Thursday,September 27, 2018 11:26 AM / ArthurSteven Asset Management Research

The Nigerian Stock Exchange (NSE) hasfinally crossed a major hurdle in its demutualization processes as PresidentMuhammadu Buhari has finally signed the bill into law that will transmute theLagos based bourse from a mutual association of exchange members to a limitedliability company which is accountable to shareholders.

The President assented to the bill on the29th of August 2018, according to documents seen by BusinessDay. A demutualisedNSE will allow the stock exchange become a company limited by shares; havingshare capital or shareholders, a board of directors, management that isseparate and independent from the board and subject to rules and regulations ofcompany operations in Nigeria.

According to the Explanatory Memorandumseen by BusinessDay, the act facilitates the expeditious conversion andregistration of NSE from a company limited by guarantee to a public companylimited by share in order to adopt and efficiently implement the globalpractice of the demutualization of stock exchanges.

“The exchange is empowered to adopt anyprocess, procedure, structure or plan as may be required by its council for thepurpose of converting to a public company limited by shares provided that theprior authorization of the Securities and Exchange Commission (SEC) hasobtained and all the procedures and requirement of the demutualization rules ofSEC have been complied with,” the Demutualization of NSE Act 2018 stated.

The members of the exchange, upon theconversion and re-registration of the exchange to a public company limited byshares, may only be liable to pay tax on dividends declared by the exchange.The act further stated that upon the conversion and registration of theexchange from a company limited by guarantee to a public company limited byshares, all income, assets, property and liability of the exchange held priorto the commencement of the act shall continue, without any limitation,inhibition or restriction to the income, assets, property and liabilities ofthe exchange as a public limited by shares.

According to the Act, NSE will establish aClaims Review Panel made up of a chairman and four other members which willreview and determine any assertion by any person to any right in the share ofthe exchange as such assertion having been made anytime between the coming intoforce of this act and six years after conversion of the exchange from a companylimited by guarantee to a public company limited by shares.

Ayodeji Ebo, managing director atAfrinvest Securities Limited said the new development is positive as it’s longoverdue. “This will open up NSE for more opportunities and invite newinvestors.” “It also gives NSE the opportunities to implement some plans theypreviously have which they could not implement due to their current status,”Ebo said.

Until the early 90’s, majority of theworld’s stock exchanges were non-profit, member-owned, mutual organizationswith monopoly power. Since the first demutualization by the Stockholm StockExchange in 1993, leading stock exchanges including the Australian, London,NASDAQ and New York Stock Exchanges began to undergo demutualization. Also, anumber of stock exchanges especially in emerging market jurisdictions haveeither demutualised or are in the process of demutualising including those ofMalaysia and India.

In Africa specifically, out of the 27exchanges who are members of ASEA, seven namely the Johannesburg, Nairobi,Mauritius, Seychelles, Rwandan, Casablanca stock exchanges and BRVM aredemutualized with several others including the NSE are in the process ofdemutualizing or considering taking on this initiative.

In Nigeria, efforts to demutualize theExchange achieved milestone following the appointment of a consortium offinancial, legal and tax advisers on the demutualization initiative. SouthAfrican bank, FirstRand, and local investment firm, Chapel Hill Denham wasappointed to guide the NSE through the process of becoming a listed company.

According to data from the WorldFederation of Exchanges, more than 70 per cent of members have transformedtheir legal structure from non-profit mutual Exchanges into demutualizedorganizations. NSE was incorporated as a private company in September 1960under the name of Lagos Stock Exchange, which was changed to the Nigerian StockExchange in December 1977. It was re-incorporated as a company limited byguarantee in December 1990 and has operated as such ever since.

Related News

1.      AnInsight to the Regulatory Issue Arising from the Demutualisation of the NSE

2.     MembersApproved NSE Demutualisation Process

3.     NSEAnnounces Financial Advisers for Demutualisation​

4.     Demutualisationof NSE may begin in Q2

5.     SECInaugurates NSE’s Demutualisation Committee

6.     SECgoes ahead with NSE demutualisation

7.     ASHONwrites SEC on Council Members, Demutualisation

8.    NSErestructures ahead of demutualisation plans

9.     NSEDemutualisation to be Concluded in 2012 - Ãrunma Oteh

10.  Whya return to demutualisation would be a great relief

11.   Demutualisation:Nobody will hijack NSE, Onyiuke