Nigerian bourse restructures market operations
The Nigerian Stock Exchange (NSE) has unveiled the review of the entire equity market structure, due to take effect July 2, 2018, targeted at creating a level playing field for all market participants and enable investors deploy broader trading strategies, best execution and gain benefit from enhanced market depth.The Exchange also plans to review the NSE 30, and the six sectoral indices of the bourse, which are NSE Consumer Goods, NSE Banking, NSE Insurance, NSE Industrial, NSE Oil and Gas and NSE Lotus Islamic Indices.
According to a statement by the NSE, the composition of these indices after the review will witness the entry/re-entry, as well as exit of some major companies.The changes to the market structure, according to the NSE, include opening and closing auctions, to be followed by imbalance sessions, where bids exceed offers and vice versa, to allow market participants enter their imbalance orders arising from the auction sessions.
NSE explained that expansion of participants in the auction period to enhance fairness, competitiveness of the price setting mechanism, introduction of the size test condition in price determination during the auction period and changes to the market price volatility mechanism such that daily Limit up Limit down price band is currently based on a single reference price to allow for a symmetric up and down limit of 10 per cent throughout the trading day.
The Chief Executive Officer of the NSE, Oscar Onyema, said: “The review of the equities market structure was carried out to support our hybrid market model which offers the benefits of best execution and tighter spreads to investors.“Moreover, it provides potential for cheaper cost of capital to issuers in our market. This Market Structure is in line with our 2018 to 2021 corporate strategy aimed at boosting retail investor participation.
The Nigerian bourse began publishing the NSE 30 Index in February 2009 with index values available from January 1, 2007 and on July 1, 2008, the NSE developed four sectoral indices with a base value of 1,000 points, designed to provide investable benchmarks to capture the performance of specific sectors.
The sectoral indices comprise the top fifteen most capitalized and liquid companies in the Insurance and Consumer Goods sectors, top ten most capitalised and liquid companies in the Banking and Industrial Goods sector and the top seven most capitalized and liquid companies in the Oil & Gas sector.In July 2012, the Nigerian bourse launched The NSE Lotus Islamic index (NSE LII) which consists of companies whose business practices are in conformity with Shari’ah investment principles, with the aim of increasing the breadth of the market and creating an important benchmark for investments as the alternative ethical and non-interest investment space widened.
The companies that appear on the Islamic Index have been thoroughly screened by Lotus Capital Halal Investment, in accordance with a methodology approved by an internationally recognized Shari’ah Advisory Board comprising of renowned Islamic scholars.The price indices, which were developed using the market capitalization methodology, are reviewed and rebalanced on a bi-annual basis – on the first business day in January and in July.
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