Nairobi Securities Exchange (NSE) has modified its trading regulations to permit block trades in a bid to increase market liquidity.

A block trade is a large, secretly negotiated securities transaction also called a block deal, and it is typically set up outside of open markets to limit its impact on the price of the security.

The NSE expects block trades to constitute the sale of shares whose value exceeds Sh3 billion and constitutes 5 per cent, or more of an issuer’s total issued shares, but subject to a maximum of 24.99 per cent.

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“This amendment is premised on the fact that large transactions in the equities market may require other than the current provision that guide price movement as well as the need for real-time reporting of such large transactions in the interest of maintaining market transparency,” said NSE boss Geofrey Odundo.

The CEO said the new provision provides for a more flexible pricing provisions that allows for a 30 per cent price range based on a one-month average.

“The NSE has noted a trend where there is an increase in block trades and given the inability to conclude such via the normal board, investors have been seeking exceptions for transfer outside the NSE, thereby compromising transparency given that such trades are not reported,” Odundo said.

“This has necessitated the need for the NSE to accommodate such transactions which may be prearranged by the parties involved.”

It is not clear whether investors are buying more bulk shares due to heavily discounted stocks given that most companies are undervalued at this point, and the currency is weak, making it attractive to longterm foreign investors.

The move which is guided by international best practices in other exchanges is expected to drive more liquidity on the NSE market.

NSE said it shall also constitute a separate board that shall approve such kinds of trades and keep record of the transactions.

“There shall be a separate board to be known as the Block Trades Board on which all block trades shall be recorded,” the NSE statement reads.

In the new regulations, the NSE will report block transactions as off market transactions and shall not affect the market statistics, with the exception of the total market turnover.