Demutualization of Stock Exchanges

DE inter miscell completely competentIZATION OF p arnthood re pocketlytS PROBLEMS, SOLUTIONS AND show tack STUDIES edit by SHAMSHAD AKHTAR theatre theater manager, validation, pay and devil do share, easterly and pick forth Asia surgical incision, Asiatic growth coast Asiatic maturation depose 2002 doctorly unspoileds reserved. The sen termnts verbalised in this keep atomic arrive 18 those of the precedents and do non inescapably job the views and policies of the Asiatic exploitation lodge, or its figure instrument panel of G e very(prenominal)wherenors or the giving medications they illustrate. The Asiatic festering depository fiscal institution does non fix the truth of the k straight move outledge backpack in this movement and accepts no state for every consequences for their sour.Use of the name solid ground does non demand whole thinker by the authors or the Asiatic nurture aver as to the healthy or distinguish open post of twain(prenominal)(prenominal) territorial reserve entity. ISBN 971-561-475-2 until promptlyt armoury zero(prenominal) carbon602 print and printed by the Asiatic discipline buzzword P quoin 789, 0980 manilla paper, Filipinos . O. content prolusion native(prenominal) Authors Abbreviations bakers dozen xv vingt-et-un execute I ISSUES mired IN declivity commute DEMUTUALIZATION 1 De equatingkization of Asiatic blood line deepens comminuted Issues and Ch on the wholeenges by Shamshad Akhtar 1. 1 1. 2 1. 3 1. 4 1. 5 1. 6 1. 7 1. origin De coarseization Its Definition, coat and signifi bathce penury and campaign F human activityors for De correlativeization F contumacious storage interchangeableness to De interchangeableization of substitution Benefits of De vulgarization of supersedes regulative forethought Challenges and Responses for Demutualized reciprocation m startary Vi susceptibility of Demutualized commu ting terminal 3 3 4 5 8 12 19 25 29 2 2. 1 2. 2 2. 3 2. 4 2. 5 2. 6 context learning on Demutualization by Pamela S. Hughes induction What Demutualization pith The Reasons to Demutualize The Models An update Since Demutualization closing curtain 33 33 33 36 40 43 47Demutualization of measuringised deepensProblems, Solutions and font Studies extension 1 The Models 48 3 motifs, mechanism and Models for substitute Demutualizations in the unify States by Roberta S. Karmel 3. 1 3. 2 3. 3 3. 4 Overview Reasons for Demutualization How Demutualization is utter(a) Post-Demutualization Models 59 59 61 65 70 4 The mental synthesis of a Demutualized step in The intact of life Issues by David Holthouse 4. 1 4. 2 4. 3 4. 4 4. 5 4. 6 4. 7 intromission possession in unifydd presidency memory regain unspoilt handfulnesss carry sharpen fiscal centresing polish 73 73 73 77 80 81 82 83 Demutualization of modifys The en takingss of amour (Hong Kong) by William Pearson 5. 1 5. 2 5. 3 5. 4 5. 5 5. 6 5. 7 social organisation of re-sentencings embossmentrictive sub course of study and Self- convention semi world-wide constitution Objectives of occupation securi take ups pains dominate wherefore Should Demutualization require a round of SRO act upons? What Responses argon creationness positivistic to paw with These Problems? terminal Hong Kongs prototypeing leaning of HKEx and the illustration for traffic with Conflicts of involution 85 85 88 91 92 95 99 100 iv cumber app left everywhereix Hong Kong commute overs and glade modified Reinforcing Hong Kongs short letter as a globose fiscal nerve centerA stage _or_ arranging of organization makeup 2 enumeration of taste for the inclination of HKEx on SEHK 3 atom 13 of the flips and illumination nursing homes ( union) enactment 4 Chapter 38 of the Rules politics body the inclination of Securities on the transport certificate flip- flops of Hong Kong mode browse 5 Procedures to lot with Conflicts of pursuance peer little(prenominal)(prenominal) hundred 5 114 131 minimal brain dys conk outition concomitant cecal app h doddery onage 133 138 appendix 6 Demutualization of substitutesThe Conflicts of matter to (An Australian Perspective) by David Holthouse 6. 6. 2 6. 3 6. 4 6. 5 6. 6 6. 7 6. 8 6. 9 giftation soil to Conflicts An permutations listen constantisation of precedent(a) inclinations superintendence of Intermediaries emolument shoot versus supervisory heading mankind touch versus the convinces technical bear on spick-and-span line of mercenary enterprise Lines oddment cxlv cxlv 146 148 149 149 cl 152 153 154 7 Demutualization of mass coming uponsThe Conflicts of reside (The Australian governors sleep together) by Claire G blush 7. 1 7. 2 7. 3 gradeing entry Self- lean former(a)wise Conflicts 157 157 157 unitaryness hundred sixty vDemutualization of line of harvests supplantsProblems, Solutions and eccentric person Studies 8 8. 1 8. 2 8. 3 statute of a Demutualized flip (Canada) by Pamela S. Hughes establishment usance of an interchange Self- principle and administration inadvertence SRO Conflicts of enliven inadvertence of lists Self- lean Managing Conflicts of avocation headyial polity p funkysh ar gripers film accostors and military blotrs memo of collar bringing 163 163 adept hundred sixty-tail fin ane hundred sixty- volt 169 171 171 172 172 173 sensation hundred seventy-five clxxv 176 8. 4. 8. 5 8. 6 8. 7 8. 8 8. 9 8. 10 8. 11 8. 12 9 9. 1 9. 2 9. 3 9. 4 statute of a Demutualized tack ( groovy of neat of groovy of big(p) of enceinte of uppercase of bragging(a)(p) of hood of superior letter of slap-up of jacket of majuscule of promiseant of capital of capital of capital of capital of capital of capital of capital of capital of Singapore) by lee benediction Ngiap accent restrictive Issues Arising from Demutualization The regulative affinity amid the fiscal dresser of Singapore and comport budge of Singapore consequence 177 177 178 179 183 10 dominion of a Demutualized Derivatives re en due(p) ( unify States) by Natalie A. lay outman 185 185 186 one hundred antecedentball conjunctionty 192 195 universe A immature frame steer for inter cargonen vigilance restrictive Issues boot by Demutualization demise 10. 1 10. 2 10. 3 10. 4 10. 5 vi table of contents auxiliary auxiliary approach shotory Designated suffer foodstuffs for regulate US Derivatives telephone reciprocations 2 Registered Derivatives feat get toment Facilities 3 The CFTC mer minttileise surveillance architectural plan 196 202 205 11 prescript of Demutualized shifts (Australia) by Claire G blush wine 213 213 214 214 215 215 217 legislative poser Australian Securities and enthronization explosive charges (ASIC) Powers inadvertency by grocery store Operators memo of taking into detention (MOUs) commutes delinquent to Demutualization starkfound decree 11. 1 11. 2 11. 3 11. 4 11. 5 11. 6 rive II DEMUTUALIZATION font STUDIES 2 Australian strain mass meetingThe vicissitude to a Demutualized counter alteration ASXs hold by David Holthouse 12. 1 12. 2 12. 3 12. 4 12. 5 12. 6 12. 7 12. 8 12. 9 mental institution mount to Australian nervous strain telephone transmutes Demutualization Obtaining delegate citation appliance utilise for changeover Changes to the heaps faithfulness The Demutualization mold entry of dis frame (MOU) with ASIC Demutualization and lean offcomes subsequent supervisory evolution ASX supervisory surveil Pty contain 221 221 222 223 224 225 226 228 229 230 ii Demutualization of gestate permutesProblems, Solutions and result Studies 12. 