Chinenye Anuforo and Chinwendu Obienyi

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Technological advancement in the financial world, over the last two decades, has significantly increased competition among stock exchanges globally and this competition has pressured many exchanges to adopt business models, which have greatly improved their efficiencies and effectiveness.
For instance, in 2007, the New York Stock Exchange (NYSE)  merged with Euronext, the European electronic stock exchange based in the Netherlands, to form NYSE Euronext, the world’s largest stock exchange.
Just last week, the Nigerian Stock Exchange (NSE) disclosed that it is hopeful that the Demutualisation Bill will be signed into law this year.
According to the Chief Executive Officer, NSE, Mr. Oscar Onyema, during the 2017 Market Recap and Outlook for 2018 at the Nigerian bourse headquarters, the Exchange is working assiduously with its advisers to fine-tune outstanding aspects of the demutualisation project as well as providing clarity and transparency on the process via regular engagement with all its valued stakeholders.
What is demutualisation?
Demutualisation is the process by which a mutually owned organisation transforms to a shareholder owned entity. Put in another way, it is the changing from a not-for-profit organisation to a limited liability company where members of the mutual organisation become shareholders and ownership and management are separated. When the legal structure of a stock exchange is transformed through the process of demutualisation, the ownership, the management and the trading rights at the exchange are segregated.
Thus, a demutualised NSE will become a company limited by shares, having share capital and subscribers to the share capital or shareholders, a board of directors, management that is separate and independent from the board and subject to rules and regulations of company operations in Nigeria.
Listing the benefits of demutualisation of a stock exchange, market analysts, Pam Hughes and Ehzan Zargar, in 2006, listed them as follows: “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. Further, demutualisation allows greater flexibility and access to global markets. Fifthly, 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.”
However, the Chief Executive Officer, NSE, Oscar Onyema, on his part noted that demutualisation of NSE 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 while also adding value to its stakeholders.
“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.”
He highlighted the benefits of a demutualised 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 demutualise, as it enables the exchange to serve the capital markets ecosystem and economy more effectively than it has done in the past.”
Benefits
According to Chief Executive Officer, PAC Securities Limited, NSE demutualisation will make sure that the benefits of the exchange will trickle down to ordinary Nigerians and every other participant in the market.
“If you are a player in the market, you participate and you buy the shares of the exchange, all other benefits will trickle down unlike when it is a non-profit-making organisation where you don’t know how the money is accounted for.
Now that it is going to be a profit-making organisation, the governance principle governing other corporations will come into play and this means transparency. That is to say, corporate governance would come into play. In terms of recruitment, management of exchange, all Nigerians will know how these are being done.”
In addition to the above, 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 characterises mutual organisations.
The NSE as a commercial organisation 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.