New pricing methodolody: 14 companies depreciate in stock value

Sequel to the new pricing methodology and par value rule of the Nigerian Stock Exchange (NSE), 14 companies, in the first week of implementation, depreciated in value, bowing to the law of demands and supply.

The rules, which became effective last week Monday, specified the revised price limit, price movements and tick sizes that the price floor, minimum pricing increments and minimum quantity to be traded that will change the published price. The Rules also classify equity securities into different price groups in order to achieve the pricing methodology.

According to the Head, Market Surveillance and Investigations Department, NSE, Mr. Abimbola Babalola, the amended stratification of price movements, price limits and tick sizes aims at improving liquidity, narrowing spreads, and ensuring that all price improving (up/down) transactions are material, making the market more efficient for all participants.

Babalola said in order to achieve the aforementioned aims of improved liquidity, narrowed spreads, material price improvements, and market efficiency, the amendments to the Pricing Methodology Rule included the introduction of a new price group – “Group C.”

Lasaco Assurance Plc depreciated most, having traded 3.2 million shares to close the week at 36 kobo as against 50 kobo each share had maintained for long, thus losing 28 percent of its value. Associated Bus Company Plc also declined by 20 percent to close the week at 40 kobo per each share unit, while African Alliance Insurance Company Plc shares traded most as it exchanged 61.1 million shares during the week to close at 42 kobo per share, thus declining by 18 percent.

Insurance companies dominated the list as eight stocks were affected. Among previously mentioned insurance companies affected were Consolidated Hallmark Insurance Plc, Mutual Benefits Assurance Plc, Prestige Assurance Company Plc, Sovereign Trust Insurance Plc, Cornerstone Insurance Company Plc and Unity Kapital Assurance Plc.

Others whose share value depreciated as a result of the new pricing rule during the week were Japaul Oil and Maritime Services Plc, Multiverse Mining and Exploration Plc, FTN Cocoa Processing Plc, UNIC Diversified Holdings Plc, and Royal Exchange Plc

According to the new rule,   a trade of at 10, 000 units, is required to move the price of equities trading at N100 or above (Group A) by 10kobo.  A trade of at least 50,000 units is required to move the price of equities trading at N5 or above but lower than N100 (Group B) by five kobo, while   a trade of at least  100,000 units shall be required to move the price of equities trading at N0.01k or higher but below N5 (Group C) by one kobo.

Meanwhile, the new par value rule specifies that the price of every share listed on the exchange shall be determined by the market forces and equities may now trade below the erstwhile price floor of fifty Kobo (N0.50) per unit.

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