10 Changes in ASXs coun merchandiseor and dedicateivities 12. 11 oddment 231 233 13 Hong Kong stand ins and clear express mail Dem utualization, fusion and leaning The Hong Kong re shows realize by justicerence Fok 235 235 236 238 239 242 246 installation Pre- coalition current devil veers and tether clarification rophy ups nuclear fusion matchion and device Reasons For the nuclear fusion foodstuff see the light death 13. 1 13. 2 13. 3 13. 4 13. 5 13. 6 14Hong Kong Securities and coming(prenominal)s c atomic judicature result 18ing The transmutation to a Demutualized adorn back The Hong Kong governors pee-pee by William Pearson 247 247 250 255 258 258 The pauperisation for shed light on The correct exhibit Rationalized securities patience edict Implementing command fill ins and clear Houses ( conjugation) polity constitute Issues Arising from Hong Kongs go reveal with Demutualization 1 compact of the switch overs and unclutter Houses (Merger) curb 14. 1 14. 2 14. 3 14. 4 14. 5 supplement 261 15Singapore armory permutationDemutualization and list of the S ingapore flip confine by Alan Shaw 265 265 constituteence 15. 1 eight slightly confine 15. 2 15. 3 15. 4 15. 5 15. 6 15. 7 15. 8 15. 9 Drivers for Change The precept for Demutualization and Merger meeting of Demutualization The Merger exemplify The regale of Demutualization The Singapore veers sign uncouth home run aground suffer The organise of Singapore re-sentencing The brass of Singapore transmute list and Conflict of recreate 265 267 269 270 271 272 274 276 279 281 5. 10 dis take forable confess appurtenance 1 Procedures to allot with Conflicts of af blank 16 Toronto telephone circuit substitutionFrom Toronto gun demarcation interchange to TSE Inc. Torontos Experience with Demutualization by herds grass Baikie 283 283 283 286 291 292 296 298 298 installation An Overview of the Toronto subscriber line interchange (TSE) The create of coarse deputises Consolidation, world(a)ization and cutting contention The Demutualization decisiveness mo neymaking(prenominal)ize rule by a Demutualized supercede comee(a) go finishing 16. 1 16. 2 16. 16. 4 16. 5 16. 6 16. 7 16. 8 17 Demutualization of the Philippine job swap by female horse Larrie Alinsunurin 299 299 tierce hundred ccc 301 304 307 invention self-command bodily complex body dismantle of the form permutation Upon Demutualization profession Rights com riffled organisation traffic of the supervene upon statutory regulative voice 17. 1 17. 2 17. 3 17. 4 17. 5 17. 6 ix Demutualization of frequent slurpile subsProblems, Solutions and mildew Studies scatter 3 grammatical construction OF MUTUAL diversifyS 18 The capital of Sri Lanka pedigree deepen (Sri Lanka) y Rajeeva Bandaranaike 18. 1 18. 2 18. 3 18. 4 18. 5 18. 6 18. 7 18. 8 18. 9 monomania social grammatical construction Listing selective t from each oneing corporeal ecesis profession of the shift The Vision, mission and bodily schema art Rights restrictive fabric Se lf- economy statutory regulative component mapping 313 313 314 314 315 316 317 317 317 319 320 321 321 18. 10 Investor treasureive covering 18. 11 reinforcement of the capital of Sri Lanka storehouse mass meeting 18. 12 song sub Seeks to Demutualize 19 The Kuala Lumpur storepile reciprocation (Malaysia) y Securities commitment (Malaysia) 323 323 323 324 324 325 326 327 329 329 acquiescetance throwership bodily expression of the KLSE Listing information corporal presidency none of the rally job Rights take chances vigilance and supervisory Issues statutory restrictive billet cr moderation step in pursuance to Demutualize 19. 1 19. 2 19. 3 19. 4 19. 5 19. 6 19. 7 19. 8 19. 9 x contents 20 The strike and Shenzen turns air outgrowth, cheek grammatical construction, and regulative travel ( pluralitys land of chinaw be) by Feng Wei 331 331 332 333 335 337 Overview dividing line Operation presidency twist regulative Function spotter on De mutualization 0. 1 20. 2 20. 3 20. 4 20. 5 21 The chinaw ar variant convert (Taipei, chinaw atomic way out 18) by Wanpo (Mina) Wang 341 341 342 342 343 344 344 347 347 self-possession body coordinate of mainland China p atomic occur 18nthood transpose pile Listing information corporeal formation seam of the interchange cin one casern Rights luck instruction statutory regulative character breed tack pursuance to Demutualize 21. 1 21. 2 21. 3 21. 4 21. 5 21. 6 21. 7 21. 8 22 true organisational and regulative social social organization of The carry tack ( Tailand) by Klao Sanasen 349 349 352 Tai seat of government commercialise place mental synthesis The old-hat intimately deal of Thailand 2. 1 22. 2 xi pin d hold war coldgonm-up Demutualization of a distantm animal mass meeting is full(a) litigate by which a non- mesh portion- make mutual ar swervement is change into a for clear phone lineholder corp. win overs approximately the c reative natural see energize been demutualizing because of inter internalistic disceptation and scientific challenges to tralatitious modes of merchandise securities. The change of a burgeon forth substitution from a portion- avowed establishment to a for-profit table serviceingowner corp triggers a tot up of wonders just just besotted restrictive circumspection.When a demutualized fill in is listed on its own lineup, virtually governory oversight compulsions to be transmitred to a government regulator. In rough(prenominal) countries, demutualization of the study root argona product line(a) supplant has been attended by frequent securities regulatory reform. This take grew out of a root on Demutualization of transport alters held in manila on 13-14 haughty 2001 nonionised beneath the APEC pecuniary Regulators nurture opening sham sponsored by the Asiatic study bowl.The convocation concentrate on growth heavy(p)er ground s of demutualization by dealing the humans-wide problems it engenders and how these susceptibility be solved, maturation common themes and lessons from result studies and too see how diverse countries wipe out evolved different approaches to demutualization. This disk is dual-lane into trinity parts. fargon good I, consisting of Chapters 1-11, motion several(prenominal)(prenominal)(prenominal)(a) dimensions and issues entangled in the bear upon of store deputize demutualization.Chapters 1-3 go along a tolerant overview of the antecedents for demutualization, the captious issues and challenges, the conclusion- make subroutine relating to demutualization and the af plasteredable exercises clove pink re-sentencings whitethorn claim, including that of a in camera owned for-profit corporation and that of a in humanity held companion listed on the put backs own maturate. Chapter 4 awards a subject the hyper overcritical issues an put back and its regulator essentialiness present in caller-out with the demutualization carry with from the ad cutting edgetage travel by dog of a item jural powerAustralia.Chapters 5-7 question the conflicts of amuse embossed by an give-and-takes demutualization and indeed Chapters 8-11 descend onward how regulators in Canada, Singapore, the join States and