The new par value rule introduced by the Securities and Exchange Commission (SEC) last week is expected to revive the over 46 stocks that have been moribund for several years, with the attendant liquidity to both shareholders in the stocks and the bourse, BusinessDay can now reveal.
The implication is that the development would rev up activities in those stocks, as well as deepen the market, since those stocks have been stagnating on the same price over the years.
SEC, Nigeria’s apex capital market regulator, had last week approved the Par Value Rule submitted to it by the National Council of the Nigerian Stock Exchange, which revises the price floor of company shares traded on the Exchange to one kobo from the previous price floor of 50kobo.
Though the Nigerian Stock Exchange (NSE) is yet to notify market participants of the implementation date, most stockbrokers who spoke with BusinessDay at the weekend expressed optimism that the new rule would enhance liquidity at the nation’s bourse, as modification of shares par value from 50k to one kobo would boost trading activities in dormant companies.
They further observed that the illiquidity around the stocks at the Nigerian Bourse have caused their prices to remain at 50kobo floor, a development that had been of great concern to the regulators and operators.
“Par value” is the nominal value of a share as stated in the Memorandum of Association of an Issuer (company). “Price floor” is the amount below which the price of one unit of a share shall not be permitted to trade, and the minimum amount which must be paid for a share in the event of a drop in the unit price of that share.
According to the approved rule, “notwithstanding its par value, the price of every share listed on the Exchange shall be determined by the market, save that no share shall trade below a price floor of one Kobo per unit (N0.01).
Emeka Madubuike, president, Association of Stockbroking Houses of Nigeria (ASHON) in an agency report, said modification of shares par value from 50k to one kobo would boost trading activities in dormant companies. He also insists that the new rule would boost investor confidence in dormant stocks going forward.
Some of the companies include Afrik Pharmaceuticals plc, Capital oil plc, Rak Unity Petroleum Company plc, FTN Cocoa Processors plc, DN Tyre & Rubber plc, MultiTrex Integrated Foods plc, UTC Nigeria plc, African Alliance Insurance Company plc, Cornerstone Insurance Company plc, Equity Assurance plc, Great Nigerian Insurance plc, Guinea Insurance plc, Consolidated Hallmark Insurance plc, Investment and Allied Assurance plc, International Energy Insurance Company plc, and Lasaco Assurance plc.
Other stocks that remained at 50kobo despite daily trading at the bourse are Law Union and Rock Insurance plc, Linkage Assurance plc, Mutual Benefits Assurance plc, Niger Insurance Company plc, Prestige Assurance Company plc, Regency Alliance Insurance Company plc, Sovereign Trust Insurance plc, Standard Trust Assurance plc, Standard Alliance Insurance plc, Unic Insurance plc, Unity Kapital Assurance plc, Universal Insurance Company plc, Aso Savings and Loans plc, Resort Savings & Loans plc, Royal Exchange plc, Union Diagnostic & Clinical Services plc, Courteville Business Solutions plc.
Others include Omatek Ventures plc, Chams plc, Mass Telecommunication Innovations Nigeria plc, First Aluminum Nigeria plc, IPWA plc, Nigerian Wire and Cable plc, Multiverse plc, Japaul Oil & Maritime Services plc, Beco Petroleum Product plc, Afromedia plc, Tantalizers plc, DAAR Communications plc, and Secure Electronic Technology plc.
In a swift reaction to the development around the new price floor, many market participants have notified their clients (locally and offshore).
But rather than implement the decision, the NSE in a recent circular insisted it must follow its rule making process.
Surprisingly, the NSE in a circular signed by Tinuade T. Awe, Head, Legal and Regulation Division said, “The Exchange would like to clarify to its stakeholders that a SEC approved Rule of The Exchange does not become effective until The Exchange has announced the effective date for the Rule.”
The draft Rule was considered by the Rules and Adjudication Committee of Council (RAC) on October 21, 2014, and approved for exposure to stakeholders for comments.
The draft Rule was exposed for stakeholders’ comments from October 29 to November 12 2014; The RAC considered the draft Rule and stakeholders’ comments thereon at its meeting of February 17, 2015, and approved the draft Rule for submission to the National Council of the Exchange (Council).
The Council approved the draft Rule at its meeting of February 26, 2015 for submission to the Securities and Exchange Commission (SEC). The Council approved Rule was submitted to the SEC for approval on March 5, 2015. The SEC approved the Rule on June 2, 2015.
The NSE said, “After SEC has approved the Rules, The Exchange determines internally when the Rules should become effective, that is the date from which The Exchange will start administering or implementing or enforcing the provisions of the SEC approved Rules. Thus, the effective date is the date on which market participants must start complying with or observing provisions of the Rules, and be guided by them. Market participants are reminded that they ought to receive The Exchange’s Notification of the Effective Date of the Rules before advising their clients that the Rules are effective or are in force, and before implementing the provisions of such Rules.”
Iheanyi Nwachukwu
