The Nigerian Stock Exchange hasn’t exactly sizzled of late. A domestic banking crisis and political turmoil slashed the MSCI Nigeria Index 60% from its record 2008 highs.
But the potential of Africa’s most populous nation is enormous. A 60% drop tells me that it’s an opportune time to scour sub-Saharan Africa’s second largest stock market for bargains.
But first things first. I need a Nigerian brokerage account. So, how exactly do I go about opening one? Let’s take a look-see.
In all previous posts in this “How to Invest” series, I have made an attempt to contact every single stockbroker registered as a dealing member of each respective exchange. I must confess that I didn’t succeed in doing that for this article. Why not? Because there are 327 brokers licensed to trade on the Nigerian Stock Exchange.
I narrowed this list down by visiting each of their websites. Any websites that seemed out of date or less than professional looking, didn’t make the shortlist. I admit this was a totally subjective process that may have excluded some fine brokers, but I needed to start somewhere.
I then emailed all brokers that survived my initial website evaluation – a few dozen in all. I asked each broker if they catered to foreign investors, how much they required to open an account, and what documentation was necessary. I found nine brokers with reasonable account minimums to be particularly helpful and responsive. Each broker below responded to my initial query within one business day.
|Broker||Minimum Initial Deposit||Account Opening Form||Research Sample|
|ARM Securities||N100,000 (approx. $635.00)||Here||Here|
|BGL Securities||N100,000 (approx. $315.00)||Here||No Recent Online Research|
|CardinalStone||N1,000,000 (approx. $6,350.00)||Here||Here|
|Chapel Hill Denham||None||Here||Here|
|Cowry Securities||N500,000 (approx. $3,150.00)||Here||Here|
|Lead Capital||N50,000 (approx. $315.00)||Here||No Recent Online Research|
|Meristem||N2,500,000 (approx. $15,850.00)||Here||Here|
|UBA Stockbrokers||N250,000 (approx. $1,585.00)||Not Available Online||No Recent Online Research|
|Zenith Securities||N250,000 (approx. $1,585.00)||Here||No Recent Online Research|
Commissions and fees are assessed on a sliding scale that is standard across all brokers. For transaction amounts less than N1,000,000 (roughly $6,350.00) you will pay 1.86% when purchasing a stock and 2.19% when selling one. For larger transactions, commissions and fees total 1.49% of the total transaction value to buy and 1.82% of the total transaction value to sell.
Opening a Nigerian Brokerage Account
Now let’s walk through the process of opening an account with a Nigerian stockbroker and buying your first shares.
Step 1: Complete the CSCS Account Opening Form
The Central Securities Clearing System (CSCS) records the ownership of Nigerian securities via electronic accounts. When you ask a broker to open a trading account, they will send you a copy of the CSCS Account Opening Form (sample from ARM Securities here). You will then be assigned a CSCS account number. This number will accompany every Nigerian stock trade you execute, allowing the CSCS to keep record of all your holdings in the country.
Step 2: Complete the Broker’s Account Opening Form
After your first email to the broker requesting information on how to open an account, they will also send you a blank account opening form. Sample forms from each broker may be found in the above table. The form typically requires disclosure of your passport number or other ID number, your address, and banking details.
Step 3: Collect two color passport-sized photos of yourself
You might as well get a bunch of them while you’re at it. They always seem to come in handy.
Step 4: Photocopy your passport
If you don’t have a valid passport, a copy of your driver’s license may suffice.
Step 5. Photocopy a recent utility bill that can be used to verify your place of residence
Most brokers require a water or electricity bill dated within the most recent three months.
Step 6. Send the original CSCS form, account opening form, passport photos, copy of your ID, and copy of your utility bill to your broker via DHL or FedEx
You may email photocopies of all documents to your broker to get a head start on the account opening process, but they must eventually receive the original documentation. And do yourself a favor by sending it via a courier like DHL or FedEx. Couriers are expensive, but they’re more reliable than the postal service. I’ve learned that the hard way.
Step 7. Wire Funds to Your Brokerage Account
After opening your trading account, your broker will provide you with its bank details so that you can fund your account. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.
Step 8. Submit a Trade Order
You’ve done your research and found a stock that you’d like to buy. What now?
While some brokers will request a signed trade mandate form, for most brokers, all you need to do is send an email to your broker with your trade instructions. Keep in mind that some shares on the Nigerian Stock Exchange are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.
Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees. Settlement of share trades takes four business days on the Nigerian Stock Exchange, so if you’ve sold shares, don’t expect to receive the proceeds of a sale before then unless you’re willing to incur a penalty to settle the trade more quickly.
A Note on Dividends
Collecting dividends from Nigerian stocks is relatively painless. Upon opening your account, simply instruct your broker (in writing) that you would like all dividends paid on your holdings to be deposited directly into your trading account.
That’s it! Follow these steps and you’re all set to begin investing in Nigerian stocks.
The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.