THE NSE AND DEMUTUALISATION PHOBIA
Sola Oni argues that the exercise may be beneficial
In 2005, a senior colleague and at The Nigerian Stock Exchange, attended an investor education training programme at Stockhlome Stock Exchange, Europe, to tap into the exchange’s investor education policy and processes. The choice of stockhlome’s market by the management was partly informed by the euphoria that it had demutualised since 1993 and got listed in 2000, making it the first stock exchange to demutualise and listed in the world. It was an engaging experience.
The Nigerian Stock Exchange was initially operating like silo under the obnoxious Exchange Control Act of 1962 which was later replaced with investor-friendly acts to open the market to the international community.
The exchange has always been blessed with leaders that have foresight. I was covering the capital market for The Guardian when the exchange was operating manual system of trading called Open Outcry or Call-Over or Pit Trading. It is the use of shouts and signals to convey trading information of bid and offer (buy and sell) on the trading floor. The trading method connects stockbrokers in a theatrical manner. It is quite entertaining. Electronic trading with all its speed and accuracy has never dislodged open outcry. New York Stock Exchange, Chicago Board of Trade (CBOT) and some other markets operate open outcry simultaneously. There are arguments on whether liquidity is more enhanced in open outcry than electronic trading.
However, 1997 was a turning point in the history of our stock market as it joined the global markets by transiting from the open outcry to Automated Trading System (ATS). The market equally commenced electronic trading, clearing and settlement with the installation of the Central Securities Clearing System (CSCS). The history was made under the administration of Apostle Hayford Alile, the Director General and his successor, Professor Ndi Okere-Onyuike. The duo laid the global foundation on which the market stands today. They shall always remain relevant in the history of the exchange.
Shortly upon her assumption of office as the Director General and Chief Executive Officer, Professor Okereke-Onyuike exhibited another round of foresight. In 2001, she defied her exalted position and associated privileges and initiated the need to transform the exchange from a private company limited by guarantee to public one, called demutualisation in stockbroking parlance. The American-trained first class finance graduate knew that her decision would trigger dramatic changes in the exchange’s legal and governing structure, ownership, management, (including her position) processes and procedures.
She strongly believes that demutualisation could not be done in 48 hours, hence, her tactics was that all stakeholders including stockbrokers, exchange’s staff, investing public and financial press should be engaged ahead of switch-over date apart from ensuring compliance with necessary regulatory approvals.
However, the ongoing plan suffered a slight setback as Ndi the Amazon’s administration was ‘toppled’ in August 2010 in a phantom palace coup at the radiance of her retirement, leading to funny exit of many of us in the management and other cadres of staff, some of whom have passed on. The matter has been resolved in her favour but the rest is history.
In 2011, another leader of foresight, Mr Oscar Onyema stepped into Professor Okereke-Onyuike’s big shoe and made a success of the position in his first tenure. This earned him a second round from the exchange’s govering council. Onyema, the current chief executive officer of the exchange must be commended for upholding the tenets of demutualisation project. Like his predecessor, Onyema came to the exchange with robust foreign experience and embarked on many policies, taking some tough decisions to sustain the exchange’s brand positioning.
Nobody can fault Onyema on market discipline. He wanted stockbrokers to become information technology savvy. His policy on Minimum Operating Standard (MOS) was initially unpopular but has now become a status symbol for our dealing member firms. The quantum leap in minimum capital base for stockbroking firms, formerly regarded as corporate backbreaking, has further reinforced investor confidence in the system. The exchange has recorded many innovations and won a catalogue of awards in the last couple of years.
However, the ongoing demutualisation of the exchange is one singular project that is fast attracting the attention of all stakeholders in the financial market including foreign investors. Everyone is awaiting the new face of the market and how it will affect the management of the exchange, the impending change in the status of stockbrokers from the current owners to clients in the name of shareholders and involvement of non-members as shareholders either now or later.
The Securities and Exchange Commission (SEC) has issued guidelines on the demutualsation. The exchange’s National Council and Management have secured endorsement of the stockbrokers to go ahead. But every progress report must be made available to the members and unilateral decision should not be taken by the exchange.
The South African Bank, FirstRand Bank Holding Company and Nigeria based financial firm, Chapel Hill Denham are working round the clock as advisers. The Nigerian Stock Exchange Demutualisation Bill, 2017 has been presented at the Green and Red Chambers in Abuja and the bill is awaiting presidential assent in a matter of time.
Onyema has what it takes to drive the demutualisation process. However, he must tame the elephant in the house. Market watchers are curious that the rate of staff turnover across the board at the exchange is fast becoming unprecedented and causing minor panic. In our days, working at the exchange was a status symbol. Turnover was almost nil. It is yet unclear if the current trend is demutualisation phobia. But we cannot ignore the fact that a staff who foresees uncertainty of job security may voluntarily opt out.
Onyema needs to re-assure the staff who are on fasting and praying that their job is secured and the fact that they have to re-apply is a mere paper work. It is essential to curb the trend of turnover as continu- ous resignation of staff may send wrong signal to the public. Capital market basically thrives on trust.
As part of post demutualiation human capital strategy, the exchange can attract some of our home-grown stockbrokers to strengthen the market by leveraging on their globally acceptable skills and competencies. Many of them are well grounded in the art and science of investment. Apart from passing the standard Chartered Institute of Stockbrokers’ Professional Examination, some genuinely flaunt CFA (Chartered Financial Analyst) qualification, arguably the most recognised qualification in the global financial market at the moment. Granted that a CFA chartered holder has never worked in Ghana, the qualification has positioned him to be a competitive professional globally. Also, much as the market is encouraging foreign investors with hot money and the obvious consequences, indigenous investors should also be attracted because they are more stable.
Stockbrokers obviously want demutualisation project to succeed. But it is normal that they are keen about what becomes of their means of livelihood after the transformation. Some of our stockbrokers are above 80 years and they derive their daily meals from the market.
They know that demutualisation has two phases: Pre- demutualisation which sets the stage and post-demutualisation, the promised land.
Dealing member firms are expressing concerns in measured tone on what valuation metric will be used to determine the worth of their shares. This is logical as share valuation is fundamental to their net position at the end of the exercise. Their great expectation is that the exchange should review the valuation metrics used by many demutualised exchanges and adopt the market that is closest to the exchange in structure. The firms are also whispering about the need for equitable allotment of shares on the premise that they are the revenue engine for the market and this is their payback period.