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Why Buhari needs to sign NSE Demutualization Bill

The nation’s capital market is in high mood over the planned demutualization of the Nigerian Stock Exchange (NSE) from a company limited by profit to a company limited by shares. This followed the news in the media that both chambers of the National Assembly have passed the enabling bill into law. The bill is currently awaiting assent by President Muhammadu Buhari.

Reacting to the development, Capital market operators including dealing members, stockbrokers, issuers, registrars and other stakeholders said they are full of expectations over the benefits to be derived from the conversion. In view of these, they expressed optimism that President Buhari would sign the bill which they described as first of its kind in the history of Nigeria and West Africa.

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Demutualization of a stock exchange is a process by which a non-profit, member/brokers owned mutual Exchange is converted into a profit seeking shareholder corporation, open to members of the public. Demutualizing an Exchange therefore transforms it from being owned by members or brokers, to one with a different governance structure where members of the public can buy shares. A demutualized Exchange may take the form of a public company listed on its own Exchange like the Australian Stock Exchange or remain private like the Toronto Stock Exchange.

Now a global phenomenon, demutualization is being embraced by several countries of the world. For instance, of the 64 members of the  World Federation of Exchanges, 56 have demutualized. Up till the early 1990s, most of world stock exchanges were non-profit, mutual organizations limited by guarantee and monopolized by members and stock brokers.  The first stock exchange to break away from the norm was the Stockholm Stock Exchange in 1993. It was followed by Helsinki Stock Exchange in 1995, the Copenhagen Exchange in 1996, the Amsterdam Exchange in 1997, the Australian Exchange in 1998, the Toronto, Hong Kong, and London Stock Exchanges in 2000.  In the African market, Johannesburg Stock Exchange and the Nairobi Stock Exchange were demutualized in 2006 and 2014 respectively. However, despite being the largest economy in Africa, Nigeria Stock Exchange established 58 years ago, is yet to demutualize.

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Giving reasons for the demutualization, The Chief Executive Officer, Nigeria Stocks Exchange, Oscar Onyema said it was in furtherance to the resolutions of the NSE Extraordinary General Meeting held on March 30, 2017 where members voted in favour of the demutualization exercise. He highlighted the benefits of a demutualized exchange to include: facilitating the development of the capital market, improved corporate governance, availability of resources from capital investments, enhanced competitiveness, increased global brand and visibility of the exchange, investor participation opportunities and ability to build a more sustainable institution.

According to him, in addition to the above benefits,  “ it is of particular importance to the Nigerian capital markets and the wider economy that the Exchange be aided to successfully demutualize, as it enables the Exchange to serve the capital market’s ecosystem and economy more effectively than it has done in the past,”.

Interestingly, both during its consideration and passage by the National Assembly, the Bill received massive endorsements by major stakeholders in the capital market as well as operators of the money market. Those who have endorsed the bill so far include; the Finance Minister Mrs. Kemi Adeosun, the Governor of the Central Bank of Nigeria, Godwin Emefiele, Registrar-General of the Corporate Affairs Commission as well as  officials of the Securities and Exchange Commission ( SEC), Investments and Securities Tribunal (IST),   Association of Stockbroking Houses of Nigeria, and The Chartered Institute of Stockbrokers.

For instance, at the public hearing, Mrs Adeosu, said the federal government supports the demutualization effort because it would enhance the provision of access to global best practices, creation of a better regulatory framework/formula for ownership stakes, greater independent investor participation in governance of the exchange and put the exchange in a better position to support the economy.

Expressing joy at the passage of the bill, the sponsor, Honorable Tajudeen Yusuf , said  the bill was in line with the Capital Market Master Plan 2015-2025 and that  demutualization of the Nigerian Stock Exchange would promote efficiency in the creation and harnessing of capital,  create liquidity in the market as well as  adopting and strengthening corporate governance best practices.

On his part, the Senate President and Chairman of the National Assembly, Dr. Bukola Saraki said the lawmakers anticipate that the demutualization of the Nigerian Stock Exchange will reinforce the continuous growth and development of a dynamic, fair, transparent and efficient capital market and thus significantly contribute to Nigeria’s economic development.

Also speaking shortly after the House passed the bill into law, Speaker Yakubu Dogara, said the Legislature was only doing its constitutional duty of supporting viable and lasting economic development plan, stressing that the objective of the bill was in line with the House’s legislative agenda.  He expressed optimism that a demutualized exchange would result in an increased value of the exchange, enabling it to compete favourably in the global market, open the doors for significant investment into Nigeria and ultimately enhance the nation’s capital market.

A Lagos-based Investment banker and Stockbroker, Ms Elizabeth Okolo of Capital Assets Limited congratulated both the Council and Members of the NSE  on the passage and   urged President Buhari  to expeditiously consider and  sign the bill into law stressing that the demutualization when implemented, would give the Exchange the ability to take a number of strengthening actions, that will promote transparency and increase efficiency in its operations

‘The demutualization holds a number of significant benefits for the Nigerian economy including augmentation of Nigeria’s debt profile, increase capital raising capabilities, capital support for government initiatives, attraction of foreign and local investors and assisting corporate and financial institutions to raise capital”, she said.

With the completion of the legislative process and expected transmission of the bill to the President, attention is now focused on President Buhari to do the needful by signing the bill into law. When this is done, the newly demutualized NSE will attract local and foreign investors to the Nigerian capital market which will greatly improve the Nigerian economy, spur competitiveness, improve market liquidity and place the NSE among its peers  in the global capital market community.

Abbas is a Logos-based capital market analyst.

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