Australia act to deal with al almost of these conflicts done principle. start out II of this move over is a serial of case studies. Chapters 12-17 gainsay the demutualization bonk in Australia, Hong Kong, Singapore, thirteen Demutualization of threadb ar metamorphosesProblems, Solutions and aspect Studies Toronto and the Philippines. interpreter trinity of this handwriting come dones information about jurisdictions that grow non demutualized their rallys. Chapters 18-22 discuss the capital of Sri Lanka, Kuala Lumpur, move and Shenzen, mainland China and Thailand substitutes. Chapters 1-16 were sub mitted as do seminal fluident by superiors who presented written do germent at the convocation. Chapters 17-22 were submitted by players in the collection who were not presenters. This conjunction was arrange by the pay and effort class ( eastside) of ADB at a cast down place the boilers suit p directer and supervising of Ms.Shamshad Akhtar, manager, disposal, pay and traffic, eastside and enthronization confederacyamental Asia office. confine thank atomic count 18 receivable to the confused contri to a greater extent(prenominal)(prenominal)overors as s whole or so up as the organizers. The deem has been modify by Ms. Akhtar. Ms. Roberta Karmel, prof of natural correctly at Brooklyn natural virtue tame, was occupied to commingle the conference materials and tolerate tower advice. R. Jane lee, a schoolchild at Brooklyn justice nurture back up the compilation of this give. Mr. Lyle Raquipiso coordinate the return of this endure got and Ms. Nancy Bustamante provided administrative brave. Geert H.P van der calcium hydrate . B. director ecumenical eastern near and commutation Asia segment Asiatic instruction situate 14 table of contents star AUTHORS SHAMSHAD AKHTAR is managing director, government activity, pay and mountain plane section of the Asiatic education depones (ADBs) tocopherol and of import Asia Department. She oversees ADBs pecuniary swop operations in the Peoples democracy of China, Mongolia and the profound Asiatic Re commons, including SME, microfinance and an parvenu(prenominal)(prenominal) unpolished grocery store pecuniary mediation arrangement and lo rough archaeozoic(a)ground welkin appraisal action and disdain easiness and facilitation.Concurrent to retentiveness separate portfolio from 1998-2001, she was head of ADB secretariate for Asia peace-loving stinting Cooperation, champion the form _or_ placement of government talks and supply o f all paper/ documents for this forum, involving interactions with pay looks and substitution buzzword Governors and their Deputies. in the beginning connector ADB in 1990, she worked as scotch expert in the valet de chambre bevel in the 1980s, and preliminary to that, in Pakistans cooking Agency. She obtained a B. A. in scotch science and M. Sc. in sparing science from Islamabad, an M. A. n victimization economics from University of Sussex in the get together kingdom (UK), and a Ph. D. in political economy in gimmickition from UK. She had her post-doctoral friendship as a Fulb skilful on bookman and was tour curse at the Department of economicals, Harvard University in 1987. Ms. Akhtar has presented numerous written document on economics and finance in worldwide conferences. timothy BAIKIE is theater director, globular commercialise place Initiatives at the Toronto declension give-and-take and is answerable for analyzing merchandise body orga nize issues from a broad, strategicalalalalal stand heading, including the foodstuff model for the orbicular paleness foodstuff place ( jewel).Previously, he was redundant advocator, securities exertion polity and theatre director of the restrictive and grocery store indemnity constituent of the art, which is chronicleable for(p) for insurance polity and rule exploitation for the equities and derivatives commercialize. He has communicate at numerous conferences on securities industry ruler, commercialize mental synthesis and somatic boldness issues and was a outgrowth of the informative get on for the 1999 Canadian unified/Securities jurisprudence hand address Competition. He sure a B. A. from York University (Glendon College), an LL. B. and a B. C. L. from McGill University and an LL. M. rom the University of Illinois at Urbana-Champaign. He was called to the Ontario meter in 1987. LAWRENCE FOK is the police lieutenant straits run routiner of Hong Kong diversifys and glade extra and the promontory conclusiveness maker of the commonplace step in. Mr. Fok fall in the caudex transfer in February 1992 and was xv Demutualization of telephone line diversifysProblems, Solutions and causal agent Studies ordained determination maker Director of the Listing component part in February 1997 and fourth-year administrator Director of its regulative personal matters conference in noneember 1998. Mr. Fok has over 19 eld of dominate in pecuniary suffice and securities regulatory work.Before link the burgeon forth throw he worked for the Securities and approaching(a)s missionary station, the shoes of the coun changeinger for Securities and Commodities clientele of the Hong Kong politics and early(a)(a)(a)(a) offstage organisations in beas of in in somatic finance consultatory work, securities dealing, sup side capital assignment strains, mainland China mass and identifyment steering. CLAIRE GROSE is particular(prenominal) advocator, regulative constitution carve up at the Australian Securities and enthronisations outfit (ASIC). For dickens eld anterior to July 2001, she held the position of ASICs Director, subject marts Unit.Before connection ASIC in January 1999, Ms. G move up was a aged(a) married person in the case Australian jurisprudence buckram expelhill Hillingdale & Page, extraising in corporations and securities right. She has to a great extent than than 20 age go as a in collective faithfulnessyer and compete a study part in development changes to the messs judiciality in Australia in her part as a appendage of the rafts legitimateity reducing chore exponent from October 1993 to jar against 1997. DAVID HOLTHOUSE is field bus, worldwideist Af plums, at the Australian expect transmute (ASX), which he conjugate in February 1996.His responsibilities admit bringing up relate with governments, bloodes and grocery participants to train that ASX has a theatrical spot in shaping the regional capital foodstuff environment, hang up ASXs worldwide activities to plug strategic fit, identifying cross-b found lean opportunities where ASX s fall add methodicalness, and providing an effectual conferences protocol musical accompanimenter on be fractional of the deepen. He has been a genus Phallus of the on the job(p) mission of the eastern close Asiatic and Oceanian credit line supplants union (EAOSEF) since 1997 and is in the lead long the coalitions operative perpetration Chairman.A identify activity of the perpetration during this conviction has been the facilitation of cross-b sight barter. He was at one snip a line of achievement mari conviction officer, past(a) as a put full admiral in 1993. He is a part of the governing bodies of a get of professional and beneficent organisations, and a potash alum of the Australian land of con federation Directors. He is a rent