BY MICHAEL EBOH

The Nigerian Stock Exchange, NSE, will be sold to investors at a price far below its actual value if the planned demutualization programme is concluded at the current declining state in the capital market, says Mr. Victor Ogiemwonyi, Managing Director, Partnership Investment Company Plc.

This has brought to the fore the need for the planned demutualization of the Nigerian Stock Exchange, NSE, to be suspended until a significant recovery is recorded in the capital market, so as to prevent a situation whereby certain individuals secure controlling stakes in the NSE with meager amount.

According to Ogiemwonyi, in his paper titled, ‘Demutualisation of the Nigerian Stock Exchange, NSE: Challenges, Prospects and Expectations,’ presented at the 2011 national workshop of Capital Market Correspondents Association of Nigeria, CAMCAN, in Ijebu Ode, Ogun State, said the NSE would have been demutualised in 2007 or 2008, when the Capital market was still buoyant.

He said demutualising the NSE at the current declining state will erode the value of the NSE and ensure that investors pick up the shares of the NSE at a very low rate.

According to him, the value of the NSE, today, is not as much as it would have been if it was demutualised in 2008, especially with the current downturn in the Nigerian capital market.

Ogiemwonyi explained that in demutualisation, a stock exchange is valued based on the total value of investments or listed securities in the exchange, especially as the income of and profitability of the exchange is a function of the value of listed securities.

According to him, a market decline means low income for the NSE, as portrayed by low trading, low listing fees and low transaction fees.

Furthermore, he advised that all the necessary signposts be put in place ahead of the demutualization exercise so that stakeholders will understand the process and participate actively in the exercise.

He, however, cautioned the capital market authorities against ignoring stockbrokers and other market operators, saying that market operators are the key stakeholders and should be allowed to play an active role in the demutualization programme.

Giving an overview of what to expect in a demutualised stock exchange, Ogiemwonyi said, “Until recently, the main sources of revenue for exchanges have been transaction, listing, members’ fees and sales of information services such as market data.

“Fees are also likely to fall in a demutualized environment, as broker dealers find it advantageous to trade on multiple exchanges rather than committing themselves exclusively to one.

“At the same time, technological innovations have sharply reduced the cost of providing data on quotes and trades, thereby diminishing the importance of this source of revenue.

“What is likely to produce revenue, however, is trading commissions; and the key to an exchange’s success in generating commissions is likely to be its ability to generate trading volume.

“As the industry continues to consolidate to achieve scale economies, the eventual winners in the process will be the exchanges that attract order flow and so provide liquidity to investors.”