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SEC’s rules on demutualisation restrict corporate raiders

By on February 24, 2015

The Securities and Exchange Commission has restricted corporate raiders from hijacking the Nigerian Stock Exchange (NSE) during its planned demutualisation exercise.

This is sequel to a rule that stipulates that no single entity/person or related entities are permitted to own more than five per cent in a demutualised securities exchange.

Demutualisation is the process through which any member-owned stock exchange becomes a shareholder-owned exchange and, sometimes, becomes listed.

The Council and members of the NSE had agreed to demutualise the exchange. But the absence of rules and regulations from SEC on the demutualisation process in Nigeria has been one of the factors delaying the NSE demutualisation.

However,  three years after, the committee on demutualisation submitted its report to SEC without any action,  the acting Director General of  the commission, Mounir Gwarzo, last week facilitated the exposure of the regulations to market operators and other stakeholders for their contributions.

Under the proposed draft regulations for demutualisation of securities exchanges in Nigeria, SEC said, “no single entity/person or related entities/persons should be permitted to own, directly or indirectly more than five per cent of the equity and/or voting rights in the demutualised securities exchange.”

The commission added that the aggregate equity interests of members of any specific stakeholder group (for example, brokers and broker/dealers) in the demutualised securities exchange should not exceed 40 per cent.

SEC added that the  trading participants who are shareholders of the securities exchange shall with effect from the date of demutualisation reduce their cumulative shareholdings in the demutualised securities exchange to not more than 10 per cent within five years.

The regulations make room for a strategic investor, on the conditions including: that  it should provide evidence of technical expertise through previous experience in managing other exchanges, the aggregate number of shares to be offered to the strategic investors shall not be more than 30 per cent of issued and fully paid up capital of the securities exchange. “However, if the Exchange is in dire need of funds, it could issue a higher number of shares subject to approval of the commission,” SEC added.

The regulations require that the process of demutualisation of the securities exchange should include an exchange of membership rights in the securities exchange for ownership of shares in the demutualised securities exchange.

According to SEC, prior to the commencement of demutualisation, the securities exchange should initiate a process for determining the accurate list of members of the exchange.

On governance, the commission said the  Board of Directors should be made up of a maximum of 13 members of which at least  one third of the directors should be independent, non-executive directors.

“All the directors and executive management appointments should require the prior written approval of the SEC. The demutualised securities exchange will be required to comply, in all other respects with the SEC Code of Corporate Governance for public companies,” the commission said.

 

[ThisDay]