Today, the NSE reversed the maximum decline policy that went into effect August-ending. The maximum price decline was reduced from 5% to 1% on August 27th. But the policy has been reversed to again.  This policy had helped to stem the downward spiral of the stock market. Even with that, there has been little gains in stock prices.

Here is UBA Capital’s press release on the reversal of NSE’s maximum price decline policy.

NSE reverses maximum decline on equity prices to 5%

Today, the management of The Nigerian Stock Exchange (NSE) reversed its policy on the maximum price decline in equity prices to 5%. It will be recalled that on August 27, 2008, the NSE announced that equity prices could only drop by 1% in any trading session. This was one of the measures applied by the exchange in stemming the tide of the sustained decline in the market. Prior to the 1% review, equities were allowed to trade within a band of +/-5% in any trading session. This position has now being restored in view of this latest review.

Following the announcement, information we gathered from stockbrokers on the floor of the exchange indicates that equity prices are currently down by about 5% as investors are still putting in sell orders with most equities still on offer. However, it was observed that there were a few bids in the market as a few brokers and/or investors reacted positively to the announcement. Overall, most stocks – even the ones with bids – were trading at net offer positions as at the time of putting this report together.

Our opinion: We are of the view that the policy adjustment is a decision in the right direction as stated in our report “Introducing market making to the Nigerian equity market”. Therefore, we expect the market to slide over the next few trading days, shedding between 15 and 20% for the existing offers to be eliminated as the bids increase gradually. To this end, we might see a reverse in the market between 32,000 and 35,000 points, which represents about 20% decline.

Thanks and regards.