The Nigerian Stock Exchange (NSE) may have moved the ₦0.01 floor if reports by The Nation newspapers are authentic. A price floor is the minimum amount at which a stock can be allowed to trade.
The ₦0.10 floor came into effect on the 29th of January 2017. Prior to this, the minimum price floor was fixed at 50 kobo per share (which is also the par value). The Par Value of a share refers to its nominal or face value per unit as stated in a company’s corporate documents, i.e., the Memorandum of Association of the company.
The new price floor
In addition to a new price floor of ₦0.20, the exchange has also modified some of its existing rules. The minimum movement by which the price of a stock can change has also been lowered to the ₦0.01 (1 kobo).
Mum from the Exchange
Unlike the issuance of several notices alerting stakeholders of the ₦0.01 rule, the exchange is yet to release a notice on the current price floor.
What could have led to the upward adjustment ?
Stakeholders in several companies affected by the ₦0.01 rule may have reached out to the NSE. Companies in the insurance sub-sector were hard hit, as investors used the ensuing liquidity caused by the rule to exit. Over 50% of the companies currently trading at the ₦0.20 mark are insurance firms. Many of the firms are plagued by poor corporate governance, little or no price appreciation and a dividend drought.