Expert Defends Demutualisation of NSE
- By Business World
- Published July 4th, 2011
- News
- Unrated
Mr. Johnson Chukwu, managing director and chief executive officer of Cowry Asset Management Limited, has persuaded the general public not to panic at the intended plan to demutualise the Nigerian Stock Exchange (NSE), claiming that the move was for the advantage of all stakeholders of the capital market.
Chukwu stated this at the monthly forum of the capital market correspondents association of Nigeria (camcan) which was organized to evaluate the imperatives of reforms in the capital market.
Chukwu attempted to allay public fears that a few capitalists may hijack the demutualisation process by denying members of the general public the opportunity becoming part owners of the market.
He also gave a tentative solution to this proposition by suggesting that the equities be allotted on a state-by state basis. This, according to him, would curtail the likelihood of the emergence of a monopolistic hold over the market as several individuals across the 36 states of the federation would be opportuned to invest in the market.
Chukwu also gave a flip side to his previous opinion by stating that in an eventual demutualisation, the market was best left in the hands of a few investment banks than in the hands of a general public because the investing experts would do their very best to ensure that they regain their investment and also make profits.
“The controversial demutualisation process involves changing a mutual or cooperative association into a public company by converting the interests of members into shareholdings, which can then be traded through a stock exchange,” he said. “Examples of mutuals in Australia are building societies, credit unions and some large insurance institutions.”
He further explained that absence of strict regulations was a contributing factor to the meltdown that hit the Nigerian market. According to him, the capital market was better regulated in its early days than now as financial innovation in the form of more complex and sophisticated products and the amazing technological speed of transactions across international borders (globalisation) contributed to the inability of market regulators to strictly and effectively monitor the market.
Chukwu pointed out that the development was not entirely the regulators’ fault but that the rate of at which innovative, complex financial products were being turned out was faster than market regulators could control.
A global financial publication, The Economist, corroborated this view by stating that “under the mistaken belief that effective risk management had been assured through a combination of mathematics and computing power in risk management, operators in the leading exchanges abandoned such traditional, but thin-margin capital market businesses as underwriting and brokerage for such highly risky and more profitable instruments as Collaterized Loan Obligations (CLOs).
Chukwu stated this at the monthly forum of the capital market correspondents association of Nigeria (camcan) which was organized to evaluate the imperatives of reforms in the capital market.
Chukwu attempted to allay public fears that a few capitalists may hijack the demutualisation process by denying members of the general public the opportunity becoming part owners of the market.
He also gave a tentative solution to this proposition by suggesting that the equities be allotted on a state-by state basis. This, according to him, would curtail the likelihood of the emergence of a monopolistic hold over the market as several individuals across the 36 states of the federation would be opportuned to invest in the market.
Chukwu also gave a flip side to his previous opinion by stating that in an eventual demutualisation, the market was best left in the hands of a few investment banks than in the hands of a general public because the investing experts would do their very best to ensure that they regain their investment and also make profits.
“The controversial demutualisation process involves changing a mutual or cooperative association into a public company by converting the interests of members into shareholdings, which can then be traded through a stock exchange,” he said. “Examples of mutuals in Australia are building societies, credit unions and some large insurance institutions.”
He further explained that absence of strict regulations was a contributing factor to the meltdown that hit the Nigerian market. According to him, the capital market was better regulated in its early days than now as financial innovation in the form of more complex and sophisticated products and the amazing technological speed of transactions across international borders (globalisation) contributed to the inability of market regulators to strictly and effectively monitor the market.
Chukwu pointed out that the development was not entirely the regulators’ fault but that the rate of at which innovative, complex financial products were being turned out was faster than market regulators could control.
A global financial publication, The Economist, corroborated this view by stating that “under the mistaken belief that effective risk management had been assured through a combination of mathematics and computing power in risk management, operators in the leading exchanges abandoned such traditional, but thin-margin capital market businesses as underwriting and brokerage for such highly risky and more profitable instruments as Collaterized Loan Obligations (CLOs).
