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Amid bearish results, hope rises for stock market with demutualisation


Nigerian Stock Exchange

The loss of N2.49 trillion in seven months by investors in the nation’s bourse is the unsavoury news coming out of the Nigerian Stock Exchange (NSE).

The loss, amounting to 15.64 per cent between January and July, has been attributed to political uncertainty in the country by development experts.

Available data shows that the market capitalization, which closed at N15.895 trillion in January declined to N13.409 trillion in July.


Similarly, the All-Share Index lost 7,325.87 points or 16.52 per cent during the period under review, closing at 37,017.78 in July compared with 44,343.65 in January.

Prof. Uche Uwaleke, Head of Banking and Finance Department, Nasarawa State University Keffi, told newsmen that the performance of the market was dismal and eroded the growth recorded in January.

Uwaleke said the market had remained bearish despite the oil price recovery, stable exchange rate, retreating inflation and even improved company fundamentals.

He, however, attributed the development to heightening political tension, insecurity from herdsmen and economic uncertainties from the delay in budget implementation.

Mazi Okechukwu Unegbu, former President, Institute of Bankers of Nigeria (CIBN), said security issues and the social environment were responsible for the negative sentiments in the capital market.

Unegbu said foreign investors had pulled out their funds from the nation’s market, especially portfolio investors.

He said the real investment that impacted positively on the economy was foreign direct investment in the productive sector not ‘hot money investment’ in the stock market. Unegbu said government must encourage local investors to invest in the market by creating the right environment.


Glaringly, a significant part of the current problem with the capital market is low confidence especially on the part of the domestic investors. 

Currently, not less than four million Nigerians participate in the capital market just as less than 30 per cent of listed equities are actively traded in the market.
Analysts believe that the current size of the capital market constrains its role in national economic development. 

Market liquidity as measured by trading volume and turnover is comparatively low at less than 20 per cent of the country’s GDP.
Foreign investors are significant players in the equities market often dictating the pace of market activity. Local institutional investors such as pension funds and mutual funds are less active in the equities.
Indeed, there is an urgent need for regulators to attract more investors to the market and boost participation.

Since the 2007-2008 financial crisis, local investors that got their fingers burnt developed apathy on the market.
This is in spite of efforts and various initiatives adopted by the capital market regulators to restore investors’ confidence and woo local to the market.

Experts at different fora have argued that demutualising the exchange would widen the retail investor base and help to de-risk and detach the market from the apron string of foreign investors who exit the market at any slightest volatility.
However, there were some sparks in the capital market community few days ago.

The report that both chambers of the National Assembly have passed the enabling bills to demutualise the Nigerian Stock Exchange (NSE) into law brought succour to investors and the entire market community.

The bill is currently awaiting assent by President Muhammadu Buhari. 
Demutualisation of a stock exchange is a process by which a non-profit, member/brokers owned mutual exchange is converted into a profit seeking shareholder corporation, open to members of the public. 

Demutualising an exchange therefore transforms it from being owned by members or brokers, to one with a different governance structure where members of the public can buy shares.
A demutualised exchange may take the form of a public company listed on its own exchange like the Australian Stock Exchange or remain private like the Toronto Stock Exchange.


Now a global phenomenon, demutualization is being embraced by several countries of the world.

For instance, of the 64 members of the World Federation of Exchanges, 56 have demutualized.
Up till the early 1990s, most of world stock exchanges were non-profit, mutual organizations limited by guarantee and monopolized by members and stock brokers.

The first stock exchange to break away from the norm was the Stockholm Stock Exchange in 1993. Helsinki Stock Exchange followed in 1995.

In the African market, Johannesburg Stock Exchange and the Nairobi Stock Exchange were demutualized in 2006 and 2014.   
Regrettably, despite being the largest economy in Africa, Nigeria Stock Exchange established 58 years ago, is yet to demutualize.

Some experts had in various fora have argued that when membership of the NSE is opened to majority of Nigerians and they are called upon to own shares in the stock market, it would help create awareness of activities in the market, give investors a ‘sense of belonging’ and more local investors would participate.
Similarly, they pointed out that with demutualisation, corporate governance would be well structured and investors would have more confidence to stake their fund in the market.

The President Institute of Capital Market Registrars (ICMR), Bayo Olugbemi said: “Demutualisation has been on the front burner for a long time now.

It is not a government initiative but that of the stock exchange itself.
“What it means is that the shares of NSE will be opened to all interested investors thereby showing example. It is like the saying ‘physician, heal thyself’.

It is good for the market and investors. With this, I believe Nigerian investors will subscribe to it and it will deepen our capitalisation and the entire market.”
Attempt to demutualise the NSE began in 2017 with a resolution passed by the members of the exchange at an Extra-Ordinary General Meeting (EGM).

Following the resolution, the chairman, House of Representatives Committee on Capital Market and Institutions, Yusuf Tajudeen, sponsored a bill, which was first read in the House on March 29, 2017.
The Bill is titled: “An Act to facilitate the development of Nigeria’s capital market by enabling the conversion and re-registration of the NSE from a company limited by guarantee to a Public Limited Company (PLC) by shares and for related Matters, 2017” (Otherwise called “Demutualization Bill” HB 983).

At the Senate, the bill (SB 531) was sponsored by Senator Forster Ogola, Acting Chairman, Senate Committee on Capital Market.

It was read the first time on July 19, 2017 and second reading took place on July 25, 2017.

After the passage of the second reading in both chambers, the Bill was commuted to the relevant Committees on Capital Market for further legislative action.
The bill was eventually passed into law by the Senate on December 22, 2017 and the House of Representatives on February 1, 2018.

However, due to differences in the long title of the Bill, a conference committee was constituted by both chambers, the report of the committee was approved on May 30, 2018 by the National Assembly.
Giving reasons for the demutualization, NSE’s Chief Executive Officer, Oscar Onyema, said it was in furtherance to the resolutions of the NSE Extraordinary General Meeting held on March 30, 2017 where members voted in favour of the demutualization exercise.

He highlighted the benefits of a demutualized exchange to include: facilitating the development of the capital market, improved corporate governance, availability of resources from capital investments, enhanced competitiveness, increased global brand and visibility of the exchange, investor participation opportunities and ability to build a more sustainable institution.
Those who have endorsed the bill so far include; the Finance Minister, Mrs. Kemi Adeosun, the Governor of the Central Bank of Nigeria, Godwin Emefiele, Registrar-General of the Corporate Affairs Commission as well as officials of the Securities and Exchange Commission (SEC), Investments and Securities Tribunal (IST), Association of Stockbroking Houses of Nigeria, and the Chartered Institute of Stockbrokers.

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