NSE DG, Oscar Onyema
With the implementation of 10 per cent daily upper and lower price movement limit across all quoted stocks on the Nigerian Stock Exchange (NSE), the Nigerian capital market is now better aligned with other global exchanges, Managing Director and Chief Executive Officer of Cowry Asset Management Limited, Mr. Johnson Chukwu, has said.
Other stakeholders and traders in the stock market have hailed the decision even as they have warned the NSE to take appropriate steps to check any abuse of the system. The NSE last week made the new pricing method effective.
Chukwu explained that Nigerian stock prices would henceforth quickly adjust to publicly available information, making the equity market move further away from a partially regulated to a near perfect market.
“The more the Nigerian equities market tends towards a perfect market, the more attractive it will be to foreign investors. However, the new price movement limit has made the Nigerian equity market more attractive to speculators as it now presents better opportunities for quick short term capital gains with corresponding threat of capital losses. The threat of quick capital losses could discourage some retail investors in Nigeria who are not well informed about the market dynamics.”
Also, Executive Director, Dunn Loren Merrifield Securities Limited, Mr. Idowu Ogedengbe, said the NSE might have decided to raise price limit to improve market liquidity.
According to him, “The recent introduction of a 10 per cent limit up and down limit price band on all equities traded on the Nigerian bourse was done against the backdrop of the need to reduce market volatility while at the same time enhancing market liquidity.
“On the New York Stock Exchange (NYSE) for example, circuit breakers were put in place after "Black Monday" when the Dow Jones Industrial Average (DJIA) bizarrely dropped almost 1,000 points in 20 minutes, then snapped back on extraordinary volume.
“Currently, at the start of each quarter, the NYSE sets three circuit breaker levels at levels of 10 per cent, 20 per cent, and 30 per cent of the average closing price of the DJIA for the month preceding the start of the quarter,” he said.
Ogedengbe added that the use of trading curb or circuit breaker was a global practice adopted by major stock market regulators adding that such limits are usually placed on the index instead of individual stocks as it is the case in Nigeria.