The Nigerian Stock Exchange (NSE) will today begin the implementation of new rules that give market authorities greater surveillance and control over block divestment and voluminous deals.
This is being done to block loopholes that could be exploited by brokers to manipulate the stock market.
Market sources said the amended rules on block divestment and large trades will enable the Exchange to proactively identify insider dealings and underlying forces behind some market-shaping transactions.
While the existing rules on block divestment and large trades are not explicit about prior approval and applicable sanctions are not tied to value of the transactions, the new rules specifically require prior written approvals of the Exchange for such transactions and carry stricter sanctions tied to the value of the transactions.
A market source said dealers and corporate insiders were known to take advantage of price-sensitive information without prior identification of such insiders. An investigation of an indigenous Oil and Gas company by the Exchange had shown such large-volume transactions that bordered on insiders’ dealings.
The new rules which take off today change the thresholds for the designation of large trades and block divestment as well as instituting prior approval as a necessity before consummation of such trades.
A copy of the new rules and amendments obtained by The Nation at the weekend indicated that contrary to the existing designation of large volume trade as five per cent of issued share capital of a company, a volume of 80 Million shares or units or shares worth N800 Million would henceforth be regarded as large volume that requires prior approval of the Exchange.
As such, all dealing members or authorised clerks who wish to trade in any equity amounting to 80 Million shares or units or more, and less than 30 per cent of an issuer’s total listed equities or trade value equal to, or in excess of N800 Million, or such other threshold value or portion of listed equities as the Exchange may from time to time prescribe, for a given client account shall apply for and obtain the written approval of the Exchange before executing such large volume trades.
Under the existing rules, a stockbroker is only required to notify the Exchange of any large-volume trade before or within 24 hours of executing such trades. The new rules make it mandatory to “apply for and obtain the written” approval of the Exchange before execution of such large trade.
Also, while under the existing rules failure to obtain written approval by a stockbroker on its large volume trades carry 10-day suspension and a fine of N150,000, the new rules place a 10-day suspension and a fine of not less than five per cent of the block divestment or large trades.
The Exchange also seeks to control block divestment through a more detailed regulatory framework. According to the new rules, a trade shall be treated as a block divestment where it involves a transfer of shares amounting to 30 per cent or more of a company’s total listed shares and the transferee shareholder is thereby able to take control of the listed company.
Also, block divestment will apply where the acquisition of additional shares by a shareholder of a listed company, that would result in an increase in the shareholder’s total holdings to 30 per cent or more of company’s total listed shares; and the shareholder is thereby able to take control the listed company and where less than 30 per cent of a company’s total listed shares but will lead to a material change in the Board or Management of a listed company.
“A dealing member that receives a mandate to execute a block divestment shall apply to the Exchange for approval to effect the mandate and shall not execute such a mandate without the said approval. Where a dealing member is in doubt as to whether a transaction will be treated as a block divestment, the dealing member should consult with the Exchange in order to address the doubt,” the rules stated.
Application from the dealing member to the Exchange shall be in the form of a letter from the dealing member informing the Exchange about the mandate received and requesting approval for the block divestment. The letter shall be accompanied by a copy of the mandate which shall be in the form of a letter or an electronic mail from the shareholder to the dealing member and such other documents as the Exchange may from time to time require to be submitted for approval of a block divestment.
Last Thursday, Investors struck N3.84 Billion deals for the transfer of 1.745 Billion ordinary shares of Sterling Bank Plc on the normal trading floor of the NSE. The deals represented about 6.06 per cent equity stake in Sterling Bank. Investors struck 108 deals for the exchange of 1.745 Billion ordinary shares of 50 kobo each of Sterling Bank valued at N3.84 Billion. The turnover volume represented 6.06 per cent of the total issued share capital of Sterling Bank. Sterling Bank has 28.79 Billion ordinary shares outstanding at the NSE.