The new kid on the block

Abstract

Since early 1990s, demutualization of stock exchanges has become a global trend. Recently, the Securities and Exchange Commission of Nigeria expressed the intention of Nigeria to join the global trend with the passage of the Securities and Exchange Commission Rules on Demutualization of 2015. This paper examines demutualization policy in Nigeria with particular reference to the issue of conflict of interest. It argues that conflict of interest in the post-demutualization era in Nigeria could be appropriately managed through the co-regulatory approach that is practised under the mutual structure, albeit with some reforms. The paper suggests two major reforms. First, the self-regulatory function of exchanges should be restructured in such a way that the role of exchanges as market operators would be distinct from their role as market regulators. Second, the regulatory role of the Securities and Exchange Commission should be expanded to include the power to appoint members of the board of management of a demutualized exchange; regulation of self-listing of a demutualized exchange; and adjudication of conflicts where the commercial interest of a demutualized exchange conflicts with that of a listed entity on the exchange. The paper further argues that such regulatory system would not only enhance the front-line regulatory responsibility of demutualized exchanges, but also ensure a balanced approach to regulation of conflicts of interest in post-demutualization era in Nigeria’s securities market.