Recently, several commentators have raised concerns over the
listing of some Issuers’ equity securities at prices considered too high.
To these investors, NGX RegCo’s due diligence during the
listing application review process should have uncovered that the listing
prices of such securities were unreasonably high and intervened accordingly.
NGX RegCo wishes to provide clarifications to the public on
its function with respect to listing applications, particularly as it relates
to the determination of an Issuer’s listing price.
An Issuer seeking to list its equity securities on NGX
(where the equity securities of the Issuer have not already been listed on NGX)
is required to indicate the proposed listing price of the equity securities in
its application to list.
The Issuer is also required to submit a pricing memorandum,
which is a document that details methodologies and assumptions adopted by the
Issuer and its advisers in arriving at the proposed listing price, among other
documents.
In reviewing the listing application, NGX RegCo does not
intervene in the proposed listing price, as obtains in some other
jurisdictions. However, NGX RegCo reviews the pricing memorandum to understand
the basis of arriving at the listing price and to evaluate whether the pricing
methodologies and assumptions are based on generally accepted valuation
principles.
It is the responsibility of the Issuer and its advisers to
determine the listing price using a generally accepted pricing methodology. The
listing requirements of NGX do not require NGX RegCo to determine a fair price
of equity securities or to fix the listing price for an Issuer.
As it is well known, one of the functions of an efficient
securities market is to determine fair prices of securities through the
operation of market forces. Following listing, where the listing price of an
Issuer is perceived to be too high or too low, the market price is expected to
be appropriately corrected by the market forces of demand and supply to arrive
at a fair price as trading commences.
As such, the power is in the hands of investors and their
advisers, when transacting in the market, to assess share prices (or other
securities) of Issuers of interest, and to determine whether the securities are
overvalued, undervalued or fairly valued in order to take appropriate positions
on the securities.
In other words, it is not unusual for investors to view the
listing price of an Issuer either with respect or with skepticism, identifying
mispricing when it exists and acting accordingly. This corrective action is a
hallmark of any free and fair market.
At NGX RegCo, we remain committed to promoting the
integrity, transparency and efficiency of our market, ensuring that the
standards set are effective in maintaining a fair and orderly market where
investors are adequately protected.
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