The Nigerian Stock Exchange (NSE) is considering a trading arrangement that will allow specified agent to buy shares or other newly listed securities with a view to stabilise the price of such shares or securities within a period.
A draft of the rules on “Rules for Price Stabilization of Securities” obtained at the weekend will allow an agent-to be known as stabilisation manager, to buy shares or other newly listed securities within the immediate period of listing to checkmate negative price fluctuation.
Hanley et al (1993) in Journal of Financial Economics described price stabilisation as a regulatory framework for ‘the buying of a security for the limited purpose of [preventing or] or retarding a decline in its open market price in order to facilitate its distribution to the public’.
In a circular on the new rules, the Exchange noted that the price stabilisation is aimed at supporting and maintaining the price of listed securities for a limited period after the listing or offer, thus establishing an orderly market for securities in the immediate secondary market after an offer.
Executive Director, Regulation, Nigerian Stock Exchange (NSE), Tinuade Awe, said the the purpose of the proposed Rules for Price Stabilization of Securities is to define the circumstances and manner in which price stabilization will be permitted by the Exchange, in accordance with the provisions of the Investments and Securities Act (ISA), Consolidated Rules and Regulations of the Securities and Exchange Commission, 2013 (SEC Rules), and the Rulebook of The Exchange.
She noted that the proposed rules address the parameters of substantive price support in securities offerings while they also serve as a defence to the necessary extent against prohibited trading practices, such as market manipulation, and breach of market abuse rules.
“Given that transparency is a prerequisite for the prevention of market abuse, it is important to ensure that adequate information is disclosed or reported prior to, during, and after any trading effected for the stabilization of securities, in order to avoid market abuse and illegal market practices. In addition, market integrity requires adequate public disclosure of stabilisation measures. Reporting of the stabilisation transactions is also necessary to allow competent authorities to supervise stabilisation measures,” Awe said.
She outlined that the proposed rules include definition of key terms, permitted price stabilisation and permitted stabilising activities, over-allotment, requirements for price stabilisation, stabilisation period, price conditions, eligibility criteria for stabilisation managers, responsibilities of the stabilisation manager, disclosure and reporting obligations of the stabilisation manager among others.
Eligible securities for price stabilisation will include shares in an initial public offering, securities equivalent to shares, stock units of a unit trust, debt securities including convertible and exchangeable debt securities under an offering to be listed and traded on the Exchange.
Stabilisation period shall not exceed 30 calendar days from the date of listing, or 30 calendar days from the first day of the trading of the securities in the offering, as may be applicable.
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