The Nigerian Exchange Limited (NGX) has suggested some new rules regarding block divestments and large-volume trades, which are significant transactions involving the buying and selling of shares. These proposed changes were shared with market participants, and they are encouraged to provide their opinions on the new rules.
The changes specifically target what’s known as the Trading Licence Holders Rules, particularly Part XIIIA, which deals with how block divestments and large-volume trades are defined and regulated.
What Are Block Divestments and Large-Volume Trades?
- Block Divestments: A block divestment occurs when a large number of shares are sold or transferred. The new proposal lowers the threshold for what counts as a block divestment from 30% of a company’s shares to just 5%. This means that if someone sells or acquires 5% or more of a company’s total shares within a year, it will be considered a block divestment.
- Continuous Transactions: If the Exchange notices a pattern of such transactions that suggests ongoing selling beyond that one-year period, they may classify these transactions as block divestments too. This classification will come with specific rules and requirements that must be followed.
- Large-Volume Trades: The new rules also state that if someone wants to transfer or acquire 80 million shares or more, or if the trade is valued at 800 million naira or more, they must get written approval from the Exchange before going ahead with the transaction. This is to ensure that large trades are monitored closely.
Why Are These Changes Being Made?
The Chief Executive Officer of NGX Regulation Limited, Olufemi Shobanjo, explained that these changes are necessary because the current rules, which have been in place since February 2018, have helped in monitoring significant share transfers. However, the Exchange has noticed that some market participants might be trying to bypass these rules to avoid disclosing important information about their trades.
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To address this, the Exchange is proposing to lower the thresholds for what constitutes block divestments and large-volume trades. They want to ensure that all significant share transfers are reported and transparent, whether they happen in one big transaction or several smaller ones.
Goals of the Proposed Changes
The main goals of these proposed changes are:
- Enhancing Transparency: By lowering the thresholds, the Exchange aims to make sure that any major transfers of shares are fully disclosed to the market. This helps keep everyone informed about who owns what in the companies listed on the Exchange.
- Preventing Non-Compliance: The Exchange wants to close any loopholes that might allow traders to avoid following the rules. By tightening the regulations, they hope to promote accountability among market participants.
- Safeguarding Market Integrity: Ultimately, these changes are designed to protect the integrity of the market by ensuring that significant shifts in share ownership are monitored and reported accurately. This helps maintain investor confidence and the overall health of the financial market in Nigeria.
In summary, the Nigerian Exchange Limited is looking to update its rules to better monitor large trades and share transfers, making the market more transparent and accountable. They are seeking feedback from market participants to refine these proposed changes further.
