GSE reviews new trading rules to check market volatility

Following more than a year of implementing Rule 30, the Ghana Stock Exchange has revealed that it is reviewing impacts of the amended guideline for further action to be taken.

The Exchange in June 2020 alerted the stock market of intended implementation of its amended trading rules on price movement for the Exchange.

Rule 30 – new trading rules – was introduced to replace Rule 22 of the GSE Automated Trading System (GATS) rules in order to deal with volatility of price movements on the stock market, primarily to enhance stock price discovery and fair market pricing.

Commenting on this development at a meeting with journalists, the Managing Director of the GSE, Ekow Afedzie said: “We introduced Rule 30 on pricing movement because we observed that so many retail investors were using, for instance, 100 shares to change the price of some stocks – which affected the portfolios of other investors holding such stocks”.

Mr. Afedzie added: “We are reviewing it now to look at the impact. It slowed down all those price change movements. So, we will take a look at it again to see whether it is really making an impact; and whether we just need to keep it the way it is, or if we need to increase the minimum; or if we need to introduce other features or we remove all”.

But the managing director noted that if the market was mature, there wouldn’t be any need for these restrictions.

“We will evaluate the implementation to understand whether it really had an impact on the market by any means,” he emphasised.

Rule 30 (Price Movement)

The process of price discovery looks at a number of tangible and intangible factors, including supply and demand, investor risk attitudes and the overall economy, among others.

Rule 30 (Price Movement) of newly-approved trading rules states that, for a security whose price is GH¢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 GH¢10 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 GH¢10 but greater than or equal to GH¢1, the price may only change with a minimum volume of 1,000 shares. For a security whose price is less than GH¢1, the price may only change with a minimum volume of 2,000 shares.

Notwithstanding Rule 30(4) above, the price change on a trading day for a security whose price is below GH¢0.10 shall not exceed the previous day’s closing price of the security by ‘a tick’ of GH¢0.01.

The rule also indicates that Rule 30 shall not apply to Negotiated Trades.

Equities Performance

A glance at the main market’s cumulative performance from January to August 2021, in relation to the comparable period in 2020, shows that the volume of shares traded lessened by 2.23 percent; from 378.65 million last year to 370.19 million in 2021. However, in value terms there was an increase of 44.97 percent from GH¢272.55million to GH¢341.22million.

Accordingly, the year on year, market capitalisation and the primary index, the GSE Composite Index (GSE-CI) are up 15.69 percent and 48.94 percent respectively, with analysts anticipating further positive activities on the market.

The local equities market appears set to provide its highest return in half a decade, with the Exchange’s Composite Index (GSE-CI) returning a favorable 41.66 percent year-to-date (YtD). This comes after significant lows in 2014 and 2015, with -11.77 and -15.33 percent respectively; caused in no small part by the crushing power crisis of the period. Also, the toll of the financial sector clean-up saw 2018 close at -0.29 percent, 2019 saw -12.25 percent and 2020 was even worse at -13.98 percent.

The rebound has been sustained by investor confidence, which has been boosted particularly by the performance and fundamentals of stocks such as MTN, CAL, TOTAL, GCB and ETI.

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