The House of Representatives has passed a bill amending the laws establishing the Nigerian Stock Exchange (NSE). The Senate had passed a similar law last year. President Muhammadu Buhari must assent to the bill for it have legal backing.
Chief Executive Officer of the NSE, Oscar Onyema during a review of the 2017 market year/2018 outlook held last week had expressed optimism that the exchange would be demutualized before the end of the year. The NSE, had in 2015 appointed financial advisers to advise it on a proposed demutualization. He however did not disclose if the exchange planned to raise fresh funds or would merely list its shares.
What is demutualization ?
Demutualization is the process by which an exchange is converted from a company owned by members or brokers, to one in which members of the public can buy shares. Major demutualized stock exchanges on the African continent include the Johannesburg Stock Exchange which became demutualized in 2006 and the Nairobi Stock Exchange which became demutualized in 2014.
Shares of a demutualized exchange will trade on the exchange itself, as well as others.
What are the benefits of demutualization ?
An exchange that is demutualized can decide to raise funds. Demutualization also increases transparency and encourages innovation. Demutualized exchanges can also take up stakes in other exchanges.
The Nigerian Stock Exchange (then known as the Lagos Stock Exchange ) was founded on the 15th of September 1960. Trading however commenced on the 5th of June 1961. The exchange was renamed the Nigerian Stock Exchange in December 1977.
The NSE All Share Index closed at 42% last year, after two consecutive negative years, and is currently up over 15% year to date, driven by the improved macroeconomic environment and enhanced foreign exchange liquidity. This in turn has attracted foreign investors who fled the market in 2015 and 2016. Foreign investors make up over 70% of investors in the Nigerian Stock market.
