By Chinwendu Obienyi
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 that have greatly improved their efficiencies and effectiveness.
One of the ways global stock exchanges have adopted business models and improved on their effectiveness was through the concept of demutualisation. Demutualisation is the process by which a mutually owned organisation transforms to a shareholder owned entity.
It means 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.
Specifically 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. Other exchanges that have demutualised include the Singapore Stock Exchange, Japan’s Nikkei, Johannesburg Stock Exchange, among others.
Nigeria’s stock market has eventually joined the trend as it received final approvals of its demutualisation plan from the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC) respectively.
Under the demutualisation plan, a new non-operating holding company, the Nigerian Exchange Group Plc (‘NGX Group’) was created. The Group will have three operating subsidiaries, namely: Nigerian Exchange Limited (NGX Limited), the operating exchange; NGX Regulation Limited (NGX REGCO), the independent regulation company; and NGX Real Estate Limited (NGX RELCO), the real estate company. All the entities have been duly registered at the CAC. It will be recalled that the plan to demutualised the exchange was mooted in 2001 under the administration of former Director General, Ndi Okereke- Onyiuke, and has for years, generated concerns among operators before it came to fruition.
Hence, with the new development, Nigeria’s stock exchange will be exposed to robust corporate governance, enhanced efficiency and transparency associated with publicly quoted companies.
It allows the exchange to be listed on its own floor where investors would have the opportunity of investing in the self-regulatory organisation and allows the exchange to be competitive and to take up investments that could enhance efficiency and returns for shareholders.
Commenting, the NSE Council President, Otunba Abimbola Ogunbanjo, said that successful demutualisation was one of his fundamental objectives when he assumed the Presidency of the Exchange.
He said, “The SEC’s decision to approve the NSE’s demutualisation plans brings this aspiration to a successful conclusion in a process that included the passage of the demutualisation act through the National Assembly. We are elated that this milestone has been achieved as we celebrate the 60th anniversary of the commencement of trading at the Exchange and now look forward to the future public listing of its shares on NGX Limited.
On the other hand, the new Group CEO of NGX Group Plc, Oscar Onyema, said, the approvals by the SEC and CAC signify that the NSE can now activate its transition plan to a new operational structure and holding company. He added that the NSE has a vision that the new group will become the premier exchange hub for Nigerian businesses and for the African economy.
“We are implementing a series of measures towards this goal, demutualisation being a critical milestone. The completion of demutualisation is a truly significant moment, and we welcome the new possibilities that have opened up for us.”Onyema said.
However, before the plan materialised, there were rumours that capital market operators (CMOS) were at loggerheads concerning the demutualisation process due to the fact that the process might affect their business models.
But following the expected benefits and due process followed by the regulators to create a level playing field, some stakeholders and operators in the Nigerian capital market have stressed the need for stock-broking companies to align their business models with the newly demutualised exchange to ensure more anticipated opportunities, minimised risks to quicken the full recovery of the nation’s capital market and help increase the presence of local investors.
Stakeholders’ view
At a Webinar themed; “The future of Securities Dealing Business in Nigeria Post Demutualisation of the NSE”, stakeholders explained that the demutualisation of the exchange would lead to an increase in the minimum capital base for dealing member firms and trigger a wave of mergers and acquisitions among stock-broking firms while some may opt out of the business for a new venture to remain afloat.
The Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyenwechukwu Ezeagu, revealed that the governing council of ASHON has been deliberating on proactive measures to take in order to realign its business model and ensure the sustainability of members’ businesses in the changes that may follow the demutualisation.
He added that the council has resolved to engage with other exchanges (platforms) with a view to creating avenues for its members to diversify and sustain their businesses and enhance their earnings’ base.
“Our market has not recovered fully from the global financial melt-down of 2008 due to the activities of various stakeholders in the past, regulatory lapses, policy summersaults, investor apathy among others and we have had to grapple with insensitivity on the part of government agencies who impose fees and taxes on us at will. We were involved in the demutualisation process with the council and management of the NSE from inception and participating in the various decision inputs and committee memberships.
Furthermore, we engaged vigorously and achieved our aim of protecting the interest of our members. Our expectations on the completion of the demutualisation process are that we shall have shares credited to our accounts as shareholders and the demutualised Nigerian Stock Exchange will become an aggressive profit oriented entity.”, Ezeagu said.
Also speaking, the Chief Consultant, Biodun Adedipe and Associates, Dr Biodun Adedipe, stated that innovative CMOs should be incentivised to create market products while business cases be made for the government to utilise the market to raise funds for infrastructure.