N4 Pharma (LON: N4P) shares keep getting “price monitoring extensions” which is one of those little oddities which it’s important to understand. The basic feature is that there’s great volatility in the share price and therefore certain rules are imposed to continue to enable an orderly market.
The issue itself doesn’t indicate which way the share price is moving, it’s a function of the market, not the share that is. In N4 Pharma’s case, it is that the share price is moving up swiftly.
There’s no specific news that accompanies this price movement but 40% up at pixel time is indeed a significant price movement. Which is why these price monitoring extensions.
Leaving aside N4 Pharma for a moment, the idea is that when prices are moving swiftly then the market itself could become confused. So, different markets deal with this in different ways. Say, the London Metal Exchange nickel market at the moment only allows prices to move by 5% before they suspend trading. At which point everyone has to stop, think a bit, then they start again. Other markets work with price movement limits as well – a price moves too far in any direction and trading halts for a bit for all to gather their breath.
The London Stock Exchange doesn’t do this, prices are free to move as far as they wish. However, in shares like N4 Pharma, small market capitalisations, thin trade, and so on, there are these price monitoring extensions. When the price is moving quickly dealers have an extended period of time to make sure that they really do mean to conduct a trade at that particular price:
The auction call period has been extended in this security by 5 minutes.
Auction call extensions give London Stock Exchange electronic order book users a further opportunity to review the prices and sizes of orders entered in an individual security's auction call before the execution occurs.
N4 Pharma is traded by that auction method – it is not a continuous trade through a market maker. When prices are moving swiftly it’s possible – not certain, but possible – for orders to end up being either well behind or well in front of the true market price. These price monitoring extensions are a way to monitor that.
N4Pharma shares have been subject to two such extensions already. It’s a reasonable idea that, given the further price movements, this will happen again.
It’s important to note what this means for us as traders. Buying and selling N4 Pharma continues as normal – there is no suspension of the ability to trade. In fact, we can look at this the other way around. The issuance of the extensions means that the price is moving fast and we should be using that information to explore trading positions.
Exactly what is moving the N4 Pharma price at present is unknown other than that balance of bull and bear. The price monitoring extensions are, though, evidence that it’s moving fast.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.