A nice presentation on introduction to Demutualization of Stock Exchanges

1. Demutualization of Stock Exchanges Financial Markets and Institutions Iqbal Khawer Ali ZubairAslam

2. What is Demutualization? the process of converting exchanges from nonprofit, member-owned organizations to for-profit, investor-owned corporations. Corporatization and IPO of the stock exchange. Reasons for Demutualization: Globalization Information Technology

3. Benefits of Demutualization Rationalized Governance Investor Participation Globalization Resources of Capital Investment

4. Challenges for Demutualized Exchanges Conflict of Interest b/w ownership and management Ownership Structure Transfer of ownership from members to non-members Regulatory Framework

5. Demutualization Process Ownership Structure Dilution of membership by valuation of member seats. Legal and Company Structure Similar to a profit-making corporation

6. Demutualization History First demutualized SE : Stockholm Stock Exchange (SSE), 1993, Sweden Followed by Helsinki Stock Exchange, 1995 Copenhagen Exchange, 1996 Amsterdam Exchange, 1997 Australian Exchange, 1998 Toronto, Hong Kong, London SE, 2000 60% of WFE members demutualized by 2005 Current Demutualization : Nairobi SE, Kenya

7. Case: Hong Kong Stock Exchange (HKEx) Pre Merger/Demutualization Period (1999) The Stock Exchange of Hong Kong Limited (SEHK) Hong Kong Futures Exchange Limited (HKFE) Hong Kong Securities Clearing Company Limited (HKSCC) HKFE Clearing Corporation Limited (HKFECC) SEHK Options Clearing House Limited (SEOCH)

8. Case: Hong Kong Stock Exchange (HKEx) Post Merger/Demutualization Period (2000)

9. Case: Hong Kong Stock Exchange (HKEx) Post Merger/Demutualization Period Highest Market Price HK$ 18.95 > 4 times before demutualization P/E Ratio (based on 1999 earnings) 35.8 times before demutualization Rate of Equity Listing Increased 60 new companies listed 852 listed companies (2002) > 693 (1999) 64 China Incorporated, 10 Foreign

10. Demutualization in Pakistan Initiated by Federal Govt. SECP’s Expert Committee on Demutualization and Integration/Transformation of Stock Exchanges Demutualization without Integration Three individual demutualized SE’s KSE, LSE, ISE The process will be completed by the end of current year.

11. Conclusion / Recommendation KSE as individual demutualized SE. LSE and ISE as integrated SE Merger with CDC Better Understanding to resolve Agency Problems

12. Thank You !