Goddy Egene and Eromosele Abiodun
29 October 2008
Lagos — The Nigerian Stock Exchange (NSE) yesterday removed the restriction of one per cent maximum downward movement of share prices as efforts to find a solution to the persistent bear run continue.
The latest development has excited some foreign investors who said yesterday that the future now looks good for the nation's stock market following the removal of artificial restrictions.
THISDAY had, in its editorial last Sunday, described the "circuit breaker" as futile and called for it to be lifted.
The peg was put in place on August 27, 2008 following a meeting Vice-President Goodluck Jonathan, Minister of Finance, Dr. Shamsuddeen Usman, held with stakeholders in the market to stem the fall in share prices.
While the downward price move was restricted to one per cent, upward movement was left at five per cent.
Despite the application of the circuit breaker, share prices plummeted further to a point where the market began to record zero price gain. Some stockbrokers and market analysts began to call for the removal of the peg, arguing that the market was still being artificially restricted from finding its level.
But some interests, said to have borrowed heavily from foreign financiers, were uncomfortable as there was a possible take-over of their businesses by their financiers if share prices were allowed to go on a free fall. These interests were said to have prevailed on the NSE not to remove the one per cent peg.
The Director-General of the NSE, Prof. Ndi Okereke-Onyiuke, yesterday finally announced the removal of the peg.
With the decision, the +5/-1 restriction will now go back to the pre-August +5/-5, thereby allowing prices to fall by up to five per cent in a day.
She said the decision to remove the restriction was informed by the position of the stockbrokers who are dealing members of the NSE and the need to stimulate foreign investments.
According to her, the stockbrokers took the decision at the 12th Annual Conference held in Ilorin, Kwara State, last week.
She said: "The intervention was used to feel the pulse of stockbrokers since we put the circuit breaker of one per cent downwards in our market. At first, it was welcome but all of a sudden people that were not dealing members reacted and later some people said we should not remove it because some people that are not even in Nigeria want the market to bottom out so that they can pick up our stocks for peanuts.
"These were ramifications that we were not thinking of when we were singing the song of the circuit breakers. This, as at it may, we kept our ears shut until our dealing members went to Ilorin and had their conference and appeared they have collectively decided that we should remove the circuit breaker. And so after due deliberations, we have decided today (yesterday) to remove the circuit breaker and go back to five per cent up and down which is what we were doing before."
Apart from the removal of one per cent, the NSE also reversed the minimum number of shares needed to move a price of stock from 100,000 units to 50,000 units.
Although the circuit breaker has been removed, Okereke-Onyiuke said it could be re-applied anytime.
She said: "I want to make it clear that this will be the last announcement from the NSE concerning circuit breakers. It is from you, the stock brokers, that people heard the percentage or the style of our circuit breaking. There is no where, no stock exchange in the world, not a single one that does not have a circuit breaker.
"The president [of the NSE, Mr. Oba Otudeko] and I just came back from an emergency meeting of the World Federation of Exchanges in Milan, Italy. It was made clear that this is a regulated market it is not an Over-the-Counter market that is unregulated that has a free fall. All the regulated stock exchanges in the world, every one of them has a circuit breaker. It is not the public that would hear, it is only the market control and the management of the exchange that knows when and what percentage of circuit breaking to put depending on what they see at the market, that is the regulatory role of the exchange.
"We will never, ever let you know and if you decide to speculate on your own and make it public information to your investing public, it is your business. We decided to announce this because the whole world knows about this one per cent. So we want to tell the whole world that we have removed it."
Apparently worried by the focus the media is giving on the crisis in the Nigerian stock market, Okereke-Onyiuke barred journalists from the viewing gallery which is located on the 9th floor of the NSE Building.
Stockbrokers who spoke to THISDAY condemned the action, saying it did not show any sign of transparency on the part of the NSE management and would further fuel speculative reporting of the activities of the market.
Meanwhile, some fund managers from South Africa, New York and London visited the NSE yesterday to assess the market with a view to investing.
Mr. Peter Thomson of Coronation Fund Mangers, South Africa, who spoke on behalf of others, said while the Nigerian market is very attractive, some fund managers left because of the negative rules. Thomson said with the reversal of the rules, foreign investors would return to the market soon.
However, the removal of the peg dealt a big blow on the market capitalisation of the NSE as it lost N324 billion or 3.5 per cent, falling from N9.135 trillion to N8.811 trillion. The capitalisation had recorded a depreciation of 0.5 per cent or N54 billion the previous day before the price restriction was lifted.
As at the close of trading yesterday the market had lost N3.8 trillion from its peak of N12.6 trillion last March and N1.4 trillion from this year opening value of N10.18 trillion.
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