What to expect as Nigerian Stock Exchange goes public

THE Nigerian Stock Exchange (NSE), on Wednesday, completed its demutualisation process after receiving approvals from the Securities and Exchange Commission (SEC) and Corporate Affairs Commission (CAC).

With the completion of the process, the NSE becomes a publicly-traded company owned by shareholders. According to Investopedia, an investment online platform,  demutualisation occurs when  “a company elects to change its corporate structure to a public company, where prior members may receive a structured compensation or ownership conversion rights in the transition, in the form of shares in the company.”  Hence the NSE is now owned by shareholders rather than government or other special interests. Therefore, decisions in the stock market are now taken by shareholders rather than the government or other interest groups. Also, the NSE has become an entity that can offer its own shares to the public.

The new status of the NSE brings with it a different structure.  Under the demutualisation plan, a new non-operating holding company known as the Nigerian Exchange Group Plc has been created.

The group now has 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, the NSE said on Wednesday.

The approvals now enable the shares of NGX Group Plc, which have been registered with the Securities and Exchange Commission (SEC), to be distributed to the membership according to the court-approved Scheme of Arrangement. Hence, ahead of its listing on NGX Limited, the shares of NGX Group Plc will be available for bilateral trades to be executed in line with the Nigerian capital market’s extant rules and regulations, the NSE explained.

Abimbola Ogunbanjo, NSE Council President,
Credit: NSE

The NSE noted that demutualisation was important as it would create new strategic opportunities, enabling the group to realise its vision of becoming Africa’s leading capital market infrastructure provider.  “The creation of a holding company and a new capital structure will also enable NGX Group Plc to form new dynamic relationships, drive strategic partnerships and gain capital-raising flexibility.”

Oscar N. Onyema, the new group CEO of NGX Group Plc, said the Nigerian capital markets should play a role commensurate with Nigeria’s status as Africa’s largest economy.
“At the Nigerian Stock Exchange, we have a vision that the new group will become the premier exchange hub for Nigerian businesses and 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 today,”  Onyema said.


Demutualisation, a global practice 

The NSE is now the 57th country to demutualise. The first exchange to commence the practice was the Stockholm Stock Exchange in 1993. Since then, several exchanges worldwide, including the London Stock Exchange, Toronto Stock Exchange, the Paris Bourse, Nasdaq, and Hong Kong Stock Exchange, have embraced it.

Why demutualisation?

    In a 2002 working paper, Jennifer Elliot of the International Monetary Fund (IMF) noted that competition for liquidity, technology, mergers/alliances and regulatory pressure were some of the reasons why global exchanges scrambled to demutualise.

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    “The roots of demutualisation can be traced directly to the enormous technological changes that have affected the securities industry in the past fifteen years,” Elliot said. “Technology has been the impetus for demutualisation–services once offered exclusively by the local exchanges are now available elsewhere, creating competition for order flow and listings. Exchanges are now markets competing with other markets…”

    Also, a paper authored by the Organisation for Economic Co-operation and Development (OECD) in 2014 with the title ‘Privatisation and
    Demutualisation of MENA Stock Exchanges: TO BE OR NOT TO BE?’ explained that demutualising stock exchanges might lead to financial agility and improved decision-making compared to operating mutual or government-owned exchanges.

    The paper argued that demutualised exchanges have wider access to capital and could attract foreign investments.

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