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