Operators in the Nigeria capital market have applauded the move by the Nigerian Stock Exchange (NSE) to introduce a market-wide rule that would simultaneously halt price movement in all the listed equities for at least 30 minutes in the event of an extra-ordinary market volatility.
According to the Managing Director of APT Securities & Funds Limited, Alhaji Kasimu Garba Kurfi, the proposed market-wide rule, called trading halt by the NSE, would stop continuous market volatility.The new rule is to check the fall of the All-Share Index by as much as 5 per cent in a day and it is a measure used by stock exchanges to check large sell-offs in stocks that can trigger panic selling.
Kurfi explained that “trading halt or index circle breaker is to stop extra-ordinary market volatility in the capital market. The NSE currently has one circuit breaker that allows 10 per cent daily price movement (up or down) in a day by all the listed equities. But what the market is lacking is the index circle breaker for the entire market.”
He added that the index circuit breakers operate in other advanced capital markets and Nigeria should not be left out to avoid unnecessary recession, noting that the New York Stock Exchange(NYSE) had three circuit breaker levels of 10 per cent, 20 per cent and 30 per cent for every quarter.
He observed that the period of the halt would allow the operators the opportunity to assess a serious market decline and express their trading interest with relatively little disruption to the market. He noted that introduction of the market-wide index circuit breaker was necessary following the recent bearish trends in the market and the need to provide for an orderly and efficient market.
“In June when Bloomberg released its result of some stocks in the market that were over priced, the market went down by 7 per cent before it regained and closed at about 3.8 per cent, which was the largest single day decline since the 5.89 per cent decline in 2011,” he said.
Kurfi, who backed NSE’s belief that the rule was relevant, meaningful and effective in today’s high-speed electronic securities markets, explained that “in 2008, during the market meltdown, the market declined by over nine per cent in one day; if the rule had been implemented in the market, the market would have been closed for the day should the market decline by a further 5 per cent after an initial index circuit breaker trigger of 5 per cent (for a total of 10 per cent).” He added that a 10 per cent market-wide move was highly unusual in this market, and time should be given for the market to recollect itself before opening the next day.
Also a market consultant with Deloy Consulting, Mr Tunde Oyediran, noted that occasional halting of trading was one of the best practices in developed markets.“The belief is in the psychology of trading that if you were allowed to have a rethink of your action, the tendency is that you may change your action. Hence, I see it as a welcome development.”
He pointed out that the objective of the rule was to promote just and equitable principles of trade, remove impediments and improve the mechanism of a free and open market in order to protect investors and the public interest.
He said he hoped that the triggering of the index circuit breakers would be an event that would address severe market declines and enable stabilisation in the Nigerian capital market.