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14 BUSINESS A.M. FEBRUARY, MONDAY 12 - SUNDAY 18, 2018 FINANCE & INVESTMENT Fixed Income Market Fixed income, currencies transactions decline 1.3% in January TRANSACTION TURN- OVER in the fixed income and currencies (FIC) markets for the month of January 2018 amounted to N11.71 trillion representing a 1.28 percent decrease (N0.15 trillion) from the value recorded in December 2017 and a 28.17 percent increase (N2.57trn) year-on-year The monthly statistics of FMDQ OTC released at the weekend indicates that, activities in the treasury bills market accounted for 39.24 percent of market turnover, while the foreign exchange market accounted for 37.50 percent of the total turnover against 33.63 percent in December 2017. Money market repurchase agreements (Repos)/buy-backs and unsecured placements/takings) accounted for 16.90 percent of market turnover compared to 24.31 percent in December 2017. The three segments thus had a combined contribution of 93.64 percent to the total turnover in the FIC markets. Transactions in the FX market settled at $14.01 billion in January 2018, an increase of 8.91 percent with the value of $1.15 billion when compared with the value recorded in December 2017 amounted to $12.86 billion. During the month under review, the naira appreciated slightly at the Investors’ & Exporters’ (I&E) FX Window closing at $/N360.00 from $/N360.33 as at December 29, 2017 whilst, also trading at a discount to the parallel market which closed at $/N364.00, from $/N363.00 as at January 2, 2018. Total value traded at the I&E FX Window in January 2018 settled at $5.25 billion, an increase of 36.87 percent ($1.41 billion) relative to the value recorded in December 2017 ($3.87 billion). Turnover in the fixed income market for the month under review settled at N5.33 trillion, representing a 7.16 percent increase, month on month. Transactions in the treasury bills market accounted for 86.11 percent of the overall Fixed Income market, an increase from the 84 percent recorded in December 2017. Outstanding Treasury bills at the end of the month stood at N11.47 trillion as against N10.60 trillion in December 2017, an increase of 8.21 percent, month on month. FGN bonds outstanding value also increased by 0.96 percent, month on month, to close at N7.64 trillion, from N7.57 trillion in December 2017. Trading intensity in the fixed income market for the month under review settled at 0.40 and 0.10 for treasury bills and FGN bonds respectively, from 0.38 and 0.11 recorded the previous month respectively. Treasury bills between the six and 12 months maturity buckets became the most actively traded, accounting for a turnover of 2.52 trillion in January 2018. Treasury bills market remain bearish on declining yields Stories: Kayode Ogunwale The treasury bills market has been predominantly bearish since the last primary market auction on the 31st of January 2018. The average T-Bills yield has advanced by 1.00 percent, following yield increases on all tenors. Amidst prevalent selling pressures in the secondary market, yield on the longer tenor, 12-month, advanced the least (+0.25%) in the period. In contrast, the one-month instrument was the least favoured by investors as the yield on the instrument advanced by 1.46 percent. Although yields have been on the decline since the start of the year, they have remained attractive for risk averse investors. Also, investors have continued to favour longer tenor instruments. Subsequently, the last primary market auction recorded respective bid to cover ratios of 1.07x, 1.01x and 1.57x on the 91-day, 182-day and 364-day instruments. Since the last auction, system liquidity has improved, on the back of constant OMO interventions by the CBN, as the market received a net repayment of N373.68 billion in the period. Bearish sentiment lingers in bond market as average yield rises 0.4% w-o-w Investor sentiment in the domestic bond market was largely bearish last week as average yield trended northwards in 4 of 5 trading sessions. Average yield at the start of the week settled at 13.5 percent, marginally higher (1bp) than the previous Friday’s close, consequent on sell-offs in short and longer tenored instruments. It was however more skewed towards the longer end of the curve - JAN 2026 (+6bps) and MAR 2027 (+4bps) instruments, which drove average yield higher. On Tuesday, sustained sell-offs across all instruments weighed on performance as average yield closed the day 28bps higher at 13.8 percent. The bearish sentiment lingered into Wednesday as yield on most instruments save the APR 2018, MAR 2024 and APR 2037, which saw increased buying interest, declined, thus driving average yield 10bps higher to settle at 13.9 percent. This negative trend was halted on Thursday as average yield declined 4bps to settle at 13.8 percent on the back of buy interest in mid-to-long tenored instruments. However, on Friday sentiment weakened as average yield increased 5bps to close the week at 13.9 percent, up 40bps week on week. The bearish sentiment filtered into trading activities on sub-Saharan Africa Eurobonds last week as yields across instruments trended higher, week on week, with only five of 22 instruments recording price appreciation. Nigerian Eurobonds recorded sell-offs as yields across all instruments increased week on week with the JUN 2018 (up 50bps) recording the most sell-offs. Average yield across the Ghanaian, Ivory Coast, Kenyan, Zambian and Senegalese instruments rose 20bps, 30bps, 10bps, 30bps and Average rates across instruments in the past week trended higher on three of five trading sessions. At the start of the week, activities remained minimal with sell-offs seen at the shorter end of the curve and rates closing at an average of 13.9 percent (up 2bps from 13.9% recorded the previous Friday). The upward trend was maintained till the end of the week, closing 12bps higher on Tuesday (13.9%), increasing 21bps on Wednesday (14.2%), 22bps on Thursday (14.1%) to eventually close the week at 13.9 percent, implying a 30bps