS) in April 1997, the Primary Market was beehive of the market. Most retail investors bought securities principally from the Primary Market because settlement and delivery before automation, took up to one year in the Secondary Market.

The Nigerian Capital Market actually started from the Primary Market in 1946 when the then British Colonial Government floated a £300,000 3% Government Stock 1956/61 with its management vested in the Accountant General of the Colony.

That fore runner status may have played a key role in shaping the perception of investors towards the Primary Market which was further reinforced by the indigenization exercises of 1970s. The Primary Market continued to flourish especially during the period when Nigeria was industrializing.

Infact, the ten years capital market boom before the Global Meltdown in 2008 was fired mainly from the Primary Market. Incidentally or perhaps by coincidence, when Nigeria started de-industrializing and after 2008 economic crisis, the Primary Market faded away.

Regrettably, the Primary Market has since lost its competitive edge over the Secondary Market thus robbing investors of an important investment outlet and starving Issuers the much needed capital to generate productive employment and create wealth for the economy.

Not all segments of the Primary Market have stagnated. Public debt issuance is so active that corporate debt is suffocating. The major challenge lies in the realm of equities where Offer for Subscription is almost extinct, except for the recent one by MTNN. Jittery Issuers only continue to test the market through Rights Issue.

While commending SEC for laudable policies like dematerialization and e-dividend which enhances the ease of investment in the Primary Market, the thorny issues surrounding “Private Placement” needs to be fully resolved to renew the hope of wounded investors.

The “Book Building” process for New Issues appear opaque, elitist and not transparent. It is not even understood by investors. SEC needs to reintroduce the old traditional method of Offer for Subscription and Sale which investors are conversant with and let it run Pari Passu the “Book Building” process.

To further drive efficiency in the Primary Market, the e-IPO platform that NGX is developing should be deployed without further delay so that investors can subscribe to New Issues on consistent basis, using any hand held mobile device from any location in the world.

Finally, a low interest rate environment will embolden Issuers to raise funds from the Primary Market and hence, enable them to churn out securities to deepen the Secondary Market.