Latin American Capital Markets

46 REENA AGGARWALtechnology and human capital.These factors are motivating exchanges to demutualizeand restructure into for-profit organizations in which access to trading will be separatedfrom ownership of the market.In the world of the Internet, it is unclear what value-added services a stockexchange can provide that cannot be provided in alternative ways at a cheaper cost.Stock markets have to respond to change and innovate in order to survive.Traditionalmethods of trading securities will soon be outdated. The typical sources of revenue(fees for listing, transactions, and information) may not continue to exist.There is noreason to believe that listing will continue to be a major source of revenue.Similarly, technology has already made information inexpensive, and exchangesdo not have the luxury of keeping this as a major source of revenue. Winnerswill use design and cost to attract trading volume. Demutualization should makeexchanges more flexible to respond to some of these challenges and continue to becompetitive.Policymakers and regulators will have to consider the impact of restructuringa membership organization on the regulatory functions of the market authorities,particularly in managing conflicts of interest.The counterargument to the "acting responsibly"argument is that there will be considerable conflict of interest if the majorexchanges proceed with their announced intentions to demutualize. One possibilitymight be to maintain SROs within exchanges, but in a subsidiary with a "Chinese wallseparating trading and member surveillance from day-to-day operations. In a moredramatic option, SROs might become stand-alone firms for hire by their former parentcompanies. 2 The securities commissions and others in the industry worldwide arecurrently studying these various options. As exchanges have been challenged to meetthe demands of multinational issuers and international investors, they have convergedto form regional and global alliances. These alliances and partnerships become particularlyimportant for emerging markets in order to reduce costs and offer moreservices to their clients. So fan there has been a lot of talk about alliances and partnershipsand even mergers. In reality, due to political, social, and economic differences,it is hard to make these structures functional. Major differences in regulation betweencountries make harmonization across borders difficult Even Europe has found it complicatedto achieve integration, which has evolved over decades. For example, themerger talks between the London Stock Exchange and Deutsche Bourse did notcome to fruition.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub2 "For-Profit Stock Markets Raise Regulatory Concerns," Dow Jones News Service, September 3, 1999.