By InvestAdvocate
Lagos (INVESTADVOCATE)-The Securities and Exchange Commission (SEC) on Friday unveiled exposure draft rules on demutualization of Exchanges in Nigeria.
SEC on its website said it’s in pursuant to section 313 of the Investments and Securities Act, 2007, the following proposed new regulations are made by the Commission.
Below is the exposure of Draft Rules on the Demutualization of Exchanges in Nigeria by SEC
PROPOSED DRAFT REGULATIONS FOR DEMUTUALIZATION OF SECURITIES EXCHANGES IN NIGERIA
Pursuant to Section 313 of the Investments and Securities Act, 2007, the following proposed new regulations are made by the Commission.
1. DEFINITION OF TERMS
In these regulations –
“Company limited by guarantee” has the meaning assigned to it under the Companies and Allied Matters Act, (CAMA) 1990;
“Company limited by shares” has the meaning assigned to it under the Companies and Allied Matters Act, (CAMA) 1990;
“Demutualization” means the separation of the ownership of the Securities Exchange from the right to trade on such Securities Exchange;
“Demutualized Securities Exchange” means the Securities Exchange following the completion of demutualization;
“Securities Exchange” has the same meaning assigned to it under the Investment and Securities Act, (ISA) 2007;
“Member” means a person who is a member of the Securities Exchange in accordance with its Memorandum and Articles of Association (MEMART);
“Re-registration” means the re-registration of the Securities Exchange from a company limited by guarantee to a company limited by shares in accordance with the Companies and Allied Matters Act, (CAMA) 1990;
“Rights” means all rights, powers, privileges and immunities, whether present or future, actual or contingent or prospective, and whether enforceable in Nigeria or elsewhere;
“Transitional Board of directors” means the Board of the demutualized Securities Exchange pending the appointment of a Board in accordance with these regulations.
2. CONDITION FOR DEMUTUALIZATION
The Securities Exchange shall not be considered to be a demutualized entity unless it has obtained a written approval of the Commission in accordance with these regulations.
3. REGISTRATION REQUIREMENTS FOR DEMUTUALIZATION.
(1) The Securities Exchange shall make an application to the Commission for approval to operate as a demutualized entity.
(2) An application under paragraph (1) shall be accompanied by the following additional documents and information –
(a) a valuation report of the Securities Exchange;
(b) the proposed authorized and paid-up share capital of the demutualized Securities Exchange with the number of shares to be issued;
(c) the names of members of the Securities Exchange proposed to be the initial shareholders of the demutualized Securities Exchange and the number of shares to be allotted to each shareholder;
(d) the number of shares to be allotted to and held directly or indirectly by the Government of Nigeria or its agencies in the public interest being at least ten (10) percent of the total shareholding;
(e) the proposed Memorandum and Articles of Association (MEMART) of the demutualized Securities Exchange ;
(f) the names and Profile of Council Committee on Demutualization;
(g) the proposed time within which the Board of the demutualized Securities Exchange shall be appointed;
(h) the proposed names of directors of the demutualized Securities exchange to be appointed at the first general meeting following the re-registration of the Securities Exchange;
(i) the proposed plan for the independent management of the commercial and regulatory functions of the demutualized Securities exchange and timelines for implementation of necessary structures to ensure the functional separation of commercial and regulatory functions;
(j) a detailed five (5) year business development plan for the demutualized Securities Exchange together with the capital expenditure estimates and the sources of finance for the five (5) year period;
(k) the manner in which the rights and liabilities of the existing members shall be treated in the demutualization;
(l) the procedure for the allocation of shares to the shareholders identified under subparagraphs (c) and (d);
(m) a written declaration that demutualization shall not affect any rights and obligations of the Securities Exchange or render defective any legal proceedings by or against the Securities Exchange ;
(n) the proposed timelines for the completion of operational manuals to guide the self-regulatory functions of the demutualized Securities exchange detailing the scope of regulatory functions to be performed by the demutualized Securities Exchange;
(o) the proposed rules of the demutualized Securities Exchange;
(p) the last audited financial statements of the Securities Exchange;
(q) the Commission may, in writing, require the Securities Exchange to provide any additional information which the Commission may require.
