Theory question 106
Stock ExchangeCommerce 2 (theory)
(a) What is a second tier security market?
(b) State four advantages of the second tier security market to companies.
(c) State five requirements for listing in the second tier security market.
Show the model answer
(a) A section of the stock exchange set up for small and medium-sized (and new) companies that cannot meet the strict requirements of the main (first-tier) market, so they can raise capital by selling shares to the public.
(b) Any four: lets small/medium firms raise long-term capital from the public; less strict, cheaper listing requirements; improves the firm's public image and creditworthiness; shares become easily transferable (marketable); helps the firm grow into a big company and later move to the main market; spreads ownership.
(c) Any five (Nigerian rules): must be a public limited company; must have at least 3 years' trading record (instead of 5); at least 10% of share capital offered to the public; at least 100 shareholders; must file audited accounts and keep the exchange informed (half-yearly reports); must be sponsored by a stockbroker/issuing house; must pay the listing fees; memorandum and articles must comply with the exchange's rules.
In (c) give the actual listing conditions, e.g. public company, short trading record, fixed percentage of shares to the public.