Latin American Capital Markets

DEMUTUALIZATION OF EXCHANGES 273and affiliations in Europe are beginning to occur on a cross-border level. 3 Even in theabsence of a common currency, Latin American exchanges may decide to demutualizeand consolidate. They will need to consider competition with U.S. exchanges fortrading Latin American securities listed on the NYSE or NASDAQ. Once an exchangthas common stock it has a currency that can be used for acquisitions, mergers, andjoint ventures.Exchanges have set forth various reasons for their demutualization initiatives,and these statements are informative.The CME has identified five objectives of its demutualizationas follows: 4• Improve governance and managerial structure. According to the CME, thetraditional distinctions between the exchange's activities and the activities ofits members and clearing members were becoming increasingly blurred.Members and clearing members decided their affairs, but some of them competeddirectly with the CME by developing off-exchange products and businessand by joining alternative market initiatives.The board of CME believedthat demutualization would enable management to reduce the impact ofthese conflicts, by creating a governance and management structure thatwould be more agile and swift in responding to competition. It would also increaseCME's enterprise value for the benefit of its equity owners. Managementof the demutualized entity could make decisions regarding listing contractselectronically, changing clearing and transaction fees when appropriateor expanding existing product and service offerings.• Ameliorate the financial decisionmaking model. Commercial decisionmakingwas expected to diminish members' political influence. Commercial pricing ofservices and the profit-making objective would ensure that resources wereallocated to those business initiatives and ventures that enhanced, or had thtpotential to enhance, stockholder value.• Create a catalyst for pursuing new business strategies. To capitalize on thepotential of financial innovation and demand for new risk management and3 For example, until the last decade, Australia had six stock exchanges, formed between 1859 and 1889, the legacy ofa federal system in which there were rivalries between the states. The threat of international competition, howeverled these six exchanges to merge into the Australian Stock Exchange in 1987. See Humphry (1995).The Nordic stockmarket alliance includes the Stockholm, Copenhagen, and Oslo stock exchanges. See "Oslo Wants to Join NordicStock Market," Alliance, Finanstidningen 6, August 25, I999.WL 10643741. In Latin America, the exchanges in Colombiamerged.4 Amendment No. 5 to Form S-4 Registration Statement, April 25, 2000, available at http://www.sec.gov/Archives/edgar/data/1103945/0000950131 -00-002795.txt.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub