Demutualization Of Stock Exchanges
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22-Oct-2014 -
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Transcript of Demutualization Of Stock Exchanges
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Demutualization of Stock Exchanges
Financial Markets and Institutions
IqbalKhawer AliZubair Aslam
What is Demutualization?
the process of converting exchanges from nonprofit, member-owned organizations to for-profit, investor-owned corporations.
Corporatization and IPO of the stock exchange.
Reasons for Demutualization: Globalization Information Technology
Benefits of Demutualization
Rationalized Governance
Investor Participation
Globalization
Resources of Capital Investment
Challenges for Demutualized Exchanges
Conflict of Interest b/w ownership and management
Ownership Structure Transfer of ownership from members to non-
members
Regulatory Framework
Demutualization Process
Ownership Structure Dilution of membership by valuation of
member seats.
Legal and Company Structure Similar to a profit-making corporation
Demutualization History
First demutualized SE : Stockholm Stock Exchange (SSE), 1993, Sweden
Followed by Helsinki Stock Exchange, 1995 Copenhagen Exchange, 1996 Amsterdam Exchange, 1997 Australian Exchange, 1998 Toronto, Hong Kong, London SE, 2000
60% of WFE members demutualized by 2005 Current Demutualization : Nairobi SE, Kenya
Case: Hong Kong Stock Exchange (HKEx)
Pre Merger/Demutualization Period (1999) The Stock Exchange of Hong Kong Limited (SEHK) Hong Kong Futures Exchange Limited (HKFE) Hong Kong Securities Clearing Company Limited (HKSCC) HKFE Clearing Corporation Limited (HKFECC) SEHK Options Clearing House Limited (SEOCH)
Case: Hong Kong Stock Exchange (HKEx)
Post Merger/Demutualization Period (2000)
Case: Hong Kong Stock Exchange (HKEx)
Post Merger/Demutualization Period Highest Market Price
HK$ 18.95 > 4 times before demutualization
P/E Ratio (based on 1999 earnings) 35.8 times before demutualization
Rate of Equity Listing Increased 60 new companies listed 852 listed companies (2002) > 693 (1999) 64 China Incorporated, 10 Foreign
Demutualization in Pakistan
Initiated by Federal Govt.
SECP’s Expert Committee on Demutualization and Integration/Transformation of Stock Exchanges
Demutualization without Integration
Three individual demutualized SE’s KSE, LSE, ISE
The process will be completed by the end of current year.
Conclusion / Recommendation
KSE as individual demutualized SE.
LSE and ISE as integrated SE
Merger with CDC
Better Understanding to resolve Agency Problems
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