Latin American Capital Markets

DEMUTUALIZATION OF EXCHANGES 285the Stockholm Stock Exchange, which occurred in three steps: modernization of trading,privatization of the exchange, and internationalization of the market (Ryden1997).These changes took place in the context of a political shift from a socialist toa more market-oriented government, the aftermath of the 1987 stock market crash,and a financial crisis in the Swedish banking system.In 1986, the Stockholm Stock Exchange decided to develop an automatedelectronic trading system with order matching, which was successfully implemented in1990 (Ryden 1997).This development was in part a response to competition fromOM, which started operations in 1985 as a clearinghouse and options exchange inSwedish stocks. It did business as a brokerage firm limited company, however, becausederivatives trading on exchanges had been forbidden since 1919. In 1991, the mergerof the Bank Inspection Board, the Private Insurance Supervisory Service, and theSwedish Accounting Standards Board formed the Swedish Financial Supervisory Authority.29 The 1992 Securities Exchange and Clearing Operations Act then abolishedthe monopoly of the Stockholm Stock Exchange and provided for the authorizationas an exchange by the Financial Supervisory Authority of "any undertaking whichconducts business operations with the aim of establishing regular trading in financialinstruments." 30 Both the Stockholm Stock Exchange and OM became so authorizedand licensed as exchanges when the act became effective in 1993. Since then, severaladditional firms have been licensed as marketplaces. 31Coincident with the adoption of the 1992 Securities Exchange and OperationsAct, demutualization of the Stockholm Stock Exchange took place in 1992-93 aspart of a decision to become a public joint stock corporation. Because the 1992 lawended the exchange's legal monopoly, it was felt that in order to compete efficientlyin an international environment, the exchange needed economic incentives and a businessattitude (Ryden 1997). In addition, since the exchange had been operating as agovernment-sanctioned enterprise, its transformation to a joint stock company wasviewed as a privatization in keeping with the new, more market-oriented government.Shares were sold to listed issuers and exchange members but were not freelytradable for one year (Ryden 1997). Once the shares were transferable, no restrictionswere imposed on ownership. Appointments to the old exchange board of 22members were influenced by the Swedish government and represented various so-29 Finans-lnspektionen, Annual Report 1997, p. 4.This authority is accountable to the Ministry of Finance and is responsiblefor exercising supervision over companies in the financial sector It also monitors compliance with the actprohibiting insider trading passed in 1991. Insider Act, SFS 1990: 1342.30 Securities Exchange and Clearing Operations Act, ch. I, §§ 1, 3, SFS 1992:543.31 "Brewery First Company on Northern Exchange," Svenska Dogb/adetjuly 31, 1998, 1998 WL 8510230.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub