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Demutualization and the Nigerian Stock Exchange
The Nigerian Stock Exchange (NSE) is being demutualized. Does that sound like a strange word? This article explains why this happening, and how you can benefit as an investor.
What is demutualisation?
Demutualisation is the process by which a mutually owned organization transforms to a shareholder owned entity. Put in another way, it is the changing from a not-for-profit organization to a limited liability company where members of the mutual organization become shareholders and ownership and management are separated.
Demutualization is the process by which an exchange is converted from a company owned by members or brokers, to one in which members of the public can buy shares.
Major demutualized stock exchanges on the African continent include the Johannesburg Stock Exchange which became demutualized in 2006 and the Nairobi Stock Exchange which became demutualized in 2014.
Shares of a demutualized exchange will trade on the exchange itself, as well as others.
The Benefits of the Proposed Scheme
Upon demutualisation, The Exchange will become the 57th exchange to demutualise amongst the 70 members of the World Federation of Exchanges as at June 27, 2019; with benefits and opportunities becoming available to Members and other stakeholders of The Exchange including:
Liquidity and Capital Management: The Exchange can more easily raise funds to finance strategic objectives and expansion. The opportunity for a potential Initial Public Offer or strategic investment is created, opening up opportunities for domestic and institutional investors and creating liquidity for existing Members. Demutualisation enables The Exchange to raise capital efficiently and effectively at market determined pricing. Members can realise the economic value of their interest by exercising the right to sell. Capital management is critical to an Exchange’s sustenance, demutualisation enables The Exchange to optimise the level and mix of capital reserve.
Upon demutualisation, The Exchange will be a public company and its shares will be tradable on an available exchange in accordance with the SEC’s regulations. The Exchange will provide relevant support to its Members in this regard, as and when required. Liquidity will however be subject to the efficiency of such trading exchange as well as market demand.
Improved Corporate Governance: The demutualised Exchange and its subsidiaries will be subject to high standards of corporate governance expected of public companies to take decisions that are in the interest of all members as well as The Exchange
Global Competitiveness: Post demutualisation, the new Exchange will be forced to examine its role as a trading venue and take on necessary improvements to facilitate more competitive strategies. Technological improvements will allow for efficient and effective matching of buy and sell orders of clients at lower transaction costs, whilst offering transparency, trader anonymity and extended trading hours demonstrating The Exchange’s role as a ‘Niche’ player.
Tax Revenue: The post demutualisation entities would be subject to companies’ income tax and other relevant taxes payable by for-profit organisations, thereby providing additional source of tax revenue for the Nigerian government.
HOW?
Pursuant to the demutualisation, The NSE will operate as a non-operating holding company with ownership of Nigerian Exchange Limited and the other subsidiaries of The NSE. The corporate identity of The NSE will become Nigerian Exchange Group Plc.
Nigerian Exchange Limited will operate as the trading platform and will carry on the principal activities that are presently being carried on by The NSE as a Securities Exchange.
The regulatory arm will be NGX Regulation Limited(“NGX Regulation).
Proposed Directors of Nigerian Exchange Group Plc
S/N
Name of Member
Position
Type
1.
Otunba Abimbola Ogunbanjo
Chairperson
Non-Executive Director
2.
Mr. Oscar N. Onyema, OON
Chief Executive Officer/Member
Executive Director
3.
Dr. Umaru Kwairanga
Member
Non-Executive Director
4.
Mrs. Fatimah Bintah Bello — Ismail
Member
Non-Executive Director
5.
Mr. Oluwole Adeosun
Member
Non-Executive Director
6.
Mr. Chidi Agbapu
Member
Non-Executive Director
7.
Mr. Patrick Ajayi
Member
Non-Executive Director
8.
Dr. Okechukwu Crescent Itanyi
Member
Independent Non-Executive Director
9.
Mrs. Nimi Akinkugbe
Member
Independent Non-Executive Director
10.
Prof. Enase Okonedo
Member
Independent Non-Executive Director
11.
Mr. Ikpobe Apollos Oghooritsewarami
Member
Independent Non-Executive Director
12.
Mrs. Ojinika Nkechinyelu Olaghere
Member
Independent Non-Executive Director
All in all, a demutualised NSE will be in line with global best practice. It will ensure that the Nigerian market becomes more efficient and competitive as it will remove conflict of interest in decision-making, which characterizes mutual organizations.
The NSE as a commercial organization will be more aggressive as it becomes profit driven.
It will be liable and responsible to its shareholders in terms of return on investment unlike the previous status quo where funds were internally generated and profit-making was not a defined objective.
Finally, since ownership rights can now be exchanged through shares, it will improve investor participation in the ownership of the exchange. You as an investor can become a part owner of the NSE by investing in the shares of the company and the exchange will be in a position to raise funds for new projects by issuing relevant classes of shares and securities to the investing public.
Source: NSE Scheme of Arrangement Document, WIkipedia, Nairametrics, Stears Buniess.