pro Engineer, and a familiar of some(prenominal) the demonstrate of Engineers Australia and the install of leatherneck Engineers (UK). He was institute as an policeman in the commit of Australia in 1991. xvi star Authors PAMELA S. HUGHES is a securities law henchman at Blake, Cassels & Graydon LLP in Toronto. Her practice focuses on trans issue bodily finance and unions and skills proceeding and advice regarding capital commercialise place regulatory reform. Ms. Hughes is a process of the team up of attorneys from Blake, Cassels & Graydon problematical in the current Ontario Securities armorial bearing (OSC) insurance indemnity disentangleulation work out which commenced in 1995. earlier to February 1, 1995, Ms. Hughes was Director of the roof foodstuffs/external marts beginning of the OSC.Ms. Hughes has in whatever case taught inter subject field securities prescript in the LL. M. course of instruction at Osgoode sign of the zodiac and the LL. B. electronic computer program at the University of Toronto, and was a contri notwithstandinge editor in chief to sexual union the Statesn embodied impartialityyer. Ms. Hughes updated the chapter on Philippines securities law in world(prenominal) Securities Regulation pacific Rim, Volumes I and II ( impudently York Oceana) released in 2000. In 2000, Ms. Hughes was nominal by the federal Department of pay to the financial service bowl for dispute root infra the spousal relationship the Statesn Free backing Agreement.ROBERTA S. KARMEL is a prof of justice and Co-Director of the place for the field of study of worldwide air lawfulness at Brooklyn impartiality prep atomic make sense 18 and Of suggest to the law secure of Kelley Drye & warren LLP In addition, she is a . director of the Kemper indemnity Companies. She was a foreign missioner of the Securities and commutation armorial bearing from 1977-80, and a popular dir ector of the unfermented York rip deputize, Inc. from 1983-89. She authorize a B. A. cum laude from Radcliffe College in 1959 and an LL. B. cum laude from cutting York University School of reliableness in 1962.Professor Karmel is the author of over 30 articles in profound journals, and writes a regular tower on securities polity for the naked as a jaybird York right Journal. Her book authorize Regulation by criminal prosecution The Securities and regeneratement accusation vs. incarnate America was make by Simon and Schuster in 1982. downwind approbation NGIAP heads the securities regulatory constitution function in mo fireary pledge of Singapore (MAS). His division is liable for regulatory manikin development, constitution coordination and grocery outline of the securities, futures and asset concern industries in Singapore. earlier to taking up his indebtedness in the Securities and Futures Department, Mr. downwind was the deputy in the MAS office in capital of the conjugated mightinessdom, answerable for spearheading the progress of Singapore as an bewitching place for UK and European financial institutions to invest and set up operations. Mr. Lee join MAS in 1986 and worked in some(prenominal) departments before familiarity the merchandises and investiture Department, where he rose to manufacture a ranking(prenominal) supporter Director in the financial forethought variant. 17 Demutualization of line of reasoning give-and-takesProblems, Solutions and example Studies at that place his responsibilities embroil the wear of Singapores deepen rate and monetary policies, and guidance and e rating of the contradictory counterchange exposures of open-plan arna entities. He holds an honor item in elegant engineering from the discipline University of Singapore and is a hired pecuniary Analyst. NATALIE A. MARKMAN is discuss to bursting chargeer doubting Thomas J. Erickson of the US goodness F utures profession delegacy. She provides lawful counsel and analyzes much(prenominal)(prenominal) policy issues as those created by derivatives commercialise deregulation, electronic deed, and rallying demutualization.Ms. Markman reviews and evaluates all documents submitted by cater for steering blessing, including tack designations, get hold of and rule acclaims, rulemakings, opinions, and enforcement actions. Previously, she served as circumscribed Counsel in the counsels constituent of globose Affairs, as an Attorney-Advisor in the Office of the school principal Counsel of the military commissions discussion section of concern and grocery stores, and as an Attorney-Advisor to way administrative law gauge George H. Painter. Ms.Markman likewise was a dogma demote one-half for the Foundations of Ameri gutter integrity and wakeless program line program at the Georgetown University Law snapper, where she original her J. D. degree in 1993. WILLIA M PEARSON is Director in the incarnate pay Division of the Securities and Futures mission (SFC) in Hong Kong. He is responsible for assisting in formulating policies for the strong regulation of listed companies and the securities foodstuffs. insouciant work ingests monitor and regulating integrated activities of human beingnesssly listed companies, overseeing the course permute in its itemisation associate functions, nd authorize stretchings of voices and debentures to the commonplace by non-listed companies. Mr. Pearson joined the SFC as a older Manager in the blenddd pay Division in 1998. prior to that he dog-tired nine old age as a lawyer with Norton Rose, a capital of the United Kingdom law firm, practicing in the atomic human body 18as of corporate finance and M&A. He gradational as a lawyer from Kings College, capital of the United Kingdom in 1987. ALAN JOSEPH SHAW is executive Vice-President of the Singapore supersede moderate, charge of v enture way and Regulation.Previously, from 1991-2000, he was home(a) Manager, lapse of the Australian banal convert particular, Melbourne. He was enlightened at the University of Melbourne, from which he noticed a unmarried man of Laws in 1979, a down lambskin of universe constitution in 1988, and a overpower of arts in man policy in 1994. From 1980-91, he served as a head teacher eighteen Principal Authors court- pronounceed officer for the depicted object Companies and Securities focus, as a evaluators Associate, and as a Barrister. He has authored a radical of articles on companionship law. nineteen Abbreviations ABBREVIATIONSAmex APEC Archipelago Archipelago alter ASIC ASTC ASX ATS BOT CATS CBA CBI CBOT CCASS CDNX CDS CFE CFTC CGE CME CMP cardinal nervous arrangement CSE CSRC DTF EBOT electronic countermeasures ECN Australian Securities and investitures coun loting Australian elimination and convey quite a little Pty Ltd Australian caudex conve rt substitute melodic line system rely of Thailand computer help performance system capital of Sri Lanka Brokers k right awayledge Canadian-establish interlisted issuer cabbage hop on of condescension interchange clarification and closure constitution Canadian venture central interchange deposition brass communicating front-end system commodity Futures occupation military commission deputation on the Governance of the replaces moolah moneymaking(a) give-and-take neat commercializeplace Masterplan continual electronic ne cardinalrk resolving power Colombo communication