By Chinenye Anuforo

Starting in the early 1990s, stock exchanges around the world have been undergoing major organisational and operational changes. One of the most visible of such changes has been the trend towards demutualisation – the process of converting exchanges from non-profit, member-owned organisations to profit shareholder owned corporate entities.

Some stock markets have also had to demutualise, as well as build alliances or consolidate within and across borders in order to enhance their attractiveness in the face of strong global competition.

In simple terms, demutualisation is the segregation of ownership and management from the trading rights of the members of an exchange. International experience suggests that increasingly, demutualised structures are preferred to mutual structures as a mechanism to improve exchange performance.

For example, in 2006, the Australian Stock Exchange merged with the Sydney Futures Exchange to form the Australian Securities Exchange (ASX), one of the world’s top 10 listed exchange groups. The New York Stock Exchange (NYSE), in 2007, also merged with Euronext, the European electronic stock exchange based in The Netherlands, to form NYSE Euronext, the world’s largest stock exchange.

Listing the benefits of demutualisation of a stock exchange, market analysts, Pam Hughes and Ehzan Zargar in 2006 said: “Firstly, demutualisation results in more flexible governance structure fostering decisive action in response to changes in the business environment. Secondly, it leads to greater investor participation in the governance of the exchange. Thirdly, it yields an improved platform in response to potential competitors in the form of alternative trading systems. Furthermore, demutualisation allows greater flexibility and access to global markets. It also facilitates faster and more complete consolidation of stock exchanges to enhance available synergies. And finally, it ensures increased access to resources for capital investment raised by way of equity offerings or private investment less likely to experience endemic market speculation and manipulation or be threatened by systemic failure.”

Since the first demutualisation of a stock exchange in 1993, over 25 stock exchange demutualisations have taken place, predominantly in developed markets. Furthermore, over 80 per cent of members of the World Federation of Exchanges (WFE) are currently demutualised, with some publicly listed while others are not.

But the monopoly by some individuals over the Nigerian Stock Exchange (NSE), it cannot enjoy more capital.

Abdul Razaq, the former President of NSE, was the first to propose, in June 2002, that the NSE be demutualised. Former NSE Director General, Ndi Okereke-Onyiuke, later represented the proposal in 2008 but it was stepped down, perhaps, because of the then global market downturn.

The present NSE CEO, Oscar Onyema, came on board with full support of the Exchange demutualisation but last June, stakeholders in the stock market comprising the NSE National Council and members deferred the demutualisation programme. Hence, while fielding questions from journalists this year in its 2016 market review and outlook for 2017 on when the demutualisation will take effect, the NSE  CEO said, “the demutualisation of the NSE is an ongoing project and there are certain things that need to happen before you conclude it, including member consensus, getting appropriate legislative framework and regulatory approval before one moves forward to do it.

“So the plan is very well articulated and the implementation is ongoing and as I indicated, if one of the prerequisite is a member vote, then you want to make sure that you have a credible member list that is auditable and that takes some time to accomplish. Nevertheless, that has been done now and we hope to see more public progress in the implementation of the demutualisation project.

For his part, Mounir Gwarzo, the SEC DG, at a meeting held recently in Lagos, acknowledged that demutualisation of the stock exchange would be an important step in the overall reform and transformation of the Nigerian capital market into a world-class market but explained that the Commission is currently reviewing the Companies and Allied Matters Act (CAMA), which would provide an easy route for the exercise.

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“The role of SEC in demutualisation is to come up with guidelines and rules and regulations. SEC has come up with rules and is committed to support any institution in the capital market that wants to demutualise.

“NSE has appointed some consultants to drive the process. Again the review we are having in CAMA will provide an easy route for any company that is mutualised and wants to demutualise to have an easier way to do that.”

However, stakeholders in the market identified demutualisation of the NSE as a major factor that would significantly increase the confidence of the local investor and spur activities in stock market.

Besides, they argued that the exercise would also reduce to the barest minimum, over-dependence on foreign investors in the nation’s capital market.

According to stakeholders, when membership of the NSE is opened to majority of Nigerians and they are called upon to own shares in the stock market, it would help create awareness of activities in the market, give investors a “sense of belonging” and more local investors would participate.

Similarly, they pointed out that with demutualisation, corporate governance would be well structured and investors would have more confidence to stake their fund in the market.

Specifically, the President of the Progressive Shareholders Association of Nigeria, Boniface Okezie, said the exercise would attract more local/retail investors into the stock market if it is done in an “all inclusive” and transparent manner to enable investors get real value on investment at the end of the exercise.

“If the process will carry all Nigerians along, that will foster growth and woo more local investors to the market,” he said.

The Chief Executive Officer of High Cap Securities, David Adonri, said demutualisation will enable the stock exchange operate efficiently like a commercial business.

According to him, this would give it greater latitude to explore more income generating possibilities, adding that with more income, it can acquire world-class facilities, which will enhance its competitiveness.

Adonri added that it is also believed that as a business limited by shares, the standard of corporate governance and transparency will be enhanced and with this, several retail investors would have opportunity to be shareholders in the exchange and hence, be able to influence its development.