NGX: Nigeria Joins Global Best Practice on Exchange Structure

Mary Nnah

The birth of the Nigerian Exchange Group (NGX) from what was hitherto known as the Nigerian Stock Exchange (NSE) has brought Nigeria to par with the global best practice.

Through what has been an eventful history, the Exchange, under Mr. Oscar Onyema, its GCEO, has eventually succeeded, despite all odds, in joining the global league of demutualised exchanges.

Scheduled to be launched soon, it has been a long journey from when the idea was first mooted to its achievement through the passage of the Demutualisation Act by the Nigerian National Assembly, and approvals by both the Securities and Exchange Commission (SEC) and the Corporate Affairs Commission (CAC).

Consequently, the NGX, built from over sixty years of experience, is now in an entirely new phase as its new corporate status also impacts business model and operational strategies, both at the macro and micro levels. Interestingly, the NGX is positioned to be an African change purveyor.

The new Group CEO of NGX Group Plc, Oscar N. Onyema said that the Nigerian capital markets should play a role commensurate with Nigeria’s status as Africa’s largest economy. “At the Nigerian Stock Exchange, we have a vision that the new group will become the premier exchange hub for Nigerian businesses and for the African economy.

“We are implementing a series of measures towards this goal, demutualisation being a critical milestone. The completion of demutualisation is a truly significant moment, and we welcome the new possibilities that have opened up for us”, he noted.

So what is Demutualisation you may ask? IMF.org says it as the term “used to describe the transition of a securities exchange from a mutual association of exchange members operating on a not-for-profit basis to a limited liability, for-profit company accountable to shareholders.” https://www.imf.org/en/Publications/WP/Issues/2016/…

Historically, the Nigerian Stock Exchange, NSE, was created in 1960 by an Act of Parliament as a mutual, not-for-profit organisation, limited by the guarantee of its members.

On September 15, 1960, the NSE was founded as the Lagos Stock Exchange with seven subscribers to the Exchange’s Memorandum of Association. They were R.S.V. Scott, representing C.T. Bowring and Co. Nigeria Ltd., Chief Theophilus Adebayo Doherty, John Holt Ltd, Investment Company of Nig. Ltd. (ICON), Sir. Odumegwu Ojukwu, Chief Akintola Williams and Alhaji Shehu Bukar.

On August 25, 1961: operations officially started with 19 securities listed for trading – though informal trading started earlier in June. Operations were initially conducted inside the Central Bank building with four firms as market dealers: Inlaks, John Holt, C.T. Bowring and ICON (Investment Company of Nigeria).

The volume that first month of August 1961 was about 80,500 pounds. By the next month, it had enlarged to about a quarter of a million (250,000) pounds with the bulk of investments being government securities. It was in December 1977 that it became known as The Nigerian Stock Exchange, with branches established in some of the major commercial cities nationwide.

While it has operated as a charitable organisation made up of members and not owners, all these sixty years, the new NGX had to set up competitive structure viz a new non-operating holding company, the Nigerian Exchange Group Plc (NGX Group) with Oscar Onyema as Group CEO; and three operating subsidiaries: Nigerian Exchange Limited (NGX), the operating exchanging, with Temi Popoola as CEO; Regulation Limited (NGXREGCO), the independent securities regulator with Tinuade Awe as CEO; and NGX Real Estate Limited (NGXRELCO), the real estate company, with Gabriel Igbeka as acting CEO.

Demutualisation of exchanges brings about the decoupling of its membership from the right of access to trading so NGX, the Exchange can (must) now make profit, distribute the same to shareholders and also pay corporate income tax.

Profits can now be distributed amongst its owners and shareholders against the previous conduct of retaining every surplus income.

Demutualisation is the exact opposite of “Mutual”. A mutual organisation is an association set up by members to satisfy their narrow interest or to serve the public interest under a charter.

This phenomenon isn’t a new one when it comes to exchanges, as it has become as old as since the 1990s when the forces of liberalisation and globalisation ushered in drastic changes to the global financial landscape.

Though the New York Stock Exchange, established in 1792, gave in to the inevitable change of demutualisation in 2006, Demutualisation entered the global lexicon around 1993 when the Stockholm Stock Exchange demutualised.

After that bold step, renowned stock exchanges like Amsterdam, London, Paris, Chicago, Toronto, NASDAQ, Deutsche, Paris, Hong Kong, etc. followed suit in quick successions, and later came the big one, This new norm in exchanges around the world isn’t alien to the African continent as renowned exchanges have since joined the Demutualisation band.

The list includes Johannesburg, Casablanca, Seychelles, Nairobi, Rwanda, and Mauritius Stock Exchanges.

Demutualisation has numerous gains and as a premier securities exchange in Africa, the NGX will usher in the development of not only the Nigerian capital market but also impact business in Africa.

Additionally, it will open up the continent for foreign investors, and further improve corporate governance, investor partition opportunities, diversification of businesses, increased global brand and visualisation of the NSE.

However, it is arguably in the enhancement of access to broad pools of capital that its impact will be most felt nationally. Indeed, the Nigerian Exchange Group itself will be able to easily raise funds to finance strategic objectives and expansion.

Like every human phenomena, demutualisation has some concerns as to its effectiveness and adoption in the country considering the uniqueness of the nation’s business terrain.

But the succour the NGX will continue to enjoy is the fact that demutualisation has been around in other world-renowned exchanges for over two decades. In other words, it is a tested and trusted phenomenon that has proven to be effective and result-oriented.

Analysts say Demutualisation will attract direct foreign investment (DFI) and drive huge foreign participation in the governance of the exchange and the exchange will be subject to the highest standard of corporate governance expected of a public company.

Accordingly, the Nigerian Exchange Group Plc. Is also expected to generate revenue for the government through payment of taxes asis the case with all profit-oriented organisations.

All said, the advent of the NGX is a huge step in the right direction. With the standard setup the Nigerian Exchange Group has already put in place to ensure market operations are conducted with the highest levels of transparency and in line with global standards, it looks like better days ahead.