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Floor of the Nigerian Stock Exchange

NSE introduces rule to protect investors

Floor of the Nigerian Stock Exchange
Floor of the Nigerian Stock Exchange
The Nigerian stock market has introduced circuit breakers to limit price swings as equities plunged the second-most among global stock markets last week.
The rule also called “Trading Halts Due To Ex­traordinary Market Volatil­ity” will give the Exchange powers to halt trading ac­tivities for 30 minutes in the event of a sharp drop (up to 5 per cent) in the value of the All Share Index (ASI) from the previous day’s close between 10:15 a.m. and 1:45 p.m., the Exchange said in a statement on its website.
The market will close for the day if the circuit breaker is triggered for a second time or after 13:45 p.m.
The implementation of the rule, originally approved by Securities and Exchange Commission (SEC) in May 2014, came as the market experienced its sixth day of losses. The ASI fell 3 percent to 23,514.04 basis points on Friday, extending its weekly decline to 13 per­cent, the most after Egypt’s index.
The gauge is down 18 percent this year, the worst start since 1999, according to Bloomberg.
The rule is being put in place to protect investors from losing value of their investments especially in a sell off that arises out of market sentiments and other issues rather than funda­mentals.
Stock exchanges around the world introduce circuit breakers to maintain sanity in the market and to ensure that a particular stock does not go uncontrollably to one direction. Whenever the price of a stock increases or declines beyond a specified threshold it is said to have entered into a circuit. So, the circuit breaker is needed to halt the unwarranted movement.
Individual stocks have their own circuit limit, which could be 5 per cent, 10 per cent, 15 per cent or 20 per cent, which are de­cided by exchanges. If circuit breakers of individual stocks are hit, their trading is not halted, but further price movement is not allowed for that day in the stock. So circuit breakers cap the limit of movement preventing too much loss / malicious activ­ity in a stock.

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