The demutualisation of the Nigerian capital market is one issue that has gone through tortuous disputations in recent years. In this piece, UDEME EKWERE writes on emerging realities that are gradually transforming market positions in line with global trends.When the idea of demutualisation of the Nigerian capital market was first brought up some years ago, lots of stakeholders frowned on the issue.The stockbrokers, who were at the fore-front of the protests, appeared not to understand the need for the process at the time, especially as it was a period when the market downturn was in full swing.Not a few of the stakeholders and market operators thought that the plan to demutualise the Exchange was another scheme by the regulators to sideline them from the Exchanges schemes.Of course, some brokers at the time thought that the Securities and Exchange Commission had plans to take over their Exchange and edge them out.A few of them had expressed fears that there were too many challenges attached to the process of demutualisation, which the Nigerian market might not be ready for due to the domestic problems the market had been experiencing.However, experts have explained that the benefits to be accrued to players in a demutualised exchange far outweigh any challenges they may face in the process.Since the early 1990s, stock exchanges around the world have been undergoing major organisational and operational changes, and one of the most visible trends has been towards demutualisation.Demutualisation, which is an international trend, is the process of converting exchanges from non-profit, member-owned organisations to for-profit, investor-owned corporations.In 2001, for instance, at a meeting of the International Federation of Stock Exchanges, 52 stock exchanges were represented; 32 had demutualised, while 20 had approved plans to go for demutualisation.Several stock exchanges have been overhauling their structure to embrace demutualisation, due to a more demanding competitive environment, and the changing investment behaviour of investors, which became less home-biased and sought to diversify their capital globally.Demutualisation is seen as a trigger for the restructuring of stock exchanges, as it opens membership to new investors and changes the focus of operations.Explaining the need for the NSE to be demutualised, the Director-General, SEC, Ms. Arunma Oteh, said that if the dream of the NSE to become a world class market had to materialise, then it was left with no choice but to demutualise.She said, At SEC, we came out clearly last year and outlined the importance of building a world class capital market. We agreed with some stakeholders that if we have to achieve this dream, the necessary steps must be taken. The capital market is actually the barometer for measuring the performance of the whole economy.As a regulatory body, SEC has interacted with over 100 people across the globe and the outcome is not only that demutualisation allows markets to grow, it also addresses the issues of technology and governance, among other. We believe at the SEC that given the outcomes of goings-on around the world, demutualisation is very important for the growth of the Nigerian capital market.Former President, Association of Stockbroking Houses of Nigeria, Mr. Rasheed Yusuff, said that it was not that the brokers were against the process, but that it was important that the whole process be clearly defined and be transparent to leave no one in doubt as to how it would be carried out.He added that this was especially important as it would ensure that some conflicts of interest, which seemed to have arisen as a result of the plans to demutualise, would be laid to rest.He said, Demutualisation is a current topic that continues to dominate the news whenever capital market is discussed, and it is a very important and strategic process. But regulators and operators must take a dispassionate view of it.It is important to note that whether the market is mutual or demutualised, there is the possibility of conflict of interest between operators, regulators and other stakeholders on any new process. So, it is important for both parties to really sit down together and look at the processes and agree on them.Speaking on the gains of demutualisation, the Managing Director, Partnership Investment Company Limited, Mr. Victor Ogiemwonyi, said that the trend would enable the market to understand and meet the needs of its investors, thus boosting investment in the Exchange.He said, Ideally, demutualisation operates in a more bottom-line-focused manner, and it is more capable of acting decisively and rapidly to changes in the business environment. It brings about greater flexibility to accommodate the needs of institutional investors, and as a result, adapt to change.It creates a structure with a greater degree of transparency, and forces exchanges to be accountable to their shareholders, not only regarding the bottom-line, but on issues arising from corporate governance, as todays competitive environment places emphasis on a stock exchange being responsive to the needs of its many stakeholders.He added that it was important for capital market regulators to brace themselves for the challenges that the process would bring, noting that, Like any new process, demutualisation has its own advantages and challenges, and it is necessary for the regulators to ensure that everything is put in place to ensure smooth running of the process.He explained further, Demutualisation will bring a host of new regulatory issues and it is critical that regulators and exchange management alike ensure that they are well-positioned and prepared to evaluate new risks and deal with them in an effective manner.The characteristic mode of regulation of stock exchanges is co-regulation. Therefore, our stock exchange should acts as a co-regulator with the government regulator to ensure that the markets are working fairly and efficiently to protect investors and prevent fraud.The conversion of an exchange from a mutual association to a for-profit corporation does not necessitate a fundamental change in this regulatory relationship.Ogiemwonyi noted that there were some challenges involved in the process that raised challenging regulatory questions, adding, Most broadly stated, a regulator of a demutualised exchange must balance the profit motives of the stock exchange with the greater goal of investor protection.In response to fears such as this, the Chief Executive Officer of NSE, Mr. Oscar Onyema, had said that the NSE would not undertake the whole process in a hurry.He stressed the importance of going through the process in phases, adding that this was the method a few countries adopted to ensure that the process was smooth and enduring.He said, Having gone through that process before myself, I can tell you that demutualisation is not something you do in a couple of months and you achieve it. There are so many things you need to do. When you are fully demutualised you just change your corporate structure from being a mutual company to a company that is guaranteed by shares.It does not mean that you are doing an Initial Public Offering, a strategic investment or having a private equity firm invests in you. There are different ways of doing it. For instance, there are exchanges that demutualise, and for many years, only their members had shares before they finally had an IPO.He, however, noted that it was essential for the process to start up on time, as this would boost financing in the Exchange.It is important to demutualise as quickly as possible to allow the Exchange run like a business. The demutualisation would ensure them the flexibility in terms of financing, he noted.
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