Stockbrokers Protest Sale of Nigerian Stock Exchange
- By Kayode Ogunwale
- Published June 20th, 2011
- News
- Unrated
A major crisis is brewing in the Nigerian capital market, following perceived subterranean moves to implement the proposed demutualization of The Nigerian Stock Exchange (NSE). Dealing members of the stock market are gearing up against the Securities and Exchanges Commission (SEC) over the perceived implementation process of what has been described by market watchers as new move to own one of the fastest growing stock exchanges in the world.
Demutualisation is the process by which a not-for-profit association (like a cooperative) is re-incorporated as a for-profit organization with shareholders who may not necessarily be industry practitioners.
The proposed demutualization of NSE was the undeclared cause of the last upheaval at the exchange that led to the forced exit of Professor Ndi Okereke-Onyiuke as director general – an act which the Federal High Court has condemned in very strong terms while declaring her removal as null and void.
The renewed move to demutualize NSE has pitched dealing member members of the exchange against SEC, with the stockbrokers accusing SEC of overreaching itself in steps taken in this direction, particularly the recent appointment of “public interest” persons to the Council of NSE at the instance of SEC.
Dealing members of the NSE told BusinessWorld that the development was especially interesting because in directing the admission of its (SEC’s) nominees into the Council of The Exchange, SEC said the expanded Council would prepare the sale of The Exchange’s shares to the public. Dealers contend that “demutualization as being proposed, using the power of the regulator to force things through, will amount to expropriation of the exchange and we find this completely unacceptable.”
Our sources indicate that dealers would rather see SEC limiting its role to approving guidelines prepared by members of The Exchange for the demutualization exercise and nothing more.
However, even though the stockbrokers appear united in their opposition to the role of SEC in the demutualization of the NSE, BusinessWorld gathered that the solidarity may have been broken by the information that there may be a discriminatory treatment of dealing member firms for the purpose of demutualization. Apparently, this was a strategy to break the rank of stockbrokers opposed to the manner of the demutualisation of the NSE. In the proposed arrangement, dealing member firms licensed after 1990 when the exchange was re-incorporated as a company limited by guarantee, would not be treated as part owners of the exchange; they would be treated merely as “having trading rights”, leaving only those stockbroking firms licensed prior to 1990 as the owners of the exchange.
One of the SEC nominees to the Council of the NSE is known to represent the category of owners of the exchange who have gone to court to challenge the demutualisation as proposed. Also, under the discriminatory arrangement, Ordinary Members of The Exchange (mostly individuals) may be disqualified from having ownership stake in the exchange.
Under the Memorandum and Articles of Association of the NSE, the President of the NSE is drawn from the class of Ordinary Members. The category of houses affected by this proposal includes some of the houses currently driving activity on the NSE in terms of volume of transactions and product innovation.
The proposals have elicited threats of legal proceedings against the NSE, which the affected dealing member firms said would ground operations at the exchange, with serious adverse implications for investors and issuers of securities. More than N8 trillion in market capitalization would be put at risk, at least.
It is also believed in the market that the proposed higher capital requirement for stockbroking houses is meant to work in tandem with the foregoing categorization of stockbroking firms, as it would work to trim the number of stockbroking firms that would benefit from the demutualization, leaving other interests to share in the pie.
Evidently, at stake is the perceived profitability of the NSE as an investment. Also, control of NSE through demtualisation is based on the notion that whoever controls the exchange has significant economic leverage that could be converted into political capital. Even though demutualization is said to have impacted positively on the fortunes of stock exchanges that went through the process, there is a school of thought that argues that African stock exchanges should not contemplate demutualization for varied circumstantial and commercial reasons, including the fact that African stock exchanges are not under any domestic competitive pressure to demutualise as happened in Europe, Asia and the United States of America.
Also, there are doubts about the profitability of African stock exchanges post-demutualisation, given the paucity of listings and very low liquidity. Last month, the director general of the NSE, Mr. Oscar Onyeama, announced that a committee of Council had been constituted to midwife the demutualisation of the exchange. He did not name the members of this committee. The committee succeeds an earlier committee of Council which had Dr. Raymond Obieri as chairman. Dr. Obieri is believed to have been opposed to the demutualization of the exchange as it would run counter to the vision of the founding fathers of the exchange.
