Some financial experts on Monday said that the Nigerian Stock Exchange amended par-value and pricing methodology has provided liquidity for inactive stocks in the market.
Dr Uche Uwaleke, Head of the Banking and Finance Department at the Nasarawa State University in Keffi, said that the amended par-value and pricing methodology had improved the liquidity of stocks that could not be sold below 50k before now.
Uwaleke said: “Since January 29, when it became effective, a number of stocks, including those of ABC Transport Plc. and some insurance companies, which were hitherto, inactive, have witnessed some transactions.”
Uwaleke said the new stratification of price movements and price limits had narrowed spreads, “ensuring that only transactions that were material would result in price movements’’.
He said that the market was now more efficient than before as result of the initiative.
Similarly, Ambrose Omordion, the Chief Operating Officer of InvestData Ltd., who commended the initiative, said that many companies would start to provide information for the investing public to ascertain the position of any company.
Omordion said that companies would be compelled to submit their results timely for investors to make wise decisions.
He said that the new methodology would enforce good corporate governance among quoted companies, in a bid to avoid drastic reduction in their share prices.
He said: “If you don’t want your stock price to move to 10k, you will get investors see reason why they buy or hold your stock by providing the needed information as and when due, apart from quarterly and full year earnings reports.”
The new pricing method started on January 29.
Abimbola Babalola, NSE Head of Market Surveillance and Investigation, said the new method was “aimed at improving liquidity, narrowing spreads and ensuring that all price-improving transactions had material impact”.
Babalola said the new rules would effectively remove the current rule which placed minimum allowable price for any stock to trade at its nominal value, irrespective of the market forces.
According to him, it specifies that stock prices will be determined by market forces of demand and supply as prices can now fall below the initial price floor of 50k to one kobo.
He said that as a result, stocks would be under new groupings and pricing rules and that price of every share listed on the NSE would be determined by market forces.
According to him, Group A, shall consist 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.
Group B, shall consist 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 priced at N5 per share or above at the time of listing.
Group C, where majority of listed companies fall, shall consist of equities that are priced at one kobo per share or above, but below N5 per share, or new security listings priced at one kobo at the time of listing on the NSE.