4. OWNERSHIP OF THE DEMUTUALISED SECURITIES EXCHANGE
1) Prior to the commencement of demutualization, the Securities Exchange should initiate a process for determining the accurate list of members of the Exchange.
2) The process of demutualization of the Securities Exchange should include an exchange of membership rights in the Securities Exchange for ownership of shares in the demutualised Securities Exchange;
3) No single entity/person or related entities/persons should be permitted to own, directly or indirectly more than 5% of the equity and/or voting rights in the demutualised Securities Exchange;
4) The aggregate equity interests of members of any specific stakeholder group (e.g. brokers and broker/dealers) in the demutualised Securities Exchange should not exceed 40%;
5) Strategic Investors should be given equity interest in the demutualised Securities Exchange subject to the following conditions:
a) The Strategic Investor should provide evidence of technical expertise through previous experience in managing other Exchanges.
b) The aggregate number of shares to be offered to the Strategic Investors shall not be more than 30% of issued and fully paid up capital of the Securities Exchange. However, if the Exchange is in dire need of funds, it could issue a higher number of shares subject to approval of the Commission.
6) The trading participants who are shareholders of the Securities Exchange shall with effect from the date of demutualization reduce their cumulative shareholdings in the demutualised Securities Exchange to not more than 10% within five (5) years.
5. GOVERNANCE
(1) The Board of Directors should be made up of a maximum of 13 members of which at least 1/3 of the Directors should be independent, non-executive Directors.
(2) All the Directors and Executive Management appointments should require the prior written approval of the SEC.
(3) The Demutualized Securities Exchange will be required to comply, in all other respects with the SEC Code of Corporate Governance for public companies.
6. PROCEDURE BY THE COMMISSION UPON RECEIVING APPLICATION
(1) The Commission may, if it considers necessary and in the interest of the capital markets, direct the Securities Exchange to make appropriate amendments to the documents and information submitted under rule 3.
(2) Where the Securities Exchange does not comply with the requirements of rule 3 or a directive under paragraph (1), the Commission shall –
(a) give the Securities Exchange an opportunity to be heard ;
(b) make a decision and communicate the decision, as the case may be, recommending the appropriate measures that the Securities exchange may take in order to comply.
(3) Upon receipt of all the information submitted under rule 3, subject to any amendments under subparagraph (1), the Commission may approve the demutualization application with or without conditions and specify the terms within which the entity shall stand demutualized:
Provided that the Commission may, upon the application of the Securities Exchange, vary the term specified in the approval.
7. RESOLUTIONS OF THE DEMUTUALIZED SECURITIES EXCHANGE
The Securities Exchange shall, within thirty (30) days of obtaining approval or in such period as the Commission may approve in writing, ensure that-
(1) the Securities Exchange is re-registered as a company limited by shares under the Companies and Allied Matters Act, (CAMA) 1990;
(2) it adopts the following resolutions in addition to any other resolutions as may be required under rule 4(3):-
(a) a special resolution approving the Memorandum and Articles of Association of the demutualized Securities Exchange;
(b) a resolution on the proposed allotment of shares to the initial shareholders of the demutualized Securities Exchange;
(c) subject to rule 4(3), a resolution appointing the directors as the Board of the demutualized Securities Exchange; and
(d) a resolution on the approved paid up share capital.
8. DEMUTUALIZATION
The Securities Exchange shall, subject to the fulfillment of any conditions attaching thereto, stand demutualized upon the expiration of the period specified in the approval of the Commission in accordance with rule 4(3).
9. REDUCTION IN SHAREHOLDINGS
The trading participants who are shareholders of the Securities Exchange shall with effect from the date of demutualization reduce their cumulative shareholding in the demutualized Securities Exchange to no more than ten (10) percent within five (5) years.
10. COMMENCE IMPLEMENTATION OF SELF-REGULATORY FUNCTIONS
The demutualized Securities Exchange shall, within one (1) year of an approval being granted, implement the plan submitted under rule 3(2) (a).