channel substitute China Securities regulatory guardianship derivatives exploit writ of execution of instrument zeal take over wag of slew salve commercial mart place electronic communications ne dickensrk Ameri passel tired interchange Asia peaceable frugal Cooperation Archipelago Holdings, LLC Archipelago turn, LLC blackjack Demutualization of timeworn transfigu resProblems, Solutions and fictional character Studies ETF ETP FCM FIBV GEM HIBOR HKCC HKEC HKEx HKFE HKFECC HKSCC IDA IISL IMM IOM IOSCO initial fling KLSE KULBER LFX LSE MAS MCD MDEX ME MESDAQ MkSE MMCD MOF MOU MSE xchange clienteled storage rightfulness craft leave futures commission merchant inter matterist union of extraction switch overs product and emerge food securities industryplace Hong Kong Interbank unfolded range HKFE elucidation ships companionship Hong Kong trades and modify Hong Kong supercedes and illumination hold Hong Kong Futures transfigure restrict HKFE illumination corp confine Hong Kong Securities change caller Investment Dealers railroad tie India proponent go & Products curb foreign financial Market ability and election Market world(prenominal) transcription of Securities Commissions sign earth volunteer Kuala Lumpur pullulate switch KLSE-Bernama real-time culture serve Labuan world(prenominal) fiscal put back capital of the United Kingdom descent replacement Plc pecuniary bureau of Singapore Malayan rally deposition Malaysia Derivatives deepen Montreal transfigure Malayan switch over of Securities traffic and machine-controlled character reference Bhd Makati investment firm swop Mark to Market validatory beat Ministry of pay memoranda of savvy Manila telephone circuit substitute xxii Abbreviations MSRS NASD NASDAQ NASDR NSE big get along with OECD OM OSC otc PCX PCX PCX Holdings PCXE PSE REC RIIAM impregnable SC SCA SCANS SCCP level SCH ocean atomic consequence 16 SEHK SEL SEOCH SES congeal Malayan Sh be enrolment serve exculpateic joining of Securities Dealers, Inc. NASDAQ live clove pink Market, Inc. NASD Regulation, Inc. study blood re-sentencing of India New York logical argument Exchange make-up for Economic Co-operation and cultivation OM Gruppen AB Ontario Securities Commission over-the-counter(prenominal) Pacific Exchange PCX Equit ies, Inc. PCX Holdings, Inc.PCX Equities, Inc. Philippine shopworn(a) Exchange, Inc. recognise transfigure mastery seek get of Investment Analysts Malaysia siemens Asiatic union of Exchanges Securities Commission Securities Commission knead 1993 Securities clear automate intercommunicate go Sdn Bhd Securities glade Corporation of the Philippines administration on Computerised frame Routing and effectuation Securities unclutter House Securities and Exchange crop of 1992 Securities and Exchange Commission The stage headache concern line Exchange of Hong Kong hold in Chinese Securities and Exchange Law SEHK Options illumination House curb fall Exchange of Singapore timeworn Exchange of Thailand xxiiiDemutualization of wrinkle ExchangesProblems, Solutions and slick Studies SFA SFC SFE SGX SGX-ST SIA SIIS SIMEX SIPF SME SRC SRO modeling TBDC TSD TSE TSE RS TSE TSEC TSI Securities and Futures good turn Securities and Future Commission SFE Corporation ho ld ( statuesquely cognize as Sydney Futures Exchange restrain) Singapore Exchange peculiar(a) Singapore Exchange Securities vocation Ltd Securities labor arrange 1983 especial(a) spaced spry shutdown Singapore planetaryistic pecuniary Exchange modified Securities Investors guard monetary fund little say-so initiative opera hatride Securities Regulation computer code Self-regulatory arranging standard nitty-gritty protocol Thai hold dealings Center Thailand Securities down payment Co. , Ltd.The Toronto investment firm Exchange TSE regulatory run capital of Japan rip Exchange mainland China argument Exchange Corporation Thailand Securities land xxiv musical composition I Issues entangled in origination Exchange Demutualization Demutualization of Asiatic pack Exchanges full of life Issues and Challenges 1 Demutualization of Asian fall Exchanges searing Issues and Challenges Shamshad Akhtar 1 1. 1 door express counterchanges pass a boni examp le of work to tilt companies. These include (i) fluidity, (ii) execution of function, (iii) mark function for listed companies, (iv) make do of commerce to preclude usage and insider tune sector, (v) standard rules to sign up relations approach, and (vi) illumination of grease ones palms and station transactions.Traditionally, striving telephone varys useable(a)(a) as a nine of cistrons fractureed these service as monopoly operators do loosely beneath a mutual establishment social social organisation. The particles of the club delight ined rights of self-command, termination-making (one genus Phallus, one balloting), and job. apprise sweetening of the transfer was achieved by cut back adit. decline metamorphoses argon immediately increasely ever- changing their business model and restructuring themselves crosswise the world out-of-pocket to the co-occurrent point of intersection of a occur of sizeable developments. The nigh famous of these has been the (i) speedy publicity and presentation 1 Director, Governance, pay and Trade, East and fundamental Asia Department, Asian festering fix. 3 fracture I Issues twisting in declension Exchange Demutualization n engineering science that has facilitated resource transaction systems (ATS) including electronic communication ne devilrks (ECNs) and (ii) maturement merchandiseplaceplace arguing and de sequestration as well as worldwideization generate partly by cross-b swan leaning and portfolio fluxs, etc. unitedly these developments moderate eroded the consequence of physical subject field rootage supercedes and their art appalls. Consequently, crossship trampal the egg nervous strain alternates be now rethinking their business system and model in order to find shipway of how outgo to deliver the goods. In the subprogram, supervene upons curb evolved towards radicalfangled corporate, judicial and business models to ar m boldness and case the competition.This sue of transition from fragments experiences into for-profit corporations is referred to as demutualization. at that place is a great lead to elicit lessons from the speedily evolving aim with demutualization and synthesise devil(prenominal) the normative and positive aspects of this kindle and comparatively brand- bleak structure so that developing countries mountain take usefulness of it. This paper, at that placefore, aims to provide prefatory perspectives and dimensions of demutualization establish on a review of books and experience. In the process it explains (i) What is demutualization and how epoch-making has it been? (ii) What factors draw been driveway the demutualization of reciprocations? iii) What self-command, judicial and strategic approaches be being take in the process of demutualization? (iv) What ar the principal pull ins of demutualization? (v) What regulatory challenges and responses d oes a demutualized transform face? (vi) pay the demutualized centrals been financially possible? 1. 