The perceived benefits and challenges of demutualization of the Nairobi stock exchange
Demutualization of the Nairobi Stock Exchange (NSE) is one of the much discussed issues in the financial sector. It is an issue that is new to the whole of East Africa, and Kenya being one of the leading lights of the region, is attempting to do it. Stock exchanges in Kenya are formed as associations of stock brokers. All these associations are supposed to be not-for-profit mutual entities. They are supposed to manage their own affairs with the government never interfering with their internal functioning while laying down the broad rules of the game in which the stock market game can be played. This has perpetuated a strong control over the stock markets by the brokers but this is not the way stock exchanges operate in developed countries. Hence the need for demutualization was felt as a reform measure in government circles. The study sought to understand the whole concept of demutualization and to find out the perceived benefits and challenges of the process. Questionnaires were used for data collection and the research design employed was a survey. The questionnaire had both open and closed ended questions where both the quantitative and qualitative information was provided. Statistical Package for Social Sciences (SPSS) 10.0 and MS Excel 1997- 2003 was used to analyze the data. The results were then presented in form of charts and graphs. The findings were that Kenya is ripe for the demutualization process from the support offered by the market players and the government as well as the technology that market players are experiencing. The main challenges were seen as squabbles between the Capital Markets Authority (CMA) and NSE coupled with politicking of the NSE leadership. The market players were however very optimistic about the process as they felt demutualization will lead to improved governance, increase market efficiency and make NSE more competitive against alternative trading systems. The research recommends that the CMA should not overplay its supervisory role to interfere with NSE plans and the Government should also not sit aside but play its requisite role to facilitate the demutualization process. Further research can be carried out to ascertain the impact of demutualization of the NSE on investor confidence as well as lessons learnt from the NSE demutualization process.