Millions of securities get traded everyday on Customs Street.
The entire market mechanism is a poster child for a complex system with the potential to evolve into a critical state if a significant proportion of market participants move in the same direction at any one time. John M. Keynes described the actors in this system as animal spirits.
The downside possibilities caused by such herd-like movements have partly justified the NSE’s statutory limits on the maximum daily allowable upside/downside movement in the price of any stock to a 1000 basis point-wide band. So trade all you want on a particular trading day, you cannot trade so much and so adroitly to move the price beyond the band, up and down (e.g. the price of a stock cannot move to +6% after it has recovered from -5%, intra-day, which, if it were permissible, would imply a 1100bps movement in absolute terms).
This institutional measure of setting the limits of price swings also moderates the concerted efforts of a coordinated bunch of market players who may decide to move prices in a particular direction against the general flow and sentiment of the market – they wouldn’t be able move the price of a stock more than 1000bps, up and down, on a single trading day. However, it is possible that a significant number of market participants may come to a bearish conclusion about a stock and unconsciously decide to react disproportionately in the same direction by hitting the SELL button. This collective action may stretch beyond just a few days. What will happen to the stock price if it moves in only one direction – downward? Who will counterbalance the verdict of the markets on the stock? Who will offer an opposing view or opinion on that stock?
The 1429 Protocol has been so named because of the observed volatility clusters around 1429 hours GMT (Nigerian time) on any trading day on Customs Street, though the intervention procedures are initiated earlier in the day. During this time, retail traders cannot place new orders on any side of the market. But market makers can.
Now back to the herding phenomenon introduced in the first paragraph; securities which have been on a losing streak all trading day due to the judgement of the market actually have the opportunity to atone their sins, redeem themselves and potentially show up as having NOT changed in price from the previous day of trade. Why? Because some self-interested market players have intervened in the markets like a central bank. The full technicalities feature some variants and would require a comprehensive chronology beginning from the pre-market session at 0930 hours which we think would bore you to the depths. It will suffice to say that enough offers can get mopped up from the market to launch a much better springboard for the stock the next trading day – like nothing happened.
