The Nigerian Stock Exchange (NSE) will flag off the implementation of its revised equity rules on the 2nd of July, 2018. In a footnote in the amendment, the exchange had expressed optimism that the new rules would increase investor participation.
Domestic investors have shown renewed interest in the equities market, due to last year’s stellar returns.
The NSE was one of the best performing stock exchanges in the world in 2017 with the All Share Index (ASI) with a 42% return. Market turnover increased by 121% from N0.58 trillion in 2016 to N1.27 trillion in 2017.
The market also opened strongly in 2018, though returns have since tapered. Transaction volumes also increased in the comparative period, year to date, from N509 billion in 2017 to N1 trillion in 2018. Data from the NSE, shows domestic investors had an upper hand in market activities between January-April this year.
Chief Executive Officer (CEO) of the exchange, Oscar Onyeama, had during his 2017 review/2018 outlook had stated the exchange would create a more enabling environment for retail investors.
Here are a few ways retail investors will benefit from the revised rules.
As part of the new rules, no market participant has a sole view of the order book either before trading or after trading. Nairametrics had written in the past about the infamous 14.29 market manipulation. While this occurred, select stocks would witness a surge within that time frame, which was closed to the retail investor.
The NSE perhaps in response to complaints has shown taken decisive steps to counter enhance market liquidity and prevent market manipulation. Software with the capability to flag unusual transactions was acquired. Companies have also been mandated to release details of significant transactions in their shares.
Many retail investors were burnt in the bubble market of 2008 that was characterised by large-scale price manipulation, and have vowed not to return.
The introduction of balancing trades, especially during the key periods just after market open and market close reduces volatility in trades.
Maximum upward or downward price movement has been adjusted to a uniform level of 10%. The less volatile a stock, the lower the chances of being manipulated.
The rules give more fillip to the operations of market makers, who provide liquidity in a market. Market Making is the act of entering bid and offer prices in the automated trading system for a specified security under the conditions stipulated by the stock exchange.
Enhanced liquidity in the market ensures investors can exit and enter most stocks.