In 2014 the Nigerian Stock Exchange (NSE) issued a request for proposals from local and foreign financial advisers to assist with its demutualisation. This was the first sign that the demutualisation of the NSE, first proposed in 2001 by former Director General Ndi Okereke-Onyiuke, was finally close to implementation. In February 2015 the Securities and Exchange Commission (SEC) issued the draft Rules on Demutualisation of Exchanges in Nigeria and invited comments from the market. In the latest development, the SEC recently published the final Rules on Demutualisation of Securities Exchanges in Nigeria.

Road to demutualisation

Demutualisation is the process by which a member-owned organisation – such as the NSE, which was set up by its members for their own personal benefit – becomes a public company. The SEC's new rules explicitly define demutualisation as "the process through which a member owned organization becomes a shareholder owned company".

The global trend towards demutualisation has been driven largely by increased competition which has, in turn, triggered a need for improved efficiency and technologies. The NSE is currently registered as a company incorporated by guarantee and supporters of demutualisation have identified this as a hindrance to its success: they argue that as a demutualised exchange, the NSE would operate with a view to earning and increasing profits, thereby increasing its operational efficiency.

The road to demutualisation has been slow, with regulators reluctant to rush a process that is not regulated by law and that has received mixed responses from members of the exchange. The negative reception to the proposed demutualisation process could be attributed to the lack of clarity surrounding the legal framework for the process, as well as corporate governance and ownership issues.

While the Companies and Allied Matters Act 2004 provides for the conversion of private companies into public companies and vice versa, it does not provide for the conversion of a company limited by guarantee into a public company. It has been suggested that before demutualisation takes place, such a process must be provided for and regulated under Nigerian law. Similarly, stockbrokers have argued against the demutualisation process on the grounds that it is against the memorandum and articles of association of the NSE and cannot be implemented until there is a members' resolution at a general meeting approving the process.

There are also corporate governance concerns with regard to having a public interest company owned by private individuals. Issues under debate include:

  • the type of share structure to be implemented;
  • the maximum equity to be held by a single shareholder – a factor which is likely to have a considerable impact on investors;
  • the mechanism for the resolution of conflicts of interest; and
  • the government's role in the demutualised exchange.

Demutualisation would involve extending ownership of the exchange from members and participants to non-members; indeed, it would open the gateway for foreign investors to own a part of the NSE.

Rules on Demutualisation of Securities Exchanges in Nigeria

In 2011 the NSE started working with stockbrokers to develop a roadmap for demutualisation. The SEC in turn inaugurated a 21-member technical committee to develop a legal framework for the demutualisation of the NSE and advise the SEC on the process. The committee submitted its recommendations to the SEC in March 2012; since then, the SEC has been working on ways to address the committee's findings, as reflected in the new SEC rules.

Under the SEC rules, a securities exchange that wishes to demutualise must draw up an accurate list of members of the exchange and the process of demutualisation must include an exchange of membership rights for ownership of shares. The rules further provide that an application for demutualisation must be made to the SEC, which must include:

  • a valuation report of the securities exchange;
  • the proposed authorised and paid-up share capital of the demutualised securities exchange;
  • the names of the members of the securities exchange proposed to be the initial shareholders; and
  • the number of shares to be allotted to each shareholder.

Other notable provisions in the SEC rules include a 20% restriction on the aggregate equity interests of members of any specific stakeholder group and a proposal that no single person or related persons should be permitted to own – directly or indirectly – more than 5% of the equity and voting rights in the demutualised securities exchange.

Following the demutualisation of the NSE, it is expected that the exchange will seek investment from within and outside Nigeria.

For further information on this topic please contact Temi Olowu or Yinka Edu at Udo-Udoma & Belo-Osagie by telephone (+234 1 264 5931) or email ( or The Udo-Udoma & Belo-Osagie website can be accessed at

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