Buying stocks from the secondary market involves some behind-the-scene documentation, that’s what this article aims to address
Since the Stock Exchange Market is a secondary market, the transfer of stocks from a seller to a buyer will pass through the statutory process as stipulated by the regulatory agency.
This is why it’s advised to deal with a certified broker when you’re making an entry in buying and selling of stocks in Nigeria.
The two documents that would be prepared to facilitate transactions are:
- Contact note
- Transfer form
What Is Contract Note?
In stocks trading, the contract note is a document sent by a broker to his client to confirm a purchase on behalf of their client.
Details of the contract note are:
- Sales of shares
- Broker’s commission
- Date of payment
- The applicable stamp duty
What Is Transfer Form?
The transfer form is a document for transferring ownership of shares. This document is prepared after the settlement of payments.
The seller of the shares must sign the form to authorise the removal of his name from the share registration records of the company.
For instance, Mrs Saiz purchased MTN Nigeria shares in 2021 but decides to sell it due to reasons best known to her.
She must sign the transfer form. It should be noted that this process has been digitalised, meaning you don’t have to wait for days to sell or buy stocks at the stock market.
The broker who acts on behalf of the seller will send the form to the company’s registrar.
The transfer form will be sent along with the share certificate of the seller. As such, a new certificate would be issued to the new shareholder.
In case you’ve done the necessary background checks on which company to buy shares, you can check our guide on how to purchase stocks in Nigeria.
What documents are required for the stock market?
For an existing shareholder, the documents are a contact note and transfer form. While a new entrant into the stock trading needs a recent passport photo, proof of address, means of ID, valid international passport, and signature specimen.
What are the steps in buying stocks on a stock exchange?
Find the list of licensed stockbrokers on the Nigerian Exchange (NGX); open a stock trading account, meet the KYC criteria, fund your trading account, pick stocks to trade and start trading. You can check our guide on trading stocks through a secondary market.
Do I need to undergo special training to start buying stocks?
You only need a basic knowledge of how stocks work, key indicators of a good company and choosing a credible stockbroker
Is submission of document physical?
It’s a digital age, as such document submission is done online. This means you can start trading stocks in any part of the world.
Do I need a lawyer if I want to sell my shares?
You don’t necessarily need a lawyer, you may need an investment advisor to guide you in case you want to take calculated risks.
Are there risks in stock trading?
As sweet as it sounds, it comes with risk, you may lose part of your investment. For instance, if a unit of share was NGN200 when you purchased it and a year after, it went down to NGN150. That’s a loss of NGN50 per unit. If you bought 10,000 units, multiply by NGN50. If it’s positive, it’s a gain.
Sources:
Longe, O.A. (August 2008): Essential Commerce. Tonad Publishers Limited, Ogun, Nigeria