increase week on week. In the primary market, the CBN offered N40 billion, N30 billion and N70 billion of the 94-day, 191- day and 234-day instruments at stop rates of 12.6 percent, 14.4 percent and 14.4 percent respectively. All instruments were undersubscribed save the 234-day instrument which was oversubscribed by 1.4x (subscription: N95.7 billion). In the coming week, despite the OMO maturity of N55 billion, analysts expect money market rates to remain at current levels as the apex bank continues with its 30bps respectively. YTD performance on all instruments save for the SOUTH AFRICA 2024 (+0.3%) and SOUTH AFRICA 2041 (+0.9%), is negative. The NIGERIA 2047 (-4.0%), NIGERIA 2027 (-3.4%) and NIGERIA 2032 (-3.2%) have the least YTD return. Across the Nigerian Corporate Eurobonds market, sentiment was mixed albeit more bearish as yields on 8 of 12 instruments rose W-o- W. The ACCESS 2021 (up 20bps to 7.6%) and ZENITH 2022 (up 20bps to 6.0%) instruments recorded the most sell-offs while the FBNH 2021 (down 20bps to 8.9%) witnessed the most buying interest. The FBN 2021 instrument is the best performing with YTD return of (+3.1%). However buy interest in the domestic bond market has markedly improved in the past two weeks. For the week ended February 2, 2018 a total of 16,268 units of Federal Government Bonds valued at N17.053 million were traded in 28 deals, compared with a total of 6,715 units valued at N5.318 million transacted previously The uptrend in buying weakened last week as 14,779 units of Federal Government Bonds valued at N14.050 million were traded in 18 deals. frequent OMO mop-ups. However, the Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Market Auction (PMA) on the 14th of February 2018. T-Bills worth N176.00 billion are expected to mature, while an equal amount would be issued in 91-day, 182- day and 364-day instruments. The CBN is expected to auction N6 billion, N30 billion and N140 billion in the 91-day, 182-day, and 364-day instruments respectively. Analysts say they see more buy interest in bonds next week if the equities market continues its downtrend. “When the stock market corrects, as it inevitably does, investors seek the safety of bonds. As with any free-market economy, bond prices are affected by supply and demand,” an analyst said. The bond market has peaked up in 2017 with government issuing various grades and types of bonds including FGN bonds, Eurobonds, Diaspora bonds and Sukkuk. Only last week, the DMO appointed a consortium of banks to handle the planned Eurobond issuance, signaling strong commitment towards the sale of its USD2.50 billion Eurobond. The estimated proceeds of N762.5 billion will be used to redeem Nigerian Treasury Bills. The settlement of the maturing treasury bills is expected to pressure rates further, as witnessed after the settlement of N198.03bn worth of T-Bills in 2017. The expectation of the decline in yields, coupled with the possibility of a cut in the monetary policy rates should improve participation in this auction as investors try to take advantage of the current high yield environment.

BUSINESS A.M. FEBRUARY, MONDAY 12 - SUNDAY 18, 2018 FINANCE & INVESTMENT 15 Governance Of demutualization, dalliance and the Nigeria Stock Exchange Olusegun Joseph DESPITE THE IN- NOVATIONS by the management of The Nigerian Stock Exchange (NSE) to make the market more investor-friendly in the last ten years, one thing still remain missing - demutalisation of the market. The Nigerian Stock Exchange (NSE) was established in 1960 as a trust or mutual association. As at March 7, 2017, it has 176 listed companies with a total market capitalization of about N8.5 trillion. Demutualising the NSE therefore means changing or transiting it from a mutual or co-operative association into a public company by converting the interests of the members into shareholdings. These holdings can then be traded like the shares of a company. The idea is to change the structure of exchanges that were originally formed as trusts. The concept typically separates ownership and voting rights from the right of access to trading on an exchange. It is believed that a demutualised exchange is a crucial tool towards boosting liquidity and growth of the economy. The first exchange to be demutualized was the Stockholm Stock Exchange in 1993. After that many exchanges have demutualized. These include the major stock exchanges like New York Stock Exchange, Chicago Mercantile Exchange, London Stock Exchange, Australian Stock Exchange, Deutsche Börse, Toronto Stock Exchange, Singapore Stock Exchange to name a few. Advantages of demutualization The advantages of demutualized stock exchange are as follows. Firstly, demutualization results in more flexible governance structure fostering decisive action in response to changes in the business environment. Secondly, it leads to greater investor participation in the governance of the exchange. Thirdly, it yields an improved platform in response to potential competitors in the form of alternative trading systems. Further, demutualization allows greater flexibility and access to global markets. Fifthly, it also facilitates faster and more complete consolidation of stock exchanges to enhance available synergies. And finally, it ensures increased access to resources for capital investment raised by way of equity offerings or private investment This first attempt at demutualizing the NSE was contained in a proposal by Ndi Okereke-Onyiuke, the former director general in 2001. In 2011, the issue was also raised in an NSE paper – The Roles and Expectations of Regulators in the Demutualisation Process, alongside the inauguration of a 21-member technical committee to develop a legal framework for the process. Oscar Onyema, NSE CEO In 2014, things appeared to be moving forward, as the NSE issued requests for proposals from local and foreign financial advisers to assist with the process of demutualisation. In February 2015, the Securities and Exchange Commission (SEC) issued draft rules on demutualisation of exchanges in Nigeria and invited