02-13-2005, 02:13 AM
<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Azeem Shah Khan</i>
<br />Hi DT
was reading an article in Sunday Times on KSE, dont know if you had a chance to look at it. There was something i couldnot understand and i wonder if you can explain it to me. it is the Demutulisation of Stock Exchange, what is the meaning of this term? how is it done? what are the benefits of it?
thanks
"You don't get to choose how you're going to die. Or when. You can only decide how you're going to live. Now."
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Historically, stock exchanges were mutual organisations managed by the members located in a single city with huge dealer population. They were more like âclubsâ where the dealers transacted through the open outcry system.
With the twin forces of globalisation and technological advancement, the world order is changing. The stock markets worldwide are experiencing a churning, resulting in increasing competition. Unification is happening right before our eyes and the day is not far when there will be a single, unified âworld stock marketâ.
<b>âDemutualisationâ</b> is seen as the driving force behind this revolution. A stock exchange, if it has to stay relevant, needs to innovate consistently in the contemporary arena. As such, product and segment innovation is critical. âTechnologyâ and âCost of Transactionâ are the two main facets of Demutualisation. Recently, several stock exchanges like Bombay Stock Exchange, The London Stock Exchange, New York Stock Exchange and Nasdaq, have announced plans to demutualise.
<b>What is Demutualisation? </b>
Demutualisation refers to the conversion of a ânot for-profitâ organisation into a âfor profitâ company. It refers to the transition from âmutually-ownedâ association to a company âowned by shareholdersâ. Further, the company may choose to be a listed or an unlisted, closely held public company. The concept of Demutualisation can be applied to any ânon-profit âorganisation or association.
<b>How is an exchange Demutualised? </b>
The exchange values all its assets including the value of seats (membership licence) and arrives at a total value. This value is divided into shares and offered to the public. Later, the shares are listed on the stock exchange itself, and the funds got by selling the shares will be distributed among the members of the exchange as payment for their seats. If the company is not being listed, the shares may be offered to its members.
<b>Why do exchanges demutualise? </b>
âCorporate structureâ is the goal of Demutualisation and provides management more flexibility. A company is better equipped to respond to changes when compared to a closely held mutually owned organisation. Further, a company can spin-off its subsidiaries, get into mergers and acquisitions, raise funds et al.
National Stock Exchange (NSE) for example, has spun off its wholly owned subsidiaries like National Securities Clearing Corp. and more recently NSE.IT into a dedicated info-tech company. BSE, on the other hand, is a mutually owned association with less transparency, hence seems to be an ideal candidate for Demutualisation.
<b>The following are arguments in favour of Demutualisation </b>
<b>Beyond selfish motives</b> Exchanges owned by members, tend to work towards the interest of members alone. Division of ownership between members and outsiders can lead to a balanced approach, taking into consideration the interest of other players.
<b>Cope with competition</b> Alternate Trading Systems (ATS) and Electronic Communication Networks (ECN) provide cheap and efficient access to quoted stocks unlike traditional stock exchanges. To cope with competition, exchanges require funds. While member-owned exchanges have limitations in raising funds, publicly-owned exchanges can tap capital markets.
<b>Professionalism</b> Publicly owned exchanges are more professional when compared to member-owned organisations. Further, this results in transparency in dealings, accountability and market discipline.
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If I could... Then I would... Turn back time!!
<br />Hi DT
was reading an article in Sunday Times on KSE, dont know if you had a chance to look at it. There was something i couldnot understand and i wonder if you can explain it to me. it is the Demutulisation of Stock Exchange, what is the meaning of this term? how is it done? what are the benefits of it?
thanks
"You don't get to choose how you're going to die. Or when. You can only decide how you're going to live. Now."
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Historically, stock exchanges were mutual organisations managed by the members located in a single city with huge dealer population. They were more like âclubsâ where the dealers transacted through the open outcry system.
With the twin forces of globalisation and technological advancement, the world order is changing. The stock markets worldwide are experiencing a churning, resulting in increasing competition. Unification is happening right before our eyes and the day is not far when there will be a single, unified âworld stock marketâ.
<b>âDemutualisationâ</b> is seen as the driving force behind this revolution. A stock exchange, if it has to stay relevant, needs to innovate consistently in the contemporary arena. As such, product and segment innovation is critical. âTechnologyâ and âCost of Transactionâ are the two main facets of Demutualisation. Recently, several stock exchanges like Bombay Stock Exchange, The London Stock Exchange, New York Stock Exchange and Nasdaq, have announced plans to demutualise.
<b>What is Demutualisation? </b>
Demutualisation refers to the conversion of a ânot for-profitâ organisation into a âfor profitâ company. It refers to the transition from âmutually-ownedâ association to a company âowned by shareholdersâ. Further, the company may choose to be a listed or an unlisted, closely held public company. The concept of Demutualisation can be applied to any ânon-profit âorganisation or association.
<b>How is an exchange Demutualised? </b>
The exchange values all its assets including the value of seats (membership licence) and arrives at a total value. This value is divided into shares and offered to the public. Later, the shares are listed on the stock exchange itself, and the funds got by selling the shares will be distributed among the members of the exchange as payment for their seats. If the company is not being listed, the shares may be offered to its members.
<b>Why do exchanges demutualise? </b>
âCorporate structureâ is the goal of Demutualisation and provides management more flexibility. A company is better equipped to respond to changes when compared to a closely held mutually owned organisation. Further, a company can spin-off its subsidiaries, get into mergers and acquisitions, raise funds et al.
National Stock Exchange (NSE) for example, has spun off its wholly owned subsidiaries like National Securities Clearing Corp. and more recently NSE.IT into a dedicated info-tech company. BSE, on the other hand, is a mutually owned association with less transparency, hence seems to be an ideal candidate for Demutualisation.
<b>The following are arguments in favour of Demutualisation </b>
<b>Beyond selfish motives</b> Exchanges owned by members, tend to work towards the interest of members alone. Division of ownership between members and outsiders can lead to a balanced approach, taking into consideration the interest of other players.
<b>Cope with competition</b> Alternate Trading Systems (ATS) and Electronic Communication Networks (ECN) provide cheap and efficient access to quoted stocks unlike traditional stock exchanges. To cope with competition, exchanges require funds. While member-owned exchanges have limitations in raising funds, publicly-owned exchanges can tap capital markets.
<b>Professionalism</b> Publicly owned exchanges are more professional when compared to member-owned organisations. Further, this results in transparency in dealings, accountability and market discipline.
---------------------------------------------
If I could... Then I would... Turn back time!!
