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Disagreement over deferred public ownership of NSE

By Peter Egwuatu
Stakeholders have disagreed over the continued suspension of public ownership of the Nigeria Stock Exchange.



ck Exchanges are traditionally privately owned by stock brokers and some individuals and the process of making a stock exchange publicly owned is called Demutualisation.

Demutualisation is a process where Stock Exchange transforms into a Public Limited Liability Company (PLC) and by implication a profit making organisation listed on itself and any other Exchanges around the world.

Demutualisation could be defined as a process of changing a mutual or co_operative association into a public company by converting the interests of members to shareholdings that could be traded on the Exchange. Where it is implemented, the exercise usually results into members of the public holding 51 per cent of the demutualized company’s equity capital and introduce specialized knowledge and expertise for efficiency and long_term development.

At the moment the NSE is a private company established by an Act of Parliaments and owned by members comprising  stock brokers and ordinary members.

In October 2008 the Council of the Exchange said it would be demutualised and become a quoted company by 2010.
The Council however made a volt face late 2009  quarter of 2009, the saying  it  has suspended the planned demutualisation until further notice.

The position of the council was reiterated last week by the Director-General of the NSE, Dr.  Okereke_Onyiuke. She told financial journalists  that the suspension on the demutalisation still holds.

According to her, “ Meantime, the proposed plan to demutualised has been put on hold pending the time the market recovers fully. It is important to note that we can only extract maximum value from demutualisation process when we have metamorphosed into the most efficient and agile entity possible. This will happen once we have completed our transformation programme.”

Some stakeholders however kicked against the continued suspension of  plans by the NSE to demutualise saying  if the Exchange is demutualised it will further aid quick recovery of the market.

According to them, if the NSE is demutualised it will further enhance confidence and transparency in the market which has been eroded as the Exchange will be monitored by various stakeholders, especially shareholders activists.
In the corporate world, when the management of a quoted company fails to perform, shareholders have the right to call an extra_ordinary general meeting where they may reach decision to dissolve the entire management and replace them with a fresh management with fresh ideas that could move the organization forward.

But such compelling leadership change is difficult to effect as it is with the NSE as the Director General of the Exchange, Professor Ndi Okereke Onyiuke has  persistently said no government or individual can remove her from office except the Council, which she is accountable to.

Shareholders, under the aegis of Independent Shareholders Association of Nigeria (ISAN) told Vanguard that they support the move by the NSE to demutualise.

According to the National Coordinator, ISAN, Sir Sunny Nwosu, “ Our members are in full support of the demutualisation plan of the Exchange as such scheme is in tandem with international practice.”

According to him, “ During the African Securities Exchange Association (ASEA) held last year December at Abuja, demutualisation was one of the major things discussed . African Exchanges were encouraged to embrace the scheme since it was regarded as  the best global governance standards, as well as principles that guided the evolution of the other exchanges from mutual association to demutualised entities.

Continuing, he said, “ We shareholders in ISAN are prepared to partake when the shares are thrown to the public. We would like to have seat in the audit committee so that we can be in a position to monitor and criticise the NSE constructively for the betterment of our investment. But under the present arrangement where the NSE is in the hands of dealing members the shareholders cannot effect any major change.”

However another shareholders group, under the aegis of Progressive Shareholders Association of Nigeria (PSAN) said Africa is not ripe to have their Exchanges demutualised, especially the NSE.

Mr. Boniface Okezie, who bears the minds of is members in a chart with Vanguard said, “ We don’t want the NSE to be demutualised because a few people will hijack it. Until there is full disclosure and transparency in our market we will not like the NSE to go for demutualisation. Our market is not matured enough to embrace demutualisation. So the plan for demutualisation of the NSE should be cancelled  until we begin to do things right and not compromised on rules.”

But Senior member of the stock brokers community a Council member however said that  the issue of demutalisation has nothing to do with shareholders because it is brokers that are demutualising. The Exchange, he said is a mutual property of  stock brokers and demutualisation will only make the ownership open to investors. Hence its like saying I want to sell my house, what has that to do with you or anybody.

Brokers, he said  are in support of the suspension of plans to demutualise the NSE. He said that demutualisation is good because it will make the market more efficient, protect public interest by enthroning  proper governance  in the running of the Exchange  but it must be properly done. And that is why the suspension of demutualisation plans by the Exchange is a welcome development because since the pronouncement to demutualise there has been no real attempt put in place to do it.

More so that SEC has said it will supervise it so that it is properly done.  Even before the Exchange announced plans to demutualise, the brokers’ community knew that the Exchange is not ripe for it and the decision was more due to pressure from some influential Council members who thought it is something that can be hurriedly done like the listing of a company. There needs to be some level of efficiency in the operation and management of the exchange as well as erecting the necessary governance structures before demutualisation can become an issue.”

Since the wave of demutualisation started in  2000, many Exchanges in Europe, United States and Asia have demutualised. In Africa, only JSE Securities Limited (South Africa) has demutualised,  beckoning on NSE, Egypt and the rest of emerging markets in Africa to follow suit.

Also the Securities and Exchange Commission (SEC), apex regulator of the Nigerian capital set up a committee to review the market following the crash of the stock market with collosal lose by investors. The  Dotun Sulaiman led committee among other things recommended that the SEC should supervise the demutualisation plan earlier announced by the NSE.

But to the surprise of market operators and other  stakeholders, the NSE kicked against the recommendation saying that SEC has no business to mingle in its private affairs. In its reaction, NSE faulted the recommendation saying that demutualisation is strictly the Exchange’s business which should be left as such.

Some operators  have reasoned that leadership of the NSE was not comfortable with the recommendation that the planned demutualisation be supervised by SEC to ensure equality and openness. They argued that NSE’s decision to suspend implementation of the proposal was calculated to protect selfish interest of some high_placed individuals who felt their stake holdings would be jeopardized if SEC is allowed to supervise the exercise as recommended by the Committee on Capital Market Restructuring.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.