Demutualisation is the process by which a not-for-profit association (like a cooperative) is re-incorporated as a for-profit organization with shareholders who may not necessarily be industry practitioners.
The proposed demutualization of NSE was the undeclared cause of the last upheaval at the exchange that led to the forced exit of Professor Ndi Okereke-Onyiuke as director general – an act which the Federal High Court has condemned in very strong terms while declaring her removal as null and void.
The renewed move to demutualize NSE has pitched dealing member members of the exchange against SEC, with the stockbrokers accusing SEC of overreaching itself in steps taken in this direction, particularly the recent appointment of “public interest” persons to the Council of NSE at the instance of SEC.
Dealing members of the NSE told BusinessWorld that the development was especially interesting because in directing the admission of its (SEC’s) nominees into the Council of The Exchange, SEC said the expanded Council would prepare the sale of The Exchange’s shares to the public. Dealers contend that “demutualization as being proposed, using the power of the regulator to force things through, will amount to expropriation of the exchange and we find this completely unacceptable.”
Our sources indicate that dealers would rather see SEC limiting its role to approving guidelines prepared by members of The Exchange for the demutualization exercise and nothing more.
However, even though the stockbrokers appear united in their opposition to the role of SEC in the demutualization of the NSE, BusinessWorld gathered that the solidarity may have been broken by the information that there may be a discriminatory treatment of dealing member firms for the purpose of demutualization. Apparently, this was a strategy to break the rank of stockbrokers opposed to the manner of the demutualisation of the NSE. In the proposed arrangement, dealing member firms licensed after 1990 when the exchange was re-incorporated as a company limited by guarantee, would not be treated as part owners of the exchange; they would be treated merely as “having trading rights”, leaving only those stockbroking firms licensed prior to 1990 as the owners of the exchange.
One of the SEC nominees to the Council of the NSE is known to represent the category of owners of the exchange who have gone to court to challenge the demutualisation as proposed. Also, under the discriminatory arrangement, Ordinary Members of The Exchange (mostly individuals) may be disqualified from having ownership stake in the exchange.
Under the Memorandum and Articles of Association of the NSE, the President of the NSE is drawn from the class of Ordinary Members. The category of houses affected by this proposal includes some of the houses currently driving activity on the NSE in terms of volume of transactions and product innovation.
The proposals have elicited threats of legal proceedings against the NSE, which the affected dealing member firms said would ground operations at the exchange, with serious adverse implications for investors and issuers of securities. More than N8 trillion in market capitalization would be put at risk, at least.
It is also believed in the market that the proposed higher capital requirement for stockbroking houses is meant to work in tandem with the foregoing categorization of stockbroking firms, as it would work to trim the number of stockbroking firms that would benefit from the demutualization, leaving other interests to share in the pie.
Evidently, at stake is the perceived profitability of the NSE as an investment. Also, control of NSE through demtualisation is based on the notion that whoever controls the exchange has significant economic leverage that could be converted into political capital. Even though demutualization is said to have impacted positively on the fortunes of stock exchanges that went through the process, there is a school of thought that argues that African stock exchanges should not contemplate demutualization for varied circumstantial and commercial reasons, including the fact that African stock exchanges are not under any domestic competitive pressure to demutualise as happened in Europe, Asia and the United States of America.
Also, there are doubts about the profitability of African stock exchanges post-demutualisation, given the paucity of listings and very low liquidity. Last month, the director general of the NSE, Mr. Oscar Onyeama, announced that a committee of Council had been constituted to midwife the demutualisation of the exchange. He did not name the members of this committee. The committee succeeds an earlier committee of Council which had Dr. Raymond Obieri as chairman. Dr. Obieri is believed to have been opposed to the demutualization of the exchange as it would run counter to the vision of the founding fathers of the exchange.
