Waiting for Nairobi SE demutualization

Stakeholders in the Kenyan capital market are still waiting for changes to the Capital Markets Act to allow potential demutualization of the Nairobi Stock Exchange (www.nse.co.ke). According to a recent report in the Standard (www.standardmedia.co.ke), Peter Mwangi, NSE chief executive, said amendments to the CMA Act would come into force on 1 January 2011, after the Finance Bill is passed into an Act of Parliament. He said the exchange stands ready to make the necessary applications to effect its demutualisation once the 2010 finance bill is assented.
The paper quotes him as saying at the First Annual African Alliance East African Investor Conference Gala dinner in Nairobi: “In furtherance of this, the NSE recently streamlined its operations in preparation to becoming a full service securities exchange.”
The paper says current members of the NSE approved the proposal for a demutualised exchange in March 2010, but the political process required to enact the necessary legislations into law is going slowly. The existing 19 NSE members, mainly stockbrokers and investment banks, resolved to retain 80% shareholding in the demutualised company for 2 years, split equally among themselves, before diluting it to 40% through an initial public offering (IPO). The CMA’s Investor Compensation Fund (ICF) and Treasury will each own 10% of the new entity. The ICF is expected to its sell a portion of its stake to replenish its reserves.
The brokers also agreed to change the name of the demutualised exchange to Nairobi Securities Ltd, with an authorised share capital of Sh1 billion ($12.4 million), and the change the memorandum and articles of association to reflect the new status. The NSE’s current paid up capital is fixed at Sh200 million.
The demutualisation process aims to improve corporate governance by separating ownership of the exchange and trading rights of the member firms, which can lead to conflicts of interest. Brokers enjoy a monopoly of the NSE and some brokers also act as dealers and fund managers.
According to the Standard, demutualisation is expected to transform the exchange, and position it to realise its vast potential, and attain its vision of being a leading securities exchange, with a global reach.

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