The rules governing price movements of equity securities traded of the Nigerian Stock Exchange (NSE) have been amended to ensure overall market stability and efficiency and fairness in pricing NSE securities.
Recall that on January 29, 2018, the exchange implemented amendments to its pricing methodology and par value rules that saw the categorization of quoted companies under three groups with different pricing rules.
Group A consists of large-cap equities that are priced at N100 per share or above for at least four of the last six trading months, or new security listings that are priced at N100 or above at the time of listing on the Exchange.
The second category, Group B, consists of medium-priced equities that are priced at N5 per share or above but less than N100 per share for at least four of the last six months, or new security listings that are priced at N5 per share or above but less than N100 per share at the time of listing on the exchange.
The third category, Group C, consists of equities that are priced at one kobo per share or above but below N5 per share for at least four of the last six months, or new security listings that are priced at one kobo per share or above but below N5 per share at the time of listing on the exchange.
Based on this rule, the prices of securities could only change if the volume of a trade was at a threshold of 10,000 for securities in Group A, 50,000 for securities in Group B and 100,00 for securities in Group C.
But in a notice last week, the NSE announced changes to this pricing methodology with effect from Friday, October 11, 2019. The rules were the Rules 15:29.2. C.2 of the Rulebook of the Exchange, 2015 (Dealing Members’ Rules) and the amendment specifically relate to the minimum trade quantity required to change prices for equity securities traded on the exchange.
According to the statement, the minimum trade quantity required to change prices for equity securities traded on the exchange will henceforth be 100,000 units for all securities groups.
This implies that trades of fewer than 100,000 shares in any of the groups are small trades. Small trades in an equity security will not result in a change in the publicly reported price of such security.
In his reaction to the development, CEO of the NSE, Mr Oscar Onyema, explained that, “This change is born out of the need to ensure that all price improving (up/down) transactions are material, making the market more efficient and attractive.”
He said, “We will continue to review our rules and rule-making processes to boost investor confidence in our market while ensuring that NSE rules comply with international best practice.”
According to him, “The exchange remains committed to maintaining a platform that engenders a fair and efficient market.”
