Changes will see shares priced below Sh5 advance or retreat in price in spreads of one cent instead of the previous five cents.
The review of bid spreads by the Nairobi Securities Exchange (NSE) has opened the way for the shares of listed fashion vendor Deacons East Africa #ticker:DCON to change price, having been stuck at Sh0.45 under previous limits with no possibility of changing without breaking trading rules.
Before the review on Tuesday, Deacon’s share was stuck at the 45 cents a share since September 28, with shareholders condemned to waiting until the company made a material announcement for the 10 per cent cap to be temporarily removed.
It had fallen into an unintended trap where it could not move up or down without falling foul of trading rules that limited the daily gain or loss on a share price to a maximum of 10 per cent, coupled with a minimum bid spread of five cents—which for Deacons would translate to 11 percent.
The changes announced on Tuesday will see shares that are priced below Sh5 advance or retreat in price in spreads of one cent instead of the previous five cents, although the daily 10 per cent limit remains.
“This will allow counters that are trading below Sh1 to operate within 10 per cent based on the previous price,” said the NSE on Tuesday.
The rule change will also allow for better price discovery in mid-priced shares (nominally), by desegregating the bid spread for shares priced between Sh5 and Sh10 (two cents) and between Sh10 and Sh50 (five cents). Half of the listed stocks fall within these price ranges.
The move to tweak the rules comes as the number of stocks valued in cents goes up, with this price range previously unseen in the market since 2002.
Due to the previous limits also, stocks priced in cents would have an artificial floor of between 45 and 50 cents, below which they could not fall even if their fundamentals worsened.
Other shares that are trading below Sh1, and which were exposed to this risk before the rule change, include Uchumi #ticker:UCHM, Home Afrika #ticker:HAFR and Mumias Sugar #ticker:MSC.
Mumias is now trading at 85 cents a share, but had touched a trading low of 50 cents.
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