The recent news of the demutualisationof the Nigerian Stock Exchange flooded the markets with great excitement following its long anticipation. But while a welcome development, a lot of investors still find the term and concept a bit too highfaluting.

This article, while not a detailed exposé on the subject, looks to throw some light on what it really means and the opportunities it affords you as an investor.

In simple terms, the demutualisation of the Nigerian Stock Exchange means that the Exchange has moved from operating as a not-for-profit, member owned entity and has become a profit-driven, limited liability company which is accountable to its shareholders. It essentially separates ownership and voting rights from the right of access to trading and represents a clear departure from the traditional operation of a securities exchange. It is a new dispensation in the development of stock exchanges across the world that is gaining more prominence in recent times.

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The most obvious change that happens when a stock exchange becomes demutualised is that its governance structure is significantly altered. The exchange continues to serve a public function as a regulator, provides access to trading on a contractual basis with the exchange and allows the exchange offer services to market players for a profit.


Upon demutualisation, the Nigerian Stock Exchange became the 57th member of the 70 member World Federation of Exchanges to demutualise, emphasising the shift towards demutualisation as policy for most exchanges around the World. Since the completion of the demutualisation, The Nigerian Stock Exchange now operates as a non-operational holding company called the Nigerian Exchange Group Plc (NGX) which owns Nigerian Exchange Limited (which will operate as the trading platform) and NGX Regulation Limited which will operate as the regulatory arm of the new company.

 Some of the benefits of the demutualisation include:


Given that the ownership of the exchange can now be transferred by sales of shares, investors can become part owners of the Nigerian Stock Exchange which also allows the exchange generate funds as needed by issuing shares to the public for sale. It also provides a liquidity opportunity for its current members which comprise mostly of the stockbroking houses.


As already mooted earlier, Nigeria has only just joined an already long list of stock exchanges across the world to adopt the demutualisation policy with the Johannesburg Stock Exchange leading the way in 2006 and the Nairobi Stock Exchange in 2014. Across the world, demutualised exchanges have been seen to have a competitive outlook, which in turn leads to improvements and advancements that lessen cost of transaction while promoting trading best practices. 


As a profit-making entity, the exchange’s subsidiaries created as result of the demutualisation will be driven to create income generating products with the additional aim of delivering value to its shareholders. It will also be liable to company taxation as well as other taxes payable by companies that operate for profit.                                                                         


As profit driven publicly traded companies, the demutualised subsidiaries will be bound by the codes of corporate governance to ensure that all decisions made by the companies are made for the benefits of its stakeholders.

The completion of the demutualisationis an exciting development and we look forward with much anticipation to its unfolding.


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