Demutualization Of Stock Exchanges

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Demutualization Of Stock Exchanges

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

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