REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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NMS
(Normal market size)
Normal Market
Size indicates, in thousands, the average trading quantity for
the stock. For example, ‘NMS 5’ indicates that the average market
trade is 5,000 shares. A stock’s NMS is directly related to
its liquidity. The higher the number, the more liquid the stock.
Liquidity
is a measure of the amount of market turnover, and represents
share trading volume multiplied by the price at which each trade
takes place.
NMS bands
are allocated by the Stock Exchange according to a formula based
on a) the total trading volume of each stock over the past 12
months and b) the closing mid-market price. The NMS band for
each stock is allocated at the end of each quarter, and published
one month later. The NMS bands, and the ranges they represent,
are as follows:
The formula
applied is as follows:
VALUE OF
MARKET TURNOVER IN PREVIOUS 12 MONTHS (£)
-------------------------------------------------------------------------
= NMS
CLOSING MID-MARKET
PRICE ON LAST DAY OF QUARTER X 10,000
Example:
STOCK - XYZ
PLC ORD
MARKET TURNOVER
VALUE (PREVIOUS 12 MONTHS) - £2,142.72M
CLOSING MID-MARKET
PRICE - 312P
2,142,720,000
NMS = -------------------
= 68,677 SHARES
3.12 X 10,000
NMS BAND
= 75,000
NMS bands
are allocated in order to determine the cut-off point at which
all deals in a stock must immediately be published on SEAQ,
the Stock Exchange Automated Quotation system used by market
traders. Similarly, they determine which deals are subject to
publication on SEAQ after a 90 minute delay, essentially very
large ones, and those for which publication does not occur at
all on SEAQ, essentially very small ones.
All SEAQ
stocks with an NMS of 2,000 shares or more, about 900 stocks
in total, have immediate trade publication on SEAQ for all trades
up to three times their NMS. Trades in these stocks larger than
three times NMS are published after a 90 minute delay. Trades
in these stocks larger than 75 times NMS can optionally be published
under a block trade facility; this enables a market-maker to
unwind 90% of his position over a maximum of five business days
before publication takes place.
No trade
publication occurs on SEAQ for trades in stocks with an NMS
of 500 or 1,000 shares (about 1,200 stocks). These are considered
to be much less liquid and publication of these trades appears
the next day in SEDOL, the Stock Exchange Daily Official List.
The only exceptions are agency cross trades, and all trades
in stocks which are in a bid situation, both of which are published
immediately on SEAQ regardless of the stock’s NMS.
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