Ogunbanjo: Demutualisation Will Diversify NSE’s Revenue Base, Enhance Efficiency

1

The President of the Council of the Nigerian Stock Exchange, Mr. Abimbola Ogunbanjo, in this interview, says the completion of the demutualisation of the Exchange will accelerate momentum in the diversification of its client base and revenue streams through greater business flexibility, enhanced market access and increased efficiency. Obinna Chima provides the excerpts:

Talks about demutualising the Nigerian Stock Exchange (NSE) had been on for several years before you emerged as the President. How do you feel seeing this become a reality under your leadership?

I feel elated that after 19 years after my predecessors initiated the process to demutualize, we are finally getting closer to achieving the goal. It is also momentous that it is occurring on the 60th anniversary of the Exchange. On a personal note, there is an added feeling of deja-vu especially in view of the fact that my father’s law firm, Chris Ogunbanjo & Co, was the external solicitor that incorporated The Nigerian Stock Exchange in its original form in 1960, when it was formerly known as the Lagos Stock Exchange.

Furthermore, achieving the demutualisation of the Exchange was one of my main objectives when I assumed the Presidency of the Exchange and I am particularly happy it has been achieved during the life time of one of its founding fathers, Pa Akintola Williams. I had made him a promise at his centenary birthday last year that he would live to witness the demutualisation of the Exchange and glory be to God that he is alive and well to witness and benefit from the demutualisation. I must add however, that when the story of how we managed to achieve this milestone is told, you will recognise that there were several actors involved and without whom it could not have become a reality so they must share in the glory of this successful project.

But why do you think demutualising the Exchange is vital and what was wrong with the current model?
In its current form, the Exchange is subject to several legal restrictions which have hampered its ability to operate competitively and profitably as would a limited liability entity. We expect completion of the demutualisation exercise to accelerate momentum in the diversification of the Exchange’s client base and revenue streams through greater business flexibility, enhanced market access, and increased efficiency. The major weakness of a mutual exchange is its constitution. Mutual exchanges are ultimately geared to maintaining their members’ interests.

The interests of the members are not necessarily the same as those of the exchange; they are disparate. The separation of shareholders, management and users in a demutualised exchange makes for better strategic decision-making rather than protecting vested interests. Post demutualisation, The Exchange will be better positioned to implement commercial strategies to improve its role as a trading arena and undertake improvements to facilitate more competition. Improvements will allow for efficient, effective and more competitive trading. Improved global trading facilities will maximize economies of scale and scope and increase our accessibility and market reach. The Exchange will be better positioned to seek strategic alliances and consolidations, introducing greater geographical collaborations and M&A possibilities. Demutualisation will enhance The Exchange’s access to skills, knowledge and technical efficiencies from strategic shareholders. The Exchange’s brand will achieve global visibility thus enhancing its profile.

What are the direct benefits to the economy?
The demutualisation of the Exchange will benefit the economy in more ways than one. Post demutualisation, the emerging entities would be subject to companies’ income tax and other relevant taxes payable by for-profit organisations, thereby providing additional source of tax revenue for the Nigerian government. It is anticipated that the demutualisation of the Nigerian Stock Exchange will reinforce the continuous growth and development of a dynamic, fair, transparent and efficient capital market and thus significantly contribute to Nigeria’s economic development.

Do you think this will encourage more companies to list on the NSE?
The demutualisation of The Nigerian Stock Exchange will surely bring about changes in the market structure with more participants. It will also give rise to improved corporate governance, higher levels of efficiency and lower transactions costs which will inadvertently attract more listings to the market. Furthermore, we expect a general boost in confidence both from investors and issuers resulting from increased trade activities and better opportunities for international alliances and cross border listings. We believe the value proposition associated with demutualisation will encourage more listings.

How will the new structure protect the retail investors?
Our focus to increase retail participation and protect investors in our market will be unchanged. Retail investors will continue to have access to diversified asset classes for growing wealth and through the Investors’ Protection Fund we will continue to restitute proven cases of infractions but more importantly on artificial intelligence driven market monitoring system will be sustained. Ultimately, when the Exchange is ready to float new shares for the investing public, retail investors would be a key consideration for the allocation of shares.

Some have also raised issues around corporate governance, what will be the role of the NSE under this new structure?

The functions of the current NSE will be unbundled upon demutualization and this will address the concern around fusing ownership of the Exchange and regulation of the Exchange especially given the intention to list the Holding Company. To answer your question more specifically, the Exchange greater independence from members with owner interests being aligned with those of The Exchange. The incorporated regulatory entity for this purpose is called NGX Regulation Limited. The newly demutualised Exchange will continue to provide services similar to the previous entity, although the governance structure will change; with ‘outside’ shareholders being represented on the Board of Directors.

There are also concerns that with demutualisation, the high net worth investors might crowd out the retail investors. What is your take about that?
Currently, what we have done is a change in structure that will give Dealing and Ordinary Members the right to trade their shares, not an Initial Public Offering to the general investing public. We cannot dictate what steps any of these shareholders will take – whether to buy or sell – at this time. However, a major benefit that will accrue to The Exchange post-demutualisation is the ability to raise capital from many sources just like a normal profit-seeking Public Limited Company. It is, therefore, in our best interest to accommodate the needs of both institutional and retail investors – new and existing – once our shares are publicly available to trade.

What plan does the NSE have to sensitise Nigerians about the new structure?
Right from the onset of the exercise, the Exchange was intentional about the need to ensure the process is transparent. We have had series of engagements with various categories of stakeholders to educate them about the process. This approach has been imperative to the success we have achieved so far. At periodic intervals, we have issued statements to update the general public. We have also created a dedicated page on the NSE website where relevant information, documents and calendar of events about the demutualisation process can be viewed.