Nigeria’s SEC asks for comments on exchange demutualization

CEO Oscar Onyema shows top managers of NASDAQ OMX the NSE trading floor. (Credit: businessdayonline)

CEO Oscar Onyema shows top managers of NASDAQ OMX the NSE trading floor. (Credit: businessdayonline)

Nigeria’s Securities and Exchange Commission has published rules on demutualization of securities exchanges on 20 February and this week is the end of the 2-week deadline for comments from stakeholders in the capital markets.
The Nigerian Stock Exchange (NSE) has decided to demutualize, by agreement of the Council and members. However, it had not been able to go ahead because there were no SEC rules on demutualization. According to this press report in This Day newspaper, the announcement comes 3 years after an SEC committee had submitted its report.
Demutualization is a process in which a member-owned exchange, sometimes a company limited by guarantee, is turned into a normal company with shareholders and investors. Usually it is a for-profit company and it can even list on its own exchange, with good examples set by the Johannesburg and Nairobi securities exchanges.
The proposed draft rules and regulations suggest “no single entity/person or related entities/persons should be permitted to own, directly or indirectly, more than 5% of the equity and/or voting rights in the demutualized securities exchange. The aggregate equity interests of members of any specific stakeholder group (for example, brokers and broker/dealers) in the demutualized securities exchange should not exceed 40%.”
Trading participants who are shareholders need to reduce their cumulative holding in the exchange to not more than 10% within 5 years of demutualization.
“Strategic investors” can get equity if they provide evidence of technical expertise through managing other exchanges. “The aggregate number of shares to be offered to the Strategic Investors shall not be more than 30% of issued and fully paid up capital of the securities exchange. However, if the exchange is in dire need of funds, it could issue a higher number of shares subject to approval of the Commission.”
The Board of Directors of the demutualized exchange should be up to 13 members with at least a third are independent, non-executive directors and all board and executive management appointments must be approved by the SEC. The exchange must comply in all other respects with the SEC Code of Corporate Governance for public companies.

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