Professor of Capital Market, Uche Uwaleke, has asked the Nigerian Exchange Group (NGX) to designate banking stocks as Systemically Important Stocks (SIS).
Uwaleke who is the Director of the Institute of Capital Market Studies at the Nasarawa State University Keffi in a statement made available to our correspondent said this became necessary to make the stock market more resilient, curb the current speculative frenzy, and dampen any extraordinary volatility swings on the share prices of banking stocks in particular.
He called on NGX to proceed to narrow their daily price limit from 10% to 5% in the meantime while the price limit for other regular stocks is left at 10%.
“To make the stock market more resilient, curb the current speculative frenzy, and dampen any extraordinary volatility swings on the share prices of banking stocks in particular, the NGX is advised to designate banking stocks as Systemically Important Stocks (SIS) and then proceed to narrow their daily price limit from 10% to 5% in the meantime while the price limit for other regular stocks is left at 10%,” he said.
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Uwaleke stated that this is the practice in markets like China which also applied “differentiated price limits” as a market stabilisation mechanism.
“In China’s Shenzhen Stock Exchange (SZSE) for example, this limit is set as 10% for regular stocks and 5% for stocks designated as Special Treatment (ST) stocks.
“Studies have shown that by constraining prices, wild intraday price swings are prevented from occurring, which, in turn, translates to lower market volatility,” he said.
