NGX new rules require dealers to seek approval for block divestment worth N800m

The Nigerian Exchange (NGX) is proposing a rule change that requires licensed NGX traders to receive approval before executing a block divestment or large trades valued as high as N800 million.

In recent times, there has been a spate of large-volume trades in the NGX. For example, on October 14, Africa Capital Alliance’s CAPE IV sold off about N13.9 billion worth of Aradel Holdings shares in a single trade.

Also, between September 23 and 25, Femi Otedola, FBNH Chairman purchased N16 billion worth of FBN Holdings shares.

He bought 534,094,407 shares of FBN Holdings at N30 per share. The transactions were done from September 23 to 25, according to FBN Holdings in its September 26 notification of share dealing by insiders.

According to the proposed amendments to the trading license holders’ rules, “block divestment” has been redefined. Block Divestment will be defined as a “transfer of shares amounting to five percent (5percent) or more of the company’s total listed shares within one year from the date from the date of first transfer or acquisition of shares.”

Previously, block divestments were defined as a “transfer of shares amounting to thirty percent (30percent) or more of the company’s total listed shares and the transferee shareholder intends to take control of the listed company;”

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The proposed rule change stipulates that a licensed NGX dealing member assigned to execute a block divestment must seek prior approval from the Exchange before proceeding. Additionally, traders uncertain about whether a transaction qualifies as a block divestment are advised to consult with the Exchange for clarification.

According to the draft regulations, traders or dealing members must submit a formal application to the Exchange in the form of a letter. The letter should notify the Exchange of the divestment mandate and request approval to proceed.

Initially, electronic copies of the application letter and supporting documents may be submitted, but hard copies must be filed with the Exchange within 10 business days.

The submission must also outline the transaction’s key details, such as the number of shares and the transaction price, supported by the applicable checklist.

Additionally, fees for block divestments will be calculated based on a rate determined by the Exchange. This rate will apply to the higher of either the agreed transaction price or the market price. For transactions executed outside the prevailing market price, dealers are required to include a document explaining the rationale behind the pricing methodology.

Dealers must also pay a non-refundable processing fee of 0.2 percent of the transaction value upfront and provide evidence of payment with the application.

The proposed rule recommends a penalty of a 10-business-day suspension and a fine of no less than 5 percent of the block divestment’s value for traders who proceed with such transactions without obtaining prior approval from the Exchange.

In addition to the block divestments, the NGX has proposed new rules mandating prior approval for large-volume equity trades. Under the draft regulations, any trade meeting or exceeding thresholds of 5percent of an issuer’s equity, 80 million units of a listed company but less than 5 percent, or a transaction value of N800 million or more—but less than 5 percent of the company’s total equity—must receive written approval from the Exchange before execution.

According to NGX Regulation Limited (NGX RegCo), these proposed amendments were necessitated by the “circumventing” of the rules by some market traders.