In dealing with the volatility of price movements on the stock market, the Ghana Stock Exchange (GSE) has amended its trading rules primarily to enhance efficient stock price discovery and fair market pricing.
An official notice issued to the stock market indicated that the GSE will from Monday, June 15, 2020 begin the implementation of its amended trading rules on price movement for the stock market.
These amended rules, which have been approved by the Securities and Exchange Commission (SEC), which regulates the capital market, are stated in Rule 30 of the newly approved Trading Rules and replace Rule 22 of the GSE Automated Trading System (GATS) Rules.
Rule 30 (Price Movement) of newly approved trading rules states that, for a security whose price is GHc 0.10 or above, the price change on a trading day shall not exceed of ±10 percent of the previous day’s closing price for the security.
Secondly, for a security whose price is GHc 10.00 and above, the price may only change with a minimum volume of 500 shares.
Further to this, the rule states that for a security whose price is below GHc 10.00, but greater than or equal to GH¢1.00, the price may only change with a minimum volume of 1000 shares. For a security whose price is less than GHc 1.00, the price may only change with a minimum volume of 2000 shares.
Notwithstanding Rule 30(4) above, the price change on a trading day for a security whose price is below GHc 0.10 shall not exceed the previous day’s closing price of the security by “a tick” of GHc 0.01.
The rule also indicates that the Rule 30 shall not apply to Negotiated Trades.
Cumulatively over past two years, investors on the Ghana Stock Exchange (GSE) have lost the worth of their capital to the tune of GHc 11.913.32 billion, due to a combination of factors including banking crisis and the current global pandemic, COVID-19.
At end of trading session on Monday, June 2, 2020, the stock market had lost about 15.84 percent of its value in a period of two years, whereas the year-to-date returns for this year stood at -5.72 percent.
To date, GHc 3.249 billion has been wiped off the stock market’s capital since the beginning of 2020.
Instructively, the Exchange has directed all Licensed Dealing Members to, with effect from June 15, 2020, apply the following to trades; such that only orders equal or above the designated threshold for each group as stipulated in Rule 30 can change price within the price band of +/- 10 percent of the previous day’s price or volume weighted average price (VWAP); and
Also, order volumes below the designated threshold in each group are to be priced at the current market price of that security.