Thursday, October 5, 2023

The evolution of BSE & the demutualisation story….

Technological advancement in the financial world, over the last two decades, has significantly increased competition among stock exchanges globally and this competition has pressured many exchanges to adopt business models, which have greatly improved their efficiencies and effectiveness.

For instance, in 2007, the New York Stock Exchange (NYSE) merged with Euronext, the European electronic stock exchange based in the Netherlands, to form NYSE Euronext, the world’s largest stock exchange.
Early this year, the Nigerian Stock Exchange (NSE) disclosed that it is hopeful that the Demutualisation Bill will be signed into law this year.

In Botswana, a couple of meetings between the government, stock brokers and the executive management of the local bourse over the past four years have resulted in a newly registered company – Botswana Stock Exchange Limited or BSE Limited.

Those close to the transformation process, otherwise known as – demutualisation however maintained even this week that some key players (brokers) within the capital markets circle are not entirely happy about the process precisely the allotment of propriety rights.

“There are some stock brokers who feel that the right procedure was not followed to demutualise BSE. They ascertain that even at the time of the drafting of the Transition ACT, which paved way for the incorporation of BSE Limited, they way not sufficiently represented”, said a source a few days after BSE Chief Executive Officer ÔÇô Thapelo Tsheole announced with glee the registration of the Botswana Stock Exchange Limited by the Companies and Intellectual Property Authority (CIPA).

Tsheole, a financial markets guru told a group of journalists in the capital Gaborone his week that the exercise was tough, – “but the problem was not as big as experienced by other stock exchanges that have also demutualised across the globe.

“On our part, the pace of demutualization has been exceptional and without hurdles, and BSE Limited now joins an elite league of stock exchanges as it is the seventh among twenty-eight stock exchanges in Africa to have undergone demutualization”, said Tsheole.

He further pointed out that the BSE board engaged RMB Botswana to carry an independent valuation of Proprietary rights.

With effect from 02 August 2018, the BSE transformed from a statutory body collectively owned by government and stock brokers to a company.

“Demutualization is a process of transforming from a member owned, not-for-profit, entity to a for-profit, investor-owned corporation which involves changing the legal status, structure and governance of an entity. In the case of a stock exchange, it is the separation of the ownership of the exchange from the right to trade on the exchange”, says Thapelo Moribame ÔÇô head of Market Development at the BSE.

Moribame’s boss ÔÇô Tsheole told journalists that following the independent valuation of propriety rights by RMB Botswana a new ownership structure emerged which saw the government retaining majority shareholding.

“After the valuation the government felt it was entitled to more than what was allotted to it given its series cash injection on the BSE. Some brokers also felt entitled to more but the goof thing is that ultimately everybody agreed. The parties signed off the forms which we submitted to CIPA for registration of BSE Limited”, Tsheole said.

Under the new ownership structure the government stake has been pegged at 81.3 percent, while Stock Brokers Botswana and Imara Capital leads the brokering family with 5.75% each, Motswedi Securities at 4.32 percent and African Alliance (2.88%).

According to the legislation that paved way for the establishment of BSE Limited, the Botswana Stock Exchange Transition Act 2015, “there shall be an offer of shares to employees in terms of Employee share Ownership Plan which shall not be deemed to be an offer to the public”.

It is expected that government will offload or avail part of its shares to be transferred to the Employee Share Scheme.


Going forward BSE Limited is expected to list part of its shares on the domestic board of the BSE. While the executive management of the company have already put plans in place, the process, according to Tsheole ÔÇô is entirely dependent on shareholders giving a nod.

“We are going to engage the shareholders on this one, if they all agree, the next step would be revaluation of the company and ultimately list it on the stock exchange”, Tsheole said.

Since the company shares are currently fully subscribed, Tsheole says for BSE Limited to ultimately sell its shares to the public, one of the shareholders would need to set aside a certain percentage for free float.

From the current list of shareholders it is largely expected that the government will be the ne availing part of its shares for free floating.

The demutualization and immediate corporatization of the exchange has been as such hailed a success as it does not only result in change of ownership structure but also brings forth enormous efficiencies.

In accordance with the Companies Act, the BSE limited will now have a board comprised of seven independent members as well as additional two that would be nominated by the government and the stock brokering fraternity.   

Tsheole says the new board structure will enable the local bourse to discharge its mandate and drive value for shareholders and stakeholders as we strive to become a world class securities exchange.

The transition from a member owned entity to an incorporated company has dealt away with the conflict of interest that was there due to the fact that the Chief Executive was accountable to the board – mainly made up of stock brokers yet it was the same Chief Executive who was supposed to re-direct the brokers in cases of misconduct.

“This demutualization and immediate corporatization of the Exchange brings forth enormous efficiencies that will enable the bourse to discharge its mandate and drive value for shareholders and stakeholders as we strive to become a world class securities exchange”, said Tsheole this week.


1989: Established as Botswana Share Market (BSM)

1994: Assumes new name ÔÇô Botswana Stock Exchange

1998: Ernst & Young appointed full administrator of the BSE

2001: First Chief Executive Officer Appointed

2003: BSE relinquishes out-sourced Secretariat

2008: Establishment of the Central Securities Depository (CSD) system

2012: Automation of trading of shares through the ATS

2015: Thapelo Tsheole appointed first Motswana CEO of the BSE. Demutualisation exercise begins

2018: Demutualisation exercise ends, BSE becomes a fully incorporated company under the Companies Act.


Read this week's paper