(a) Explain the Second Tier Security Market. (b) Justify the existence of the Second Tier Security market.

Answer Details

(a) The Second Tier Security Market (SSM)

The Second Tier Security Market is a section of the stock exchange created to enable small and medium-sized companies that cannot meet the strict listing requirements of the main (first tier) market to raise capital and have their shares quoted. Its listing conditions are less stringent: a smaller amount of paid-up capital is required, a smaller proportion of shares needs to be offered to the public, and the company needs fewer years of trading record. It therefore gives growing indigenous companies access to the capital market while they gradually build up towards the standards of the first tier market.

(b) Justification for the existence of the Second Tier Security Market

1. Access to capital for small firms: It allows small and medium-scale companies, which cannot satisfy the tough conditions of the main market, to raise long-term capital by selling shares to the public.
2. Encouragement of indigenous enterprise: It supports and promotes the growth of locally owned businesses, thereby aiding indigenisation and economic development.
3. Broadening of share ownership: It widens the ownership of businesses by allowing more members of the public to invest in small companies.
4. Nursery for the first tier market: It serves as a training ground where small companies grow and later graduate to the first tier market.
5. Encouragement of savings and investment: By offering more investment outlets, it mobilises private savings into productive investment.
6. Relaxed listing requirements: Its less costly and less rigid quotation rules make it easier and cheaper for small firms to be listed than on the main market.