NSE Demutualisation Crosses Major Hurdle As Buhari Signs Bill


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.


Proshare Nigeria Pvt. Ltd.


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