Second Tier Securities Market (SSM)

SS2 Commerce Class Note

Term: Third Term Week: 4 Topic: Second Tier Securities Market (SSM)

1. Meaning of the Second Tier Securities Market

The Second Tier Securities Market (SSM)—often referred to in modern times as the Alternative Securities Market (ASeM) in Nigeria—is a specialized trading window on the Stock Exchange specifically designed for Small and Medium-sized Enterprises (SMEs).

While the main or "first-tier" stock market caters to large, highly capitalized, and established corporations, the SSM was created to allow smaller, growing businesses to raise long-term capital from the public without having to meet the extremely strict and expensive conditions of the main market.

2. Requirements for Listing on the Second Tier Securities Market

To be listed on the SSM, a company must still prove it is a viable business, but the rules are relaxed compared to the main market. The typical requirements include:

• Legal Status: The business must be registered as a Public Limited Liability Company.
• Operating History: The company usually needs to submit audited financial statements for fewer years than required by the main market (e.g., 3 years instead of 5 years).
• Public Shareholding: A specific percentage of the company’s share capital (often around 15%) must be made available to the general public.
• Number of Shareholders: The company must have a minimum number of shareholders (e.g., at least 100), which is generally lower than what is expected for first-tier companies.
• Flat Fees: The fees required for listing on the SSM are typically reduced and made more affordable for small companies.

3. Advantages and Disadvantages of the Second Tier Securities Market

Advantages (Merits):

• Access to Capital: It provides SMEs with a vital avenue to raise long-term, cheap capital for business expansion without relying on high-interest bank loans.
• Relaxed Requirements: The less stringent listing requirements make it achievable for young, growing companies to participate in the capital market.
• Enhanced Corporate Image: Being listed on a recognized stock exchange boosts the public profile, credibility, and transparency of the company, which can attract more customers and investors.
• Continuity: It aids in the survival and continuity of small businesses since ownership shares are publicly held, making the business less dependent on a single founder.

Disadvantages (Demerits):

• Lower Liquidity: Shares of companies on the SSM are often not traded as frequently as large-cap stocks. This means investors might find it harder to quickly buy or sell these shares.
• Loss of Complete Control: By issuing shares to the public, the original owners must share ownership, dividends, and sometimes decision-making power with outside investors.
• Compliance Burden: Even with relaxed rules, listed SMEs must still adhere to strict financial reporting, auditing, and corporate governance standards, which can be costly and time-consuming for a small management team.
• Vulnerability to Market Fluctuations: The public valuation of the company can be heavily impacted by general stock market downturns, regardless of how well the actual business is performing.