By Modupe Gbadeyanka
Hours after the new pricing methodology and par value rules of the Nigerian Stock Exchange (NSE) took effect on Monday, January 29, 2018, four stocks fell below the earlier 50 kobo per share threshold at the market.
The new rules, already approved by the Securities and Exchange Commission (SEC), made it possible for stocks to be traded below 50 kobo per share.
At the close of trading activities yesterday, four equities fell victim of the new rules, trading at 48 kobo per share.
These stocks were ABC Transport Plc, Lasaco Insurance Plc, Prestige Insurance Plc and Royal Exchange Plc.
Business Post gathered that with the new rules, the value of stocks, which before could not trade below 50 kobo per share because of the threshold, can now be determined by market conditions, especially demand and supply.
The par value of a share is the nominal or face value per unit as stated in a company’s corporate documents, i.e., the Memorandum of Association of the company.
According to the new rules, “Notwithstanding its par value, the price of every share listed on The Exchange shall be determined by the market, save that no share shall trade below a price floor of One Kobo per unit (N0.01).”
According to a statement issued by the NSE, “Investors are advised to contact their stockbrokers to ascertain whether any of their open orders, will be impacted by this amendment” the exchange advised.
“The Rules specify the revised price limit, price movements and tick sizes i.e. price floor, minimum pricing increments and minimum quantity to be traded that will change the published price.
“The Rules also classify equity securities into different price groups in order to achieve this, the revised Rules, the exchange states, will be implemented on The Exchange’s trading engine on the effective date.
“The amended stratification of price movements, price limits and tick sizes aims at improving liquidity, narrowing spreads, and ensuring that all price improving (up/down) transactions are material, making the market more efficient for all participants”, said Mr Abimbola Babalola, HoD Market Surveillance and Investigations Department.
“In order to achieve the aforementioned aims of improved liquidity, narrowed spreads, material price improvements, and market efficiency, the amendments to the Pricing Methodology Rule included the introduction of a new price group – Group C.
“It should be noted that the new Group C consists of equity securities that are priced below Five Naira (N5.00) per share, for at least four (4) of the last six (6) months, or new security listings that are priced below Five Naira (N5.00) per share at the time of listing on The Exchange.
“Group A required 10,000 units to move price by N10. For the price range trading period, equities in this group require N100.00 or above for 4 of the last 6 months, or new security listings priced at N100.00 or above at the time of listing.
“For group B requires minimum of 50,000 units to move price by N0.05 and for price range trading period, N5.00 or above but lower than N100,for 4 of the last 6 months, or new security listings priced at N5.00 or above but lower than N100 at the time of listing.
“While the group C, would require 100,000 units of shares to move price by N0.01, Equities in this category must have traded Lower than N5,for 4 of the last 6 months, or new security listings priced lower than N5 at the time of listing.
“Market participants are also informed that the new Par Value Rule specifies that the price of every share listed on The Exchange shall be determined by the market forces and equities may now trade below the erstwhile price floor of fifty Kobo (N0.50) per unit.
“Therefore, traders are required to ensure that as from the above stated effective date, all open and subsequent priced orders in equity securities comply with the amended requirements for each price Group of equities and in approved minimum increments accordingly.
“Investors are advised to contact their Stockbrokers to ascertain whether any of their open orders, will be impacted by this amendment.”
Checks by Business Post revealed that stocks trading at 50 kobo per share are mainly in the Insurance Sector.
More stocks are expected to trade below the 50 kobo per share threshold before the end of this week.
Adedapo Adesanya