It would be recalled that the CBN had earlier this year, issued a stop order to banks running margin accounts. There were worries that margin trading is risky in the sense that using borrowed funds to invest in securities, amplifies gains and losses. Analysts further opined that the use of borrowed funds in speculative activity was tantamount to gambling. However, there are unverified claims that the leverage in the market is estimated at N2.5tr or 18 per cent of market capitalization.
Capital market operators have now attributed the CBN directive to the persistent slide in the All Share Index and the Market capitalization, which dipped by 13 per cent or N1.65tr between March 6th 2008 and 9th June, 2008. The All Share Index also witnessed a decline that left it closing at 56,407.80, down from 66,371.20 in March 9th 2008. Regulators are of the opinion that most of the stocks are undervalued, and that this move is necessary to arrest a further decline in investors interest.
While some have reacted to the action of the Nigerian Stock Exchange in an optimistic manner, others urge restraint, as the NSE makes move to give impetus to market indices. In an interview, an expert likened the NSEs directive on price movement as, introducing circuit breakers without any supportÃ¢, adding that Â¦freezing the market now is a sign of panic by the regulators, which would make the investors panic more.