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Thursday,
September 27, 2018 11:26 AM / Arthur
Steven Asset Management Research
The Nigerian Stock Exchange (NSE) has
finally crossed a major hurdle in its demutualization processes as President
Muhammadu Buhari has finally signed the bill into law that will transmute the
Lagos based bourse from a mutual association of exchange members to a limited
liability company which is accountable to shareholders.
The President assented to the bill on the
29th of August 2018, according to documents seen by BusinessDay. A demutualised
NSE will allow the stock exchange become a company limited by shares; having
share capital or shareholders, a board of directors, management that is
separate and independent from the board and subject to rules and regulations of
company operations in Nigeria.
According to the Explanatory Memorandum
seen by BusinessDay, the act facilitates the expeditious conversion and
registration of NSE from a company limited by guarantee to a public company
limited by share in order to adopt and efficiently implement the global
practice of the demutualization of stock exchanges.
“The exchange is empowered to adopt any
process, procedure, structure or plan as may be required by its council for the
purpose of converting to a public company limited by shares provided that the
prior authorization of the Securities and Exchange Commission (SEC) has
obtained and all the procedures and requirement of the demutualization rules of
SEC have been complied with,” the Demutualization of NSE Act 2018 stated.
The members of the exchange, upon the
conversion and re-registration of the exchange to a public company limited by
shares, may only be liable to pay tax on dividends declared by the exchange.
The act further stated that upon the conversion and registration of the
exchange from a company limited by guarantee to a public company limited by
shares, all income, assets, property and liability of the exchange held prior
to the commencement of the act shall continue, without any limitation,
inhibition or restriction to the income, assets, property and liabilities of
the exchange as a public limited by shares.
According to the Act, NSE will establish a
Claims Review Panel made up of a chairman and four other members which will
review and determine any assertion by any person to any right in the share of
the exchange as such assertion having been made anytime between the coming into
force of this act and six years after conversion of the exchange from a company
limited by guarantee to a public company limited by shares.
Ayodeji Ebo, managing director at
Afrinvest Securities Limited said the new development is positive as it’s long
overdue. “This will open up NSE for more opportunities and invite new
investors.” “It also gives NSE the opportunities to implement some plans they
previously have which they could not implement due to their current status,”
Ebo said.
Until the early 90’s, majority of the
world’s stock exchanges were non-profit, member-owned, mutual organizations
with monopoly power. Since the first demutualization by the Stockholm Stock
Exchange in 1993, leading stock exchanges including the Australian, London,
NASDAQ and New York Stock Exchanges began to undergo demutualization. Also, a
number of stock exchanges especially in emerging market jurisdictions have
either demutualised or are in the process of demutualising including those of
Malaysia and India.
In Africa specifically, out of the 27
exchanges who are members of ASEA, seven namely the Johannesburg, Nairobi,
Mauritius, Seychelles, Rwandan, Casablanca stock exchanges and BRVM are
demutualized with several others including the NSE are in the process of
demutualizing or considering taking on this initiative.
In Nigeria, efforts to demutualize the
Exchange achieved milestone following the appointment of a consortium of
financial, legal and tax advisers on the demutualization initiative. South
African bank, FirstRand, and local investment firm, Chapel Hill Denham was
appointed to guide the NSE through the process of becoming a listed company.
According to data from the World
Federation of Exchanges, more than 70 per cent of members have transformed
their legal structure from non-profit mutual Exchanges into demutualized
organizations. NSE was incorporated as a private company in September 1960
under the name of Lagos Stock Exchange, which was changed to the Nigerian Stock
Exchange in December 1977. It was re-incorporated as a company limited by
guarantee in December 1990 and has operated as such ever since.
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