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NSE Pricing Methodology - The New Par Value Rule And You

Proshare

Thursday, November 09, 2017   10:43 AM / Research & Investor Services 

The “par value” or “nominal value” as generally referred to is a value assigned for balance sheet purposes.  Thus, it is quite different from the market value of a stock. 

The “Par Value Rule” according to Article 100A: Pricing Methodology of the NSE Rules and Regulations Governing Dealing Members status: 

(1)  
Notwithstanding its par value, the price of every share listed on The Exchange shall be determined by the market, save that no share shall trade below a price floor of one Kobo per unit (N0.01). 

(2) “Par value” is the nominal value of a share as stated in the Memorandum of Association of an Issuer.
 

(3) “Price floor” means the amount below which the price of one unit of a share shall not be permitted to trade, and the minimum amount which must be paid for a share in the event of a drop in the unit price of that share.
 

In clear terms, the new par value rule simply implies that the prices of stocks most especially stocks trading at their nominal value will now reflect their true market value.
 

Thus, market forces will now determine the prices of stocks except that stock wont trade below a floor price of one kobo per unit of share.
 

On how to get rid of penny stocks hovering at N0.50k, it is advisable for the investor/shareholder to have a discussion with his/her broker on this before a decision is taken.
 

More importantly, the broker may eventually arrive at a decision to help the investor dispose those stocks at a discount i.e. around 45kobo to 40kobo to encourage early patronage of the stocks in question.

For further guidance, kindly contact your stock broker or investment advisor.
 

Author can be contacted vide
research@proshareng.com 

Proshare Nigeria Pvt. Ltd.

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