March 09, 2011 4226 VIEWS



 March  08, 2011
The idea of demutualising the Nigerian Stock Exchange (NSE) has been on the front burner for a long time. It received the greatest public attention under Ndi Okereke-Onyiuke, former director general of the NSE, and it is heart -warming that Emmanuel Ikhazobor, administrator of the NSE and Arumna Oteh, director general of the Securities and Exchange commission (SEC) are continuing with it. Demutualisation is a process by which a member-owned Exchange is converted to a shareholder-owned Exchange. With demutualisation, the NSE should be exposed to robust corporate governance, enhanced efficiency and transparency associated with publicly quoted companies.

Demutualisation allows the Exchange to be listed on its own floor where investors would have the opportunity of investing in the self-regulatory organisation. Demutualisation also allows the Exchange to be competitive and to take up investments that could enhance efficiency and returns for shareholders. Demutualisation has become a worldwide phenomenon.  Exchanges that have demutualised include the Singapore Stock Exchange, Japan’s Nikkei and New York’s NASDAQ. And each of these Exchanges has gained global recognition and patronage since they went public.
BusinessDay believes, however, that as important as demutualisation is, adequate preparation should be made to ensure that investors, and indeed Nigerians, benefit maximally from it. Therefore, the ongoing reforms in the capital market which include proposed updating of current infrastructure should be pursued with vigour. In particularly, a deliberate effort should be made to fully restore investor confidence in the market; investors should be assured of transparency, zero tolerance for exploiting insider knowledge, and other forms of malfeasance.
Regulation and monitoring are some of the areas that still require greater attention. Some of the unethical practices that have occurred in the market were possible because of the regulators’ nonchalance. But for the idea of demutualisation to be successful, regulators must live up to their responsibility of putting in place checks and balances that could identify fraud before it happens. It is also important that the new managing director and chief executive (MD/CEO) of the Exchange, expected to resume in April, should drive the process of NSE demutualisation. Having previously worked at the American Stock Exchange, we expect that the new MD/CEO will bring his experience to bear on this issue.
While pursuing the demutualisation option, the concern expressed in some quarters that groups with vested interest could buy up the Exchange should be taken into consideration. This is because if, at the end of the day, the bourse falls into the hands of individuals and groups who lack the competence and technical know-how, then the purpose of demutualisation would have been defeated. Therefore, enough time should be allowed and due process and diligence followed. 
Before the equities market crisis, the NSE was worth over N13 trillion in market capitalisation. Now, it is down to N8.16 trillion. So, selling the Exchange very low will not be in the interest of existing shareholders. One way of growing the value of the Exchange is by introducing more products that are investor-friendly. At present, the market is over 90 percent equity–dependent and diversification is absolutely necessary to increase activities. In addition, there should be full disclosure of information.
This is important because the more price-sensitive information is released to the market, the more volume, prices and value move up. No doubt, demutualisation will help the market, but it should not be done in a hurry. Let the right things be done first and the stage be properly set. That way, investors, and indeed the country, will reap the full benefits of demutualisation. 
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