Latin American Capital Markets

•CHAPTER 9Demutualization of Exchangesas a Strategy for Capital MarketRegulatory ReformRoberta S. KarmelDemutualization is the process of transforming an exchange from a cooperative ormutual form of business organization to a for-profit, shareholder-owned corporation.In some cases, where the exchange is not privately owned, there is a privatization orcorporatization involved along the way to making the exchange a for-profit shareholdercorporation. Traditionally, stock exchanges were member-managed, nonprofitcooperative organizations. Either members owned the exchange or the chamber ofcommerce or some other government entity owned it, but in any event, profits fromexchange trading were returned to exchange members in the form of lower accessfees or trading profits.Many stock exchanges around the world have demutualized or are in theprocess of doing so, while other exchanges are considering whether to demutualize.In 1999, of 52 exchanges present at a meeting of the Federation Internationale desBourses des Valeurs (FIBV), 15 had demutualized, 14 had member approval to demutualize,and 15 were actively contemplating demutualization (IOSCO 2000). Demutualizationis a recent movement.The first stock exchange to demutualize was theStockholm Stock Exchange in 1993. By the middle of 2001, demutualized exchangesincluded the Australian Stock Exchange, the Hong Kong Stock and Futures Exchanges,the Singapore Stock Exchange, the Bogota Stock Exchange, the Amsterdam StockExchange, the London Stock Exchange, the Paris Bourse, the Deutsche Bourse, theToronto Stock Exchange, the Chicago Mercantile Exchange (CME), and the NASDAQStock Market 1 However, not all demutualizations occurred in exchanges in matureCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubHughes (2001) and "The Hunt for Liquidity," The Economist, July 28,2001, p. 65.