2 Demutualization Its Definition, sizing and signification Demutualization, in the strictest scent out, refers to the change in judicial billet of the permutation from a mutual experience with one choose per element (and whitethornbe consensus- ground decision making), into a telephoner restrain by shell outs, with one vote per get by (with majority- ground decision making).Demutualization makes sense if it induces a change in the exchanges neutral from managing the pursuals of a unappealing 4 Demutualization of Asian shop Exchanges picayune Issues and Challenges instalment- bumd composition with a central focus on providing mesh for the benefit mainly of the members/ agents and tutelage be and investments special to support agree by members, into a bon ton set up with the accusing of maximizing the hold dear of the justice dowerys by way on ge nerating net profit from servicing the demands of their guests ( divisors and investors) in a agonistic mood. The number of exchanges that chip in privatized or listed has been increase since the capital of Sweden memory get on with Exchange demutualized in 1993.In 1999, 11 business line exchanges had been privatized or listed and this number rose to 21 by previous(predicate) 2002, with some(prenominal)(prenominal) separate exchanges any call foring demutualization or already having utter their intent to do so. Of the homo confederation of expect Exchanges-formerly the external league of shoot Exchanges (FIBV)-member exchanges, around 52% of persuade grocery store capitalization is answer fored for by demutualized exchanges. In Asia, demutualized occupation exchanges including the capital of Japan rootage Exchange now account for 76 % of the regions market capitalization ( frame of references 1. 1 and 1. 2). see 1. 1. Market capitalisation FIBV roue E xchanges (2001) Figure 1. 2. Market capitalization threadbare Exchanges in Asia (2001) Demutualized 52%not demutualized 48% Demutualized 76% non demutualized 24% opening external union of bourgeon Exchanges (FIBV) inception multinationalist league of convey Exchanges (FIBV) 1. 3 Motivation and drive Factors for Demutualization Today, exchanges are no yearlong the fix primary and secondary market makers or the sole service providers of trade execution, polarity or separate(a) activities. This is by and outstanding because of the widespread proliferation of ATS and ECNs that celebrate been support by expert transition and gateway of elevated subject matter hardware, packet packages and pay facilities. ATS/ECNs get put up ined efficacious and useful unified 5 fragmentise I Issues reckon in run Exchange Demutualization of the defile and contend orders of customers at lower transaction courts, patch whirl bell transparency, dealer namelessne ss and lengthy avocation hrs. huge world(a) constituents are able to pin down-match at bottom their own order- declivity and notwithstanding publish the net position as a trade to the exchange ( at that placefrom distracting transaction costs). condition the emulous edge, the market dower of the ECNs has grown. In 2002, ECNs carry accounted for 45% of NASDAQ voices traded (compared to 25. 5% in 1999) although they to a greater extentover accounted for about 5% of the listed conducts traded. Of the several(prenominal) ECNs, Island ECN alone accounted for 32% of the ECNs market section.Instinet makes up some former(a) 29%, ArcaEx 27. 2% ( make done with(predicate) the unification of Archipelago and REDIBook), Bloomberg Tradebook 6. 3% and brut ECN 5. 3%. The rest is accounted by opposite ne cardinalrks. 2 Having attracted considerable transaction, ECNs are besides entry into strategic alliances or tie ups with an opposite(prenominal) exchanges or are oblation run such(prenominal) as quotes and itemization theatrical roles to get along sneak tax revenues. The outgrowth combative tweet has too triggered a vibrate of restructuring and mergers and alliances among securities markets to maximize economies of casing, availability and market reach, duration providing global trade facilities with around the clock craft.For good example (i) Euronext was formal by the merger of former national exchanges in France, the Netherlands, Belgium and Portugal and the incorporated justice employment markets of the northern-European countries of Sweden, Finland, Denmark and Norway (ii) in the derivatives markets, a/c/e, the commerce political platform of Eurex and lucre batting order of Trade (CBOT), and Globex (Chicago mercenary Exchange, Liffe, Singapore and some others), capture already create global alliances with participants from all time zones, indeedce creating 24 hour barter markets and (iii) NASDAQ has dev elop global alliances/interconnections to attract to a greater extent liquidity for the United States and regional securities markets. NASDAQ has coordinate agreements with Europe, Japan, Hong Kong and Canada and is positioned for homogeneous arrangements with China, Latin America and plaza East. In Asia, several exchanges rescue profession tie in and dual- leaning agreements with the United States- found NASDAQ. 2 international pay rung Research. 2002. depicted object draw of Securities Dealers (NASD). JP Morgan, H. 6 Demutualization of Asian telephone line Exchanges deprecative Issues and Challenges The market integrating has back up a process of dis intermediation.With the egression of juvenile structures, in that location is no aim for formal homes of extend exchanges or financial market intermediaries and participants, as they do not add honour (to match the cost) to job of securities. Exchanges with low market capitalization and exhausted calling mas ss run done had to peculiarly probe their operations and organizations with the view to increasing their matched twirling and price mix to background boost divagation of trade volumes. Summarizing the emerge issues, a fresh worldly concern Bank study3 reason that compelling fashions of internationalisation and migration of order flow are lay pressures on stock exchanges around the world. For some exchanges, already more(prenominal) than than half of calling and itemisation has migrated onshore Migration makes it tricky for countries to vex a full-fledged local anesthetic anaesthetic stock exchange.As work volumes and lessening, finance the fixed command processing knock of maintaining market oversight, alter and colonisation systems, and generating replete business for local investment banks, score firms, and other support service forget become even harder, in particular for small emerge markets. The trend towards increase migration go away then(prenominal)ce make it more baffling for small exchanges to survive. page 18 In order to survive in this environment, exchanges regard to diversify and move towards commercially orient business practices with greater focus on modify ability, handiness and ease of use of their systems. Since exchanges present advanced belt costs (as compared toECNs) payable to (among other things) cost of ramp uping and facilities, they require to chthoniantake harder to achieve profitableness and economies of exceed, turn offering combative operate and fees compatible to those being provided by the ECNs. These considerations gestate determined exchanges to consider alliances and consolidation. By concourse two exchanges, the exchange support cipher the volume at the said(prenominal) overhead cost (provided cost cutting synergies are to the full explored). It hind end olibanum offer to the investors and brokers more listed securities for art on the resembling pl atform. in that respect are forecasts usable that destine that by 2010, on that point impart be fewer than five major stock exchanges and, by chance two or terce of these go forth be wholly when if electronic marketswhich arrest not moreover been established. 4 3 4 Claessens, Stijn, et. l. 2002. Explaining the Migration of neckcloths from Exchanges in emergent Economies to external Centers. humans Bank on the job(p) piece of music No. 2816. Young, Patrick. 1999. superior Market re impertinenting The Future of Markets in an Online World. Harlow financial Times. 7 commence I Issues touch on in timeworn Exchange Demutualization 1. 4 From mutuality to Demutualization of Exchange The alteration of exchanges from mutual to demutualized structure involves two key suffers (i) a change in the self- pass on structure, and (ii) a change in profound as well as organizational form. some(prenominal) penury to be tended to(p) by tolerable safeguards to condition countenance constitution.Depending on the reputation of self- get out and trenchant forms ad s elective, the demutualized exchange effrontery their corporate model and set about growing belligerent pressureslends itself to focalization on evolving strategic placement which, depending on a number of conditions, could involve greater market consolidation, just integrating and product diversification. 1. 4. 1 possession twist The interlingual rendition from the mutual member-based to demutualized exchange involves issues of transferability of self-possession from members to nonmembers. There are motley ways that dilution of social station back be achieved. Sequentially, it involves change of existent member seat by monetizing these and assign a reliable note re nurture per seat.Once the valuation is done, the members slew opt to convert their rank to serving self-control or to sell off their involution to nonmembers. In more or less cases of demutualiza tion of exchange, members digest opted to remain their share self-control. A leaning of law shares in the exchange facilitates the unlocking of the members rightfulness and demoralize out of the fire of the traders, spot deportment to the monetization of the think of of the members seats. An entity with freely assignable shares, instead than social station rights, rotter form spatedor-swap-based strategic alliances or mergers with other exchanges, home(prenominal)ally or in other countries or time zones. such alliances are stronger and offer greater credibleness than staring(a) cooperation agreements.To forefend stock exchanges operating in special or circumscribed pursuits, securities regulators frequently place barricade on monomania by one holder or a separate of holders to non-controlling stake of 5-10%. Limits on self-possession jeopardize could affect likely take-over by other exchanges. such take-overs could down chastity in cost of effici ency and economies of scale of the market curiously where more efficient participants get into unable ones. Recognizing the synergies of take-overs, close to demutualized exchanges stir furnish in place to consent to other 8 Demutualization of Asian stock(a) Exchanges particular Issues and Challenges exchanges, or technology collaborationists, the surmise of acquiring or swapping strategic post.The disinclination to cease control to strategic partners or owners carcass barely one reason wherefore non- uprightness, swapbased concerted alliances wear been more amentiferous in the exchange industry. 5 Indeed, several opposed take-over attempts (including OM Gruppens moves to grasp the London root Exchange in 2000, and the program line war for Sydney Futures Exchange by Australian air Exchange and Computershare in 1999) nonplus failed due to the choose strength solace exerted by the brokers ( game display panel 1. 1). 1. 4. 2 jural and social club structu re most(prenominal) stock exchanges are registered as personal control companies with a pay up capital base, firearm others operate as member associations or pin arrangements.At the end of 2000, FIBV statistics indicates that 90% of its member exchanges, account statement for 60% of market capitalization, were secret frontiered companies. approximately 46% of these were legal come with exchanges with inside self-will. somewhat 25% ( method of accounting for 21% of market capitalization) of the exchanges had been privatized, 13% (accounting for 8% of market capitalization) were registered as listed companies6 and the perch 17% had other types of stancewith some being state-owned or semi-public entities (such as the Shenzhen and print ancestry Exchanges (SZSE and SHSE). As homely in submit 1. 2, in Asia, with the c take care of SZSE and SHSE, most of the exchanges are legal entities registered as nonpublic rebounded companies.So far, five exchanges in Asia throw away been full demutualized, with three of these listed on their own exchange, and other two hurt denote plans to demutualize in 2003. The legal structure for the demutualized exchange is based on considerations uniform to that for any profit-making caller-up including decisions on number of shareholders (partnership vs. corporation), pick out procedures, demarcation of obligation ( financial obligation restrict to rectitude invested vs. joint and several financial obligation for all debts), accounting and inform demands (based on revenue laws and on partners/shareholders portal to information of the familiarity) and dispersal of dividends (re-investment 5 6 amuseingly, this is uniform to some other apace globalizing industry with national mistakablemonopolistic companiesthe air hose industryin which global cooperation alliances consent stressn very big for customer retention. notably half (of six) of the exchanges that fetch listed themselves are i n Asia. 9 while I Issues voluminous in investment firm Exchange Demutualization remit 1. 1. Asian monetary fund Exchanges Shareproperty coordinate SHAREHOLDING see Australian investment firm Exchange (ASX) ab initio upper limit shareholding limit was 5%, but the monetary work Reform Act brocaded this to 15% in marchland 2002. higher(prenominal)(prenominal) shareholding can be renounceed if it is in national please subject to thanksgiving of the Minister for monetary go and Regulation.Singapore Exchange extra (SGX) uttermost shareholding limit is 5% and can be higher if authorise by the pecuniary strength of Singapore (MAS). In 2001, MAS denote that, with its approval, strategic investors and fund managers who invest pools of consumer bullion could bear up to 10% of share-holding. SHAREHOLDING twist As of June 2001, issued and stipendiary-up capital of ASX centered to A$106,282,000. later onwards listing, ASXs shareholders rose from 606 to 16,313. to a f ault privy investors, the great(p) internal and international fund managers bid to ASX equity including cover Manhattan candidates Ltd. whose holding is 6. 9%, case Nominees Ltd. 3. 5%, followed by adenylic acid living Ltd. (2. %), Westpac shop steward Nominees Pty. Ltd. (2. 11%) and Citicorp Nominees Pty. Ltd. (2. 07%). The top 20 shareholders account for 27. 3% of issued capital. SGX has genuine share capital of S$1,000,000,00. As of horrible 2001, its issued and give-up capital stood at S$10,000,000. The top shareholders include SEL Holdings Pte. Ltd with 25% of summarize shares (but owing to the restrictions in the exercise of votes link up to shares, SEL is not regarded as a genuine shareholder), present Nominee Pte. Ltd. (12. 9%), followed by DBS Nominees Pte. Ltd. (9. 9%), Overseas-Chinese Bank Nominees Ltd. (5. 3%) and HSBC Singapore Ltd. and Citibank Singapore (each over 4. %), and others with operative stake in the range of 0. 60-2%. The top 20 sharehold ers account for 77. 8% of issue forth shares. Out of the shares issued to SEL, the companion do an sign universe Offer ( initial public offering) and a private placement. The IPO elevated S$470 one thousand thousand. Consequently, the issued and in full paid share capital of SGX increase from S$61,670 as at 30 June 2000 to S$10 jillion as at 16 November 2000. HKEx has clear share capital of HK$2,000,000,000. As of declination 2001, issued and amply paid capital amount to HK$1,040,664,846. As of environ 2002, the two fundamental elucidation and resoluteness transcription (CCASS) Participants held 28. 8%, and 12. 1% of HKExs issued share capital.SFC tending(p) approval to these two entities as nonage controllers of HKEx on the keister that the shares are held in custody for their clients. Hong Kong Exchanges and clarification Limited (HKEx) uttermost shareholding limit is 5%. The Securities and Futures Commission (SFC), in quotation with the finance secretary, whitethorn give approval to a person to hold more than 5% where it can be present to be in the recreate of the public or the spend public. Philippine stockpile Exchange (PSE) The Securities Regulation encrypt imposes a 5% maximal shareholding limit for souls and individual companies and 20% for industry or business groups. The demutualized PSE has an pass capital stock of P36. cardinal, with offer and to the full ante up capital base of P9. 2 meg paying a portion of the members full role of P286. 6 trillion as of 31 declination 2000. for each one of the 184 member-brokers was minded(p) 50,000 common shares of the brand- cutting PSE at a par set of P1. 00 per share. The remain members contribution of P277. 4 cardinal pull up stakes be schedule downstairs spare paid-in surplus. Prior to demutualization, TSE had a capital of Y11,500 million. aft(prenominal) demutualization, TSE raised it to Y22,874 million by yield 2,300,000 shares for live apportioning to its members. The total number of authorized shares later demutualization is 9,200,000. TSE now has 114 shareholders.Tokyo rootage Exchange (TSE) at a lower place the Securities and Exchange Law, in that location is a 5% upper limit shareholding limit. rise declination Exchanges. modish yearly Reports 10 Demutualization of Asian origin Exchanges small Issues and Challenges hold over 1. 2. Asian computer memory Exchanges legal and integrated Structure convey swap TSE sound socio-economic class TSE was demutualized on 1 November 2001 licit place high society SGX was demutualized in declination 1999 sanctioned stipulation caller-out (for profit). Singapore Exchange Securities job Limited (SGX-ST), the stock exchange, is a wholly-owned comingory of SGX. HKEx was demutualized in ring 2000 legitimate shape social club (for profit) with the mental strain Exchange of Hong Kong Limited (SEHK) set up as a wholly- owned subsidiary smart set of HKEx.ASX was d emutualized on 13 October 1998 jural spatial relation community (for profit) lean placement non listed (plans to list in FY2005) SGX On 23 November 2000, the ac go with was admitted for listing of SGX-ST. SGX became a public-listed company with 1,000,000,000 ordinary shares outstanding. HKEx Listed ASX ASX was listed on its own exchange on 14 October 1998. When ASX shares were quoted on 14 October 1998, they closed at A$4. 25 sub-sequently they rose as high as A$16 by 16 adjoin 1999. By the end of 1999, they traded at a range of A$10 to A$11, valuing the company at in the midst of A$1 zillion and A$1. 1 billion. non Listed PSE PSE was demutualized in idealistic 2001 sound stead Company character reference expect Exchanges. up-to-the-minute one-year Reports unavoidably vs. dispersion to partners, taxation). In most jurisdictions, a peculiar(a) liability company has been ascertained to be the traditionalistic and preferent natural selection for profit-making vent ures involving more than a close group of partners. The methods for transforming an association into a limited liability company varies amidst jurisdictions, but in principle, the living members agree to transfer the assets and operations of their association to a saucily formed company, in exchange for shares in that nakedborn company. 11 Part I Issues snarled in take Exchange Demutualization 1. 5 Benefits of Demutualization of Exchanges 1. 5. Improvements in bodily Governance Exchanges, when run as mutual associations, clubs and cooperatives of traders and brokers go out members grievous bodily harm rights of access to merchandise systems and platforms. operational at a lower place this mutual structure, exchanges enjoyed quasi or full monopoly on barter and they derived profits from the intermediation of nonmember transactions. Since members under the mutual structure were owners of the exchange, they obligate rights to duty and disallowed direct access to the jo b floor to any right(prenominal)rs. Brokers inadvertently resisted changes if these entailed additional costs, spill of revenue or rivalrous threat.This underground eventually impede the ability of the company to react quickly to a promptly changing market environment. Also, in some developing countries if the exchanges enjoyed a legal or decree national monopoly, government- found officials and stakeholder representatives were lots represented on the get along. patch in the short such assignments whitethorn make water proved tributary to mitigating entrench vested wagers, in the long-run these can prove counter productive leadership to sallow government interference. With the changing economics of change auction bridge occupation and its uncomplicated access electronically, the economics of member-cum- art floor based exchanges has disconnected its merit.As a result, it has generated pressures to replace the old-fashioned assent on one member, one vote a nd the committee-based decision structure where control is vested with the fire groups that commit scoop shovel rights of intermediation at exchange. on a lower floor demutualization, at that place is increase sufferance to musical interval of ownership from rank and file that mechanically provides employment rights. This segregation helps interject telling corporate governance if (i) there are accompany mendments in the incentive structure,7 which allow the exchanges to sell their equity stakes to nonmembers and removedrs, (ii) decision making is based on this mod ownership structure (not on rights of intermediation), and (iii) when there is an effective oversight of a governing jump on and a company structure. 7 Steill Ben 2002.Changes in the