Nigeria: NSE Activates Rule to Arrest Surge in Share Prices

The Nigerian Stock Exchange (NSE) yesterday halted trading at the stock market for 30 minutes following an unprecedented spike in the prices of stocks that led to a jump of over 6.2 per cent in the NSE All-Share Index (ASI) as against the set 5.0 per cent threshold.

The NSE had to halt trading at 12.55 pm, using the circuit breaker when the NSE ASI rose beyond the set threshold of 5.0. This is the first time that the circuit breaker had been triggered since its introduction in 2016.

The exchange explained that the circuit breaker protocol was triggered by the increase of the NSE ASI from 33,268.36 to 34,959.39. The market reopened at exactly 1:25p.m, with a 10-minute intraday auction session, before resuming continuous trading till the close of the day at 2:30p.m. During the halt of trading, no order could be placed until trading resumed. However, existing orders could be withdrawn or cancelled but could not be modified. Trading halts did not affect the clearing, settlement, and depository operations for matched trades, as these functioned as normal.

Furthermore, all existing orders keyed in prior to the trading halt were re-activated and were matched upon resumption of trading.

Despite the halt in trading for 30 minutes, the NSE ASI rose 6.2 per cent to close at 35,342.46, from 33,268.36 while market capitalisation gained N1.085 trillion to close higher at N18.468 trillion, up from N17.384 trillion. This implies that the market has recorded a gain of N2.261 trillion or 7.3 per cent within four trading days due to sustained high demand for stocks.

The stock had gained N1.934 trillion in October to record its best monthly gain since 2018 on the continued inflow of funds searching for real returns and positive reactions to better-than-expected third quarter (Q3) and nine months earnings.

The positive trend has been sustained in the first eight days of November, gaining N1.425 trillion or 8.9 per cent as at the close trading on Wednesday. However, demand for stocks peaked yesterday sending the NSE ASI beyond the 5.0 per cent threshold. Hence, the NSE triggered the circuit breaker.

Circuit breaker was designed to give the market an opportunity to take a break and adjust to all available information before re-opening the market. It provides protection against excessive volatility during continuous trading sessions of the market.

Circuit breakers provide the opportunity for greater information dissemination and assimilation to all market participants, including investors, to facilitate better informed investment decision making during periods of high market volatility.

The NSE in 2016 amended its circuit breaker rule, saying it will be triggered during periods of extraordinary volatility in the equities market in order to maintain an orderly market and to allow liquidity to re-aggregate.

The NSE set the threshold at 5.0 per cent for the first trigger and a further 5.0 per cent for the second trigger in the same direction.

According to the exchange, the purpose is to dampen extraordinary volatility swings on market prices by providing time to restore equilibrium between buyers and sellers.

“It has the objective of dampening both market upswings and market downswings, and will complement the price limits on individual stocks already in place. “The exchange, through the Index Circuit Breaker Rule, seeks to promote just and equitable principles of trade, remove impediments to and improve the mechanism of a free and open market; and protect investors and the public interest,” the exchanged had explained.

It is still expected that the market will remain bullish as investors await the results of leading banks even as volume and value remain high.

Yesterday, for instance, investors traded 1.2 billion shares worth N17. 4 billion, up by 39 per cent in volume and 92 per cent in value terms compared to 858.157 million shares valued at N9.063 billion traded the previous day.

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