ABDUEL ELINAZA : THE Dar es Salaam Stock Exchange (DSE) new off-market block transactions rules are blamed for distorting volume and share price discovery mechanism.
The bourse last August received a node from Capital Markets and Securities Authority (CMSA) to change trading rule that reduce block trade threshold from 1.0bn/- to 200m/-.
However, six months after the rules were introduced some analysts have punched holes in the new rule while others are defending the amendment.
Orbit Securities’ Head of Research and Analytics, Imani Muhingo, said the rationale for off-market deals was to allow transactions of large blocks of shares without affecting the share’s price.
“[However], the most vivid effect of this is the lockout of retail investors by creating parallel markets for active counters which is accessible to institutions and high net worth investors,” Mr Muhingo told ‘africa-press’.
The Analyst, from the largest stock brokerage firm in the country, said for instance more than 98 per cent of TBL transactions have been traded in off-market blocks at prices below 9,000/- since last August.
He said since entry ticket to the off-market is 200m/-, retailers can only buy TBL at market price which was 10,900/- on Wednesday.
“The solutions,” Mr Muhingo said, “is not to raise the entry amount for a block trade but to relax the stringent laws that limit equity price movement”.
For instance, the price cap of 5.0 per cent for counters with capitalisation above 1.0tri/-has locked all such counters into illiquidity and the cap could be raised to allow competitive pricing.
The main idea of off-market deal was because a huge demand or supply of equity from a single party may be influenced by other reasons rather than fundamentals.
However, Tanzania Securities Senior Investment Analyst, Ombeni Uhuru said the off-market deals happened outside the exchange at prearranged manner thus not affecting the bourse prices.
“Most of these deals are between foreign investors… the market prices remain intact,” Mr Uhuru said.
He said those without hefty amount are still buying at the exchange through quoted prices.
But others brokers have it that the block-amount threshold has been reduced too low thus thwarted the meaning of amended the DSE’s Rule 2.
The rules, a market analyst said, have brought in three price tags being reported—that quoted on the bourse board, trading—from off-market, and, real market—due to demand and supply.
Also, the off-market system, have created a market gap between sellers and buyers to limit the trading volumes at various counters.
Thus most of the offmarket deals are traded below most of the shares closing prices—locking out others form benefiting from buying at discount.
Orbit Securities’ Weekly Market Synopsis reported that since the new trading rules became effective last August, most of the equity turnover has been realised in off-market block transactions.
“During January 2020, more than 98 per cent of market transactions went through off-market transactions,” Orbit said in the report.
The report further showed that more than 99.9 per cent of TBL shares went through off-market transactions last month.