The Nigeria capital market is in the process of making history as the planned demutualisation of the exchange is expected to bring the capital market of Africa’s largest economy on a par with other international jurisdictions, result in enhanced governance, transparency and visibility while attracting strategic partners, investors and good quality issuers. Endurance Okafor, BusinessDay’s analyst shares insight on the NSE demutualisation.
The nation’s capital market is therefore in high mood over the planned demutualisation of the Nigerian Stock Exchange (NSE) from a company limited by profit to a company limited by shares. This followed the demutualisation process reaching its final stage of implementation, as 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.
For instance, a Capital Market lawyer, Rosemary Ugwu could not hide her joy on hearing the news that the bill has been passed by the National Assembly.
“The bill is a further demonstration of the commitment of the leadership and members of the National Assembly and indeed, the federal government to re-position the NSE towards achieving its role not only as a critical institution but a major contributor to the economic development of Nigeria,” Ugwu said.
A licensed stockbroker, Ethelbert Opara said demutualisation act when implemented would generate substantial motivation for the development of an agile Exchange.
“As a demutualised entity that is profit-seeking, the NSE will be in a better stead to capitalise on new income opportunities, free from any limitations arising from conflicting member interests and existing laws and more importantly be able to better support the economic growth of Nigeria,” Opara said.
Meanwhile, demutualisation 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.
Demutualising 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 demutualised 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, demutualisation is being embraced by several countries of the world. For instance, of the 64 members of the World Federation of Exchanges, 56 have demutualised. Up till the early 1990s, most of world stock exchanges were non-profit, mutual organisations limited by guarantee and monopolised 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.
While in the African market, Johannesburg Stock Exchange and the Nairobi Stock Exchange were demutualised in 2006 and 2014 respectively. However, despite being the largest economy in Africa, Nigeria Stock Exchange established 58 years ago, is yet to demutualise.
Attempt to demutualise the Nigerian Stock Exchange began in 2017 with a resolution passed by the Members of The Exchange at an Extra-Ordinary General Meeting (EGM). Following the resolution, Yusuf Tajudeen, Chairman, House of Representatives Committee on Capital Market and Institutions, sponsored a bill which was first read in the House on Wednesday March 29, 2017.
The Bill is titled “An Act to facilitate the development of Nigeria’s Capital Market by enabling the Conversion and re-registration of the Nigerian Stock Exchange from a Company Limited by Guarantee to a Public Company Limited by Shares and for related Matters, 2017” (Otherwise called “Demutualization Bill” HB 983). The second reading took place on Thursday, 8th June, 2017.
At the Senate, the bill (SB 531) was sponsored by Senator Forster Ogola, Acting Chairman, Senate Committee on Capital Market. It was read the first time on Wednesday 19th, July 2017. Second Reading took place on Tuesday 25th July, 2017.
After the passage of the second Reading in both chambers, the Bill was commuted to the relevant Committees on Capital Market for further legislative action. Following these resolutions, a Public Hearing was held on Thursday, 27th July 2017, at the National Assembly.
The Public Hearing attracted all the key stakeholders in the Capital market including; officials of the Central Bank of Nigeria, Securities and Exchange Commission, Nigerian Stock Exchange, Corporate Affairs Commission, Federal Ministry of Finance, Association of stockbroking Houses of Nigeria, Chartered Institute of Stockbrokers, Investments and Securities Tribunal, Nigeria Pension Commission, capital market registrars, lawyers, issuing houses, Senators, Honourble Members and the Media.
Senate Present Bukola Saraki and Speaker House of Representatives were equally present. So far, the bill has not received any opposition.
The bill was eventually passed into law by the Senate on Thursday 22nd December, 2017 and the House of Representatives on Thursday 1st February, 2018. However, due to differences in the long title of the Bill, a conference committee was subsequently constituted by both chambers; the report of the Committee was approved on 30th and 31st May, 2018 by the House and Senate respectively.
The Nigerian Stock Exchange (NSE) was established in 1960 as a private company called the Lagos Stock Exchange. It was incorporated into a company limited by guarantee in 1990.
Following the demutualisation of other Stock Exchanges around the world, major stakeholders of the Nigerian Stock Exchange have moved to demutualise the NSE in order to make it profitable and attractive to investors. This process will change the legal existence of the NSE from a mutually-held organisation to a competitive joint-stock company whereby its shares will trade publicly.
This simply means that members of the public will for the first time in history, have the opportunity to own shares in the second largest Exchange in Africa.
Giving reasons for the demutualisation, its Chief Executive Officer, 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 demutualisation 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.
“It is of particular importance to the Nigerian capital markets and the wider economy that the Exchange be aided to successfully demutualise, as it enables the Exchange to serve the capital market’s ecosystem and economy more effectively than it has done in the past,” Onyema explained.
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, 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, Adeosun said the federal government supports the demutualisation 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, Tajudeen Yusuf, said the bill was in line with the Capital Market Master Plan 2015-2025 and that demutualisation 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, Bukola Saraki said the lawmakers anticipate that the demutualisation of the NSE 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.
“Demutualising the Exchange will generate substantial motivation for the development of an agile Exchange thereby consolidating its innovativeness and strengthening its leadership both at local and international levels, whilst also adding value to its stakeholders,’’ Saraki said.
He said “the demutualisation of the Exchange will bring the Nigerian capital market at par with other international jurisdictions, result in enhanced governance, transparency and visibility whilst attracting strategic partners, investors and good quality issuers.”
A Lagos-based Investment banker and Stockbroker, 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.
‘The demutualisation 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 sign the bill into law.
When this is done, the newly demutualised 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.
Endurance Okafor
