1. Demutualization in the Kenyan Context Progress Report 24 November 2009 By Mrs. Stella Kilonzo, Chairperson, Demutualization Steering Committee Demutualization in the Kenyan Context Progress Report 24 November 2009 By Mrs. Stella Kilonzo, Chairperson, Demutualization Steering Committee 1CMA 2009

2. OUTLINE 1.Introduction & Definition 2.Demutualization Objectives 3.The Institutional Framework 4.Demutualization Milestones 5.Remaining Steps 1.Introduction & Definition 2.Demutualization Objectives 3.The Institutional Framework 4.Demutualization Milestones 5.Remaining Steps 2CMA 2009

3. 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 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 3CMA 2009

4. 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. 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. 4CMA 2009

5. 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. 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. 5CMA 2009

6. Contributions by 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 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 6 Demutualization Milestones (1of 5) CMA 2009

7. 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. 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. 7CMA 2009

8. …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. A Value/Share allocation formula among the stakeholders has been proposed The shareholding to initially comprise of NSE members, Government and Investor Compensation Fund. 8CMA 2009

9. 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 (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 9CMA 2009

10. 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 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 10CMA 2009

11. 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 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 11CMA 2009

12. Thank you. 12CMA 2009