Demutualization in the Kenyan Context Progress Report 24 November 2009 By Mrs. Stella Kilonzo, Chairperson, Demutualization Steering Committee CMA 2009 1 OUTLINE 1. 2. 3. 4. 5. Introduction & Definition Demutualization Objectives The Institutional Framework Demutualization Milestones Remaining Steps CMA 2009 2 Demutualization Definition • The change in legal status of the exchange from a mutual association with one vote per member (and possibly consensus-based decision-making) into a company limited by shares, with one vote per share (with majority-based decision-making) Rationale for Demutualization • • • • Innovative Technology Globalization Competitive Pricing pressure Government deregulation CMA 2009 3 Demutualization Objectives • The objective of the demutualization process is to improve the governance system of Nairobi Stock Exchange by separating the ownership structure and the trading participation rights of the Exchange. • At the same time the Exchange will be transformed from a company whose ownership is currently limited by guarantee into a company limited by shares. • The Exchange will be transformed from a mutual company into a for-profit public company. CMA 2009 4 Institutional Framework • The process of demutualizing NSE is a collaborative initiative of the Kenya Association of Stock Brokers (KASIB), the Nairobi Stock Exchange Ltd (NSE) and the Capital Markets Authority (CMA). • This initiative is supported by the Government of Kenya through the Ministry of Finance. • The process is managed by a multi-sector Demutualization Steering Committee (DSC) established by the Ministry of Finance in March 2009. CMA 2009 5 Demutualizationby Milestones (1of 5) Contributions the Consultant • A review and harmonization of two studies on demutualization of the NSE conducted by NSE and CMA in 2007. • Engagement of a consultant through FLSTAP under Ministry of Finance to advise on best practices in demutualization throughout the process undertaken by DSC • Solution-oriented engagement with Demutualization of NSE Committee duly appointed to represent KASIB members • Synopsis of the challenges faced by the NSE in its current constitution CMA 2009 6 Demutualization Milestones – 2 of 5 • Development of an Action Plan to be continuously implemented by the DSC to guide its work on the Demutualization process • Development of a policy framework to guide and inform the legal drafting and the demutualization process. • Draft Articles and Memorandum of Association of NSE are in place. • A draft demutualization bill is in place. • A Cabinet Memorandum to forward the draft demutualization bill to the Cabinet for approval is complete. CMA 2009 7 …Demutualization Milestones (3 of 5) • A Value/Share allocation formula among the stakeholders has been proposed • The shareholding to initially comprise of NSE members, Government and Investor Compensation Fund. CMA 2009 8 Demutualization Ongoing Activities (1) Capacity building for the CMA and NSE staff (2) Draft rules stipulating the self-regulatory functions of the NSE and operating links between the CMA and demutualized NSE (3) Other mandate of NSE as a demutualized exchange to maximise shareholder value eg future self-listing by NSE (4) Capital markets Stakeholders sensitization CMA 2009 9 The Remaining Steps • The draft legal instruments to be presented by the Minister for Finance to the Cabinet for their approval through a Cabinet Memorandum • Publication of the Demutualization Bill by the Attorney General upon Cabinet Approval • Sensitization of Members of Parliament upon publishing of the Demutualization Bill • Debate and enactment of the Demutualization Act by Parliament by December 2009 CMA 2009 10 The Remaining Steps • NSE to submit its application for demutualization to the Authority upon enactment of the Demutualization Act • CMA approval of the NSE application to demutualize to facilitate the demutualization of NSE CMA 2009 11 Thank you. CMA 2009 12
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