NSE to change how share prices are determined

The Nigerian Stock Exchange wants to change the way share prices are determined. They made this announcement via a recent circular publishedonits website. According to the exchange, the proposal basically classifies equities into groups for calculating price movements.

Group A: comprises equities priced at N100.00 per share or above.

Group B: equities priced at N5.00 per share or above but less than N100.00 per share.

Group C: equities priced at N 0.01 per share or above but below N5.00 per share.

According to the exchange, the minimum quantity of equities traded that will change the published price of an equity security shall be as follows:

Group A: Ten Thousand (10,000) units (presently 50,000 units).

Group B: Fifty Thousand (50,000) units (presently, 10,000 units).

Group C: One Hundred Thousand (100,000) units (newly introduced).

The introduction of tick size, which is the minimum price movement that equities will trade shall be as follows:

Group A: Ten (10) Kobo.Group B: Five (5) Kobo, Group C: One (1) Kobo.

What does this mean? Let’s use one of the group as an example;

For (Group A) stocks that are below N5 per share to get a price movement, at least 100,000 units of the stock must exchange hands. If you therefore buy or sell less than 100,000 units the share price will not change regardless of how much you buy or sell it. Typically, the share price that appears on the stock exchange ticker may not be the same as the price at which the shares was actually bought or sold.

For price movements, share price changes for stocks that cost lower than N5 can move by as little as 1 kobo. Thus a stock that is priced at 10kobo can increase by a minimum of 1kobo, that is 10.01 kobo and not 10.05kobo.