NSE Interim Administrator, Mr Emmanuel Ikhazobo
By Eromosele Abiodun
The plan by the management of the Nigerian Stock Exchange (NSE), to remove the five per cent ceiling on share price movement, has continued to elicit reaction from stockbrokers, with majority of them warning that the action will destroy the market.
Stockbrokers’ who spoke with THISDAY, stressed that the Nigerian capital market is different in many ways from western stock Exchanges where there is no price ceiling.
They therefore called on the Exchange to consider the peculiarities of the Nigerian market so that the action will not lead to the collapse of the capital market.
Frontline stockbroker and Managing Director/Chief Executive Officer of Vintage Capital Limited, Mr. Idowu Ogedengbe, advised the NSE to review the price ceiling removal and consult widely before embarking on it.
He called for proper and wide-reaching examination of the process to determine its aptness to the Nigerian market.
He said: “Occasional market failure is a shocking reality in stock markets all over the world. To prevent it or ameliorate its effect, regulators utilise various suitable administrative mechanisms. If they remove the price ceiling stocks prices can go up or down drastically and I can assure you this may spell doom for this market.
“When prices in New York Stock Exchange Falls below a certain percentage in a day, trading is automatically suspended. In similar vein, Nigeria has administratively fixed a daily maximum price movement limit of five per cent to prevent extreme market volatility based on shallowness of the market. If this circuit breaker is removed, the resulting volatility could lead to market failure.”
Another broker who do not want his name mentioned called on the NSE to consider the ‘Nigerian factor’.
“In a free market economy and near perfect competitive market place like the NSE is supposed to be, it is not out of order to review market ceiling to the dictates of the market. What is important is that ‘Nigerian factor’ would not destroy the good intention or the initiative.
“When the market is too restrictive and does not depict the real market situation, it gives room for under the table deals whereby desperate players deal at a discount or premium outside the dealing floor.
“In as much as fundamentals will prevail on the basis for arriving at price adjustments in the market dealings from time to time, whatever policy that will help the endangered market should be encouraged, “he said.
He also advised the authorities of the capital market to put in place initiatives that will help develop the market, bring about stability and ensure a return of confidence in the market.
On his part, Vice Chairman, DHTL Capital Management Limited, Mr. Tunde Adeyemi, said the situation in the market at the moment called for caution, adding that the NSE should focus on rebuilding investors’ confidence and not price ceiling.
According to him, “In my opinion what the Exchange should concern itself with now is how do to bring the market back to stability and restore confidence.
“Effective communication management from the NSE and the Securities and Exchange Commission (SEC) on delicate issue should be better managed or else efforts to restore the market will remain in effective.”