The attention of The Nigerian Stock Exchange (NSE or The Exchange) has been drawn to a few critical issues raised in various print and social media platforms regarding the listing of MTN Nigeria Communications Plc (MTN Nigeria) on the Premium Board of the Exchange. As an Exchange that is committed to operating a fair, orderly and transparent market, we deem it important to clarify these issues.
Paucity of MTN Shares on the Floor
MTN Nigeria Listed by Introduction. Where a company lists following an Initial Public Offering, shares are expected to be available for trading on the day of listing. In a Listing by Introduction, however, no shares have been offered for subscription by the company prior to listing. Thus, without any intervention, it is possible that there will be no shares available for trading on the listing date. Indeed, currently, no rule of The Exchange compels shareholders in a listed company to tender their shares for trading. Shareholders are at liberty to trade their shares at any time and price suitable to them. Thus, in order to stimulate trading in the shares of companies that List by Introduction, the NSE’s practice is to urge the company to make shares available on the day of listing. In the case of MTN Nigeria, the NSE used and will continue to use moral suasion to get MTN Nigeria to make available shares daily, pending its Initial Public Offer.
Since the listing of MTN Nigeria on Thursday, May 16, 2019, a total of 105,301,759 shares valued at N12,231,997,316 have traded in three days. These trades were carried out by ten (10) dealing member firms in 134 cross deals/negotiated deals. According to the rule book of the Exchange, “When a Dealing Member or Authorized Clerk has an order to buy and an order to sell the same security at the same price, the Dealing Member or Authorized Clerk may “cross” those orders at a price at or within The Exchange best bid or offer”. A variant of this is the negotiated deal, which describes a situation where a cross-deal is executed between two dealing member firms at a price which may be within the Exchange’s best bid or offer or with the approval of the Exchange, outside the best bid or offer. Because cross deals involve clients of the same stockbroker on both sides of a trade, significant issues have been raised about the fact that stockbrokers who have not been involved in the cross deals have not been able to trade on behalf of their clients. The Exchange is not unconcerned about this state of affairs.
As an Exchange that champions transparency and equity for all stakeholders in our market, we have received stakeholder feedback concerning our present rules on cross dealing and will consider the issues raised as part of our sustained efforts to ensure our market remains equitable for all stakeholders.
MTN Nigeria’s Free-Float Valuation
There appears to be a misconception that a concession was given to MTN Nigeria on the minimum free float required for companies listed on The Exchange. According to the Rules Governing Free Float Requirements for Issuers Listed on The Nigerian Stock Exchange, free float is defined as the number of shares that an Issuer has outstanding and available to be traded on The Exchange. It includes all shares held by the investing public, and excludes shares held directly or indirectly by promoters, directors and their close relatives; strategic investors holding five per cent (5%) and above of the issued share capital; or government.
The Exchange’s rules for listing on the Premium Board (which is the board in which MTN Nigeria is listed) require a Company to have a minimum free float of twenty per cent of its issued share capital or that the value of its free float is equal to or above N40 billion on the date the Exchange receives the Issuer’s application to list. MTN Nigeria met with the free float requirement of N40 billion. The free float of MTN at the time of listing was in excess of N160 billion.
Investor protection is very important to us at the NSE and we have taken necessary steps to ensure that our market is fair and orderly. In 2016, we acquired NASDAQ’s SMARTS platform to proactively detect and deter manipulative tendencies, gather intelligence and execute risk-based supervision of flagged participants. We have also implemented other initiatives aimed at providing investors with timely information on the compliance status of our dealing members and issuers including BrokerTrax, our member compliance report, and Compliance Status Indicator (CSI) codes (for issuers). In addition, we have institutionalized our investor education program and launched X-Academy in June 2017, because we have identified investor education as a veritable tool to galvanizing informed investments and necessary step towards protecting investors in our market.
Whilst we believe we have addressed the concerns raised, we will like to assure our stakeholders and the general public that The Exchange will continue to uphold global best practices in its business operations and will sustain engagement with its stakeholders to continually develop regulatory frameworks that ensure our market completely reflects our values of ambition, fairness and inclusion.