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SEC releases final rules on demutualisation of exchanges

By on April 16, 2015

The Securities and Exchange Commission (SEC) has released final rules on demutualisation of securities exchanges in Nigeria. The rules, according to SEC, are not specific to the Nigerian STOCK EXCHANGE (NSE)  alone but are aimed at operations of any other registered exchange in Nigeria.

Demutualisation is a process of conversion of a STOCK EXCHANGE from a non-profit, mutual organisation, into a for-profit entity with the attendant separation of membership rights from trading privileges held by members of the mutual exchange.

The rationale for demutualisation  of exchanges include the need to broaden market access by investors, improve governance, instill global best practices and form competitive alliance/strategic partnerships. In many countries, demutualisation has been adopted to serve as a catalyst for the rapid development of STOCK EXCHANGES.

The NSE has considered the issue of demutualisation for the past 10 years but the process was stalled due to the required restructuring and lack of Rules on the process for demutualisation.

However, SEC,under the leadership of the acting Director General, Mr. Mounir Gwarzo believes that demutualisation of the exchange will be immensely beneficial to the Nigerian economy. Hence, the commission last month exposed a draft of the rules  for market stakeholders to make  their contributions before the final rules will be released.

It was gathered stakeholders including the NSE,  Association of Stockbrokers of Nigeria (ASHON),Chartered Institute of Stockbrokers, Rules Sub-committee of CAPITAL MARKETCommittee, and Austen Peters, which is a law firm, made inputs  before SEC released the final rules.

Under the new rules, SEC recognises that the demutualisation process shall be exchange-driven. As such, members of an exchange  are responsible for determining the process and modalities for demutualisation.

However, in order for the commission to be carried along by the  securities exchange at different stages of the demutualisation process, the Rules provide for both the pre and post registration requirements.

The pre registration requirements involve preparing documents such as, Rules of the demutualised  exchange, valuation report, profile of members of demutualisation committee and implementation plan. On the other hand, the post demutualisation requirements entail providing documents/information like business development plan, audited accounts/statement of affairs and Corporate Affairs Commission (CAC)  incorporation documents.

Also, the Rules provide that no single entity/person would be permitted to hold more than per cent of the equity rights in the demutualised  exchange.  In addition, the aggregate equity interests of members of any specific stakeholder group shall not exceed 20 per cent.

The rules also provide that  a demutualised securities exchange must comply with SEC corporate governance code or any other applicable corporate governance code.

“As such, one third  of the Board of a demutualised exchange  shall be composed of independent directors, and all appointment of directors and executive management shall REQUIRE the prior written approval of the commission,” the rules added.

Market analysts said with the release of the Rules, SEC seeks to establish an appropriate regulatory framework within which the demutualisation process may occur, and ensure effective regulatory oversight for the demutualised exchange.

 

[ThisDay]