The Nairobi Stock Exchange (NSE) has changed its trading rules to allow for curb trading as it seeks to create more liquidity in the market.
A block trade is a large, privately negotiated securities transaction. Normally, block trades are arranged away from public markets to lessen the effect on the security’s price.
At the NSE, block trades shall constitute the sale of shares whose value exceeds Sh3 billion in value and constitute 5 per cent or more of an Issuer’s total issued shares subject to a maximum of 24.99 per cent.
They can also constitute the sale of shares whose value is less than Sh3 billion in value and which constitutes more than 15 per cent of an Issuer’s total issued shares subject to a maximum of 24.99 per cent.
If a block transaction is concluded outside the 30 per cent window, the trading participant(s) will be expected to seek approval from the NSE before the transaction is executed.
According to a statement from the NSE, the amendment of the trading rules is premised on the fact that large transactions in the equities market may require other than the current provision that guide price movement as well as the need for real-time reporting of such large transactions in the interest of maintaining market transparency.
As such the new provision has provided for more flexible pricing provisions that allow for a 30 per cent price range based on a one-month average.
NSE CEO Geoffrey Odundo noted that the move to allow block trades was arrived at after they noted an increase in block trades at the NSE and given the inability to conclude such via the normal board, investors were seeking exceptions for transfer outside the NSE, thereby compromising transparency given that such trades are not reported.
“This has necessitated the need for the NSE to accommodate such transactions which may be prearranged by the parties involved.” said Odundo.
The NSE CEO noted that the block Board is guided by international best practices in other exchanges.
According to the block trade guiding rules, the NSE will be expected to report block transactions as off market transactions so as to not affect the market statistics with the exception of the total market turnover.
Further, block transactions may be settled free of payment. Where the parties have consented to settle Free of Payment, such consent shall be filed with the Central Depository & Settlement Corporation (CDSC) for action before the transaction is concluded.