comments. The SEC on the 12th April 2015 published its final rules on demutualisation of securities exchanges in Nigeria, which as at now nothing has been heard of the idea. Historical view of securities exchanges Historically, securities exchanges evolved as organisations mutually owned by its members. For instance, cooperative societies are owned, run and exist solely for the benefits of their members. Ownership of cooperatives is not based on the issue of shares and thus decisions are based on the votes of members on the basis of one-man-one vote. Again, a member’s interest is not transferable and ceases on the termination of membership. Equally, mutual organisations are not organised along the line of profit-making as they exist strictly to serve the interest of their members. Consequently, any excess income over expenditure or surplus as it could be technically described, in the course of carrying out their activities, is distributed among members. This has been the structure of stock exchanges until 1993 when the Stockholm Ndi Okereke-Onyiuke, the former director general in 2001. In 2011 Nigeria Stock Exchange Upbeat statement THE APPROVAL of the demutualisation process will generate substantial motivation for the development of an agile exchange Stock Exchange (SSE) took steps to change its form and structure. What are we waiting for? This question is indeed timely and germane since members of the NSE have since approved the demutualisation process. ​At an extra-ordinary general meeting (EGM) of the Nigerian Stock Exchange in March 2017, members approved the demutualisation scheme of the Exchange and authorised the National Council and Management of the Exchange to proceed with the process leading up to the demutualisation of the Exchange subject to applicable laws and regulations and obtaining the approvals of members and the relevant regulatory authorities. They also ratified the engagement of financial advisers, legal advisers, tax advisers and any other adviser that may be required for the demutualisation of the exchange. Oscar Onyema, the chief executive officer of the NSE had indeed noted that “the approval of the demutualisation process will generate substantial motivation for the development of an agile exchange thereby consolidating its innovativeness and strengthening its leadership both at local and international levels​whilst also adding value to its stakeholders. “As a demutualized entity that is profit-seeking, the NSE will be in a better stead to capitalize on new income opportunities, free from any limitations arising from conflicting member interests and existing laws and more importantly be able to better support the economic growth of Nigeria”. National Assembly to the rescue? At a joint public hearing organised by the Senate and House of Representatives Committees on the Capital Market on a bill for an Act to facilitate the development of Nigeria’s capital market by enabling the conversion and re-registration of the NSE from a company limited by guarantee to a public company limited by shares and for related matters, 2017, stakeholders agreed that the move was long overdue in order to stimulate liquidity in the system among other things. Leading deliberations on the legislation, the sponsor, Senator Foster Ogola, who is the acting Chairman, Senate Committee on Capital Market, said the NSE plays a critical role in the country’s financial market, arguing that the conversion and re-registration into a public company limited by shares is essential to developing and strengthening the market as well as enhancing the formation of capital for the expansion of the economy. He said: “It is anticipated that the demutualisation of the NSE will reinforce the continuous growth and development of a dynamic, fair, transparent and efficient capital market and thus significantly contribute to Nigeria’s economic development.” He said the planned demutualisation was in line with the 2015-2025 Capital Market Master Plan taunted to promote efficiency in the creation and harnessing of capital, as well as creating liquidity in the market, adopting and strengthening corporate governance best practices. Taiwo Oderinde – National Coordinator at Proactive Shareholders Association of Nigeria said it is better to demutualise the Exchange because it will be a good news for shareholder activists who have been advocating for the demutualisation of the Stock Exchange. “If you look at some jurisdictions, some of their Exchanges are quoted while they try to adopt different models which we are trying to adopt presently. Demutualization will really help the investors because when people know that their own exchange is also quoted, there are some of the ways they will regulate better than when they have no stake. “They are now aware that any regulation they are bringing will also affect them too. It will make them to be more proactive and it will make them to be able to do things in a businesslike manner. “Aside from that, you discover that it will attract more companies to our Exchange and moreover it will encourage more investors, most especially the core investors and the institutional investors such as PFA’s and international investors. This is one area that will help the stock market and we the investors. This is thinking in the right arrangement”, Oderinde said. Another shareholder activist, Adetokunbo Gbadebo, said the demutualisation of the exchange would bring the Nigerian capital market at par with other international jurisdiction, resulting in enhanced governance, transparency and visibility while attracting strategic partners, investors and good quality issuers. From the above, it appears Nigerians are ready and raring to go on the demutualization of the NSE but only waiting for who to bell the cat. I think the National Assembly should be in the forefront to legislate and compel regulators like SEC to actually act on the legislation. We cant wait for longer. They are now aware that any regulation they are bringing will also affect them too

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