SEC, GSE act on liquidity challenge

The Ghana Stock Exchange is in talks with listed companies on the stock market to increase their number of shares available on the market in an attempt to boost liquidity and trading activities.

The idea of getting listed companies to issue more shares is one that has received full backing from the Securities and Exchange Commission (SEC), and also comes at a time when there are concerns about the insufficient number of listed companies on the market -- which is thought to be affecting liquidity and trading.

The Director-General of SEC, Adu Anane Antwi, explained to the B&FT in an interview that the initiative to place more shares on the Exchange will help to address liquidity issues on the market, which is one of the three major challenges facing the Exchange.

The other challenges, he said, are the limited number of listed securities and lack of investor education, which he explained will be solved when the SEC Investor Education Fund is established.

“Liquidity is a problem, and it’s also because the number of listed companies on the market is too small. There are few listed securities. The introduction of the automated trading system has helped to address some liquidity concerns because it has done away with the issuance of share certificates, which took time to trade-in shares.

“Now with the automated system, every share is in the depository so selling and transfer of shares can be done quicker than previously, and that has improved liquidity. “Another key thing to improve liquidity is for the number of shares available on the market to increase. So the GSE has recently been talking to the companies that are listed on the market to increase the number of shares they have on the stock exchange,” he said.

Market watchers, however, have fingered institutional investors such as SSNIT -- which holds a greater percentage of the listed securities -- of being a contributor to the liquidity challenges on the exchange, as they have been very much inactive in trading activities.

Currently, there are about 36 listed securities on the exchange with a combined market capitalisation of a little over GH¢55.8billion as at close of the working day last Friday. The GSE -- touted to be one of the best-performing stock markets in Africa -- has long been faced with liquidity challenges despite experiencing a bullish run in the last few months as a result of the stellar operating performances of some listed companies during 2012.

The encouraging performance of listed companies last year has pushed some of them to heed the GSE’s call to issue additional shares. Mr. Anane Antwi said the recent issuance of bonus shares by listed firms are all geared toward making the market more liquid.

“If you follow the trend you will see that, recently, most companies have issued more bonus shares -- and that is to make sure they have so much they can increase their outstanding shares on the market and liquidity can improve.

“This is a way of increasing the liquidity if you have more shares on the market, because it will encourage investors to trade in more shares. That is the concept of more shares coming into the market to improve liquidity,” he added. Bonus shares are issued by well-managed profitable companies -- who are confident of servicing larger equity after the bonus shares are issued -- from their free reserves to the existing shareholders.

This helps the company to be more liquid, as more investors will have the chance to buy into the company and thereby increase its capital.