Latin American Capital Markets

DEMUTUALIZATION OF EXCHANGES 287cross-border joint equities trading system, called Norex, designed to raise liquidity inthe Scandinavian markets (Stone 1999).The innovative demutualization conducted by the Stockholm Stock Exchangewas responsive to the entrepreneurial competitive threat to the exchange's franchiseby ON, but OM eventually acquired the exchange.Yet,this series of events enabled theStockholm Stock Exchange to modernize its business operations and governance structure.In addition, the Swedish government was able to privatize ownership of the exchange,but put into place a more comprehensive and stringent regulatory system thanhad previously been the case. After demutualization, however, when OM attempted totake over the London Stock Exchange, its bid was rejected, perhaps demonstrating thelimits of hostile takeovers by publicly owned exchanges (Cowell 2001).AustraliaOn October 18, 1996, the stockbrokers at the Australian Stock Exchange overwhelminglybacked a plan to demutualize the exchange. All current members becameentitled to shares in the new corporation. 34 In order to effectuate this plan, however;new legislation was required. The legislation was passed in record time, in a periodwhen public share ownership in Australia was growing and the Australian governmentwas engaged in a campaign to privatize noncore assets. 35 The statute provided amechanism for the conversion of the Australian Stock Exchange from a mutual organizationto a public company; expanded the regulatory and public interest responsibilitiesof securities exchanges as SROs, as well as the exchange's accountability tothe Australian Securities and Investments Commission (ASIC); separated stockbrokers'rights to trade on an exchange from shareholders' rights; imposed a 5 percent limiton shareholdings in the Australian Stock Exchange; allowed a securities exchange toself-list on its own exchange; and provided for the supervision of any such self-listingby the ASIC (Donnan 1999).The Australian stock exchange then demutualized and onOctober 14, 1998, listed on its own board. 36 This prompted some to argue that theASIC should assume regulation not only of the listed Australian Stock Exchange butalso of all listed companies. 3734 Victoria Tait/'ASX Members Vote for Corporation," Sydney Morning Herald, October 19, 1996, p. 89.35 Elizabeth Robinson, "Privatisation Sharecroppers to Shareholders," Financial Times, October 27, 1997, p. 4; "LawAllowing Demutualization ASX Passes in Near Record," MP Newsfeed, November 19, 1997.36 Gwen Robinson, "ASX Shares Likely to Start Above A 3.50," Financial Times, October 14, 1998, p. 18.37 Trevor Sykes,"ASIC Should Assume ASX Powers," Australian Financial Review, October 17, 1998, p. 14.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub