The Nigerian Exchange Limited (NGX) has proposed significant amendments to its trading rules, particularly in relation to block divestments and large-volume trades. These new proposals are designed to improve market transparency, ensure fair trading practices, and provide more effective oversight of significant share transactions.
The proposed amendments, outlined in a notice to trading license holders and signed by Olufemi Shobanjo, CEO of NGX Regulation Limited, seek to redefine the criteria for “block divestments.” Historically, a block divestment was defined as any share transfer amounting to 30 percent or more of a company’s listed shares. However, the new rule significantly lowers this threshold to 5 percent, aligning it with global best practices in market regulation.
Under the proposed changes, a transaction will now be classified as a block divestment if it involves the transfer of at least 5 percent of a company’s total listed shares within a one-year period. This includes not only transfers but also acquisitions of additional shares, making the scope of the rule broader and more comprehensive. The rule also includes a provision that allows the NGX to investigate patterns of transactions that appear to suggest a prolonged or ongoing divestment process, even if these transactions extend beyond the one-year threshold. In such cases, the Exchange will have the discretion to treat these trades as block divestments and apply the corresponding rules and regulations.
The proposed amendments are aimed at ensuring that large-volume trades, particularly those involving significant percentages of a company’s shares, do not negatively impact the stability of the market or create unfair advantages for certain market participants. The intention is to foster greater transparency by closely monitoring these trades, which can sometimes lead to market manipulation or the sudden volatility of stock prices.
Market stakeholders, including institutional investors, listed companies, and trading license holders, have been invited to provide feedback on the proposed changes. This invitation for public consultation is part of the NGX’s commitment to maintaining a fair and efficient market while also addressing the growing complexity of large trades in an increasingly globalized and digitalized trading environment.
While the move to lower the threshold for block divestments may raise concerns among some investors about increased regulatory scrutiny, others have welcomed the proposal as a step towards greater market integrity. By tightening the rules surrounding large-volume transactions, the NGX aims to align itself with international standards and improve investor confidence in the Nigerian capital market.
The proposal has generated mixed reactions. Some market analysts believe that the stricter definition of block divestments will enhance market oversight and reduce the potential for market manipulation, while others worry that it could create additional compliance burdens for investors and companies engaged in large transactions.
With these proposed changes, the NGX is looking to balance the need for regulation with the desire to encourage investment, ensuring that Nigeria’s capital market remains attractive to both local and international investors.
