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A price spread, in the context of trading on the Lusaka Stock Exchange (LuSE) through Chuuma, refers to the allowable fluctuation range within which the price of a security can move during a trading day. It is essentially a limit on how much the price can go up or down. Here’s a breakdown in simpler terms:

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Percentage Limit

The price spread is set at 25% of the last closing price of the security. This means that during a trading day, the price of a stock can only go up or down by a maximum of 25% of what its price was at the end of the previous trading day. Example: If a stock closed at ZMK 10.00 yesterday, the price spread today would allow the price to fluctuate between ZMK 7.50 (a 25% decrease) and ZMK 12.50 (a 25% increase).

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Purpose of Price Spreads

The price spread is designed to prevent drastic and sudden price changes in the market. It provides a buffer against extreme volatility and helps maintain a more stable trading environment.

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How the Price Spread Works

When an order is placed, the Chuuma system, via the LuSE’s Automated Trading System (ATS), validates the price entered to ensure it is within the acceptable price spread range. If the price is outside this range, the order will be rejected.

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Dynamic Adjustment

The price spread is recalculated daily based on the previous day’s closing price. This means the range of allowable price movement is different each trading day.

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Newly Listed Securities

For newly listed securities, the price spread is not applicable on the first trading day. The price is determined during the pre-opening and continuous sessions using a specific algorithm and order matching process. Price spreads become applicable, and the security will be included in the market indices starting with the trading session that follows after a closing price has been determined.

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Rights Trading

When trading rights, a 25% price spread is applied on the first day, based on an indicative price set by the Exchange and the sponsoring broker. For subsequent trading days, the 25% price spread is based on the last closing price.

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Debt Instruments

There is no price spread applicable to debt instruments. In summary, the price spread acts like a safety mechanism that limits daily price fluctuations to 25% of the previous day’s closing price, promoting a more controlled and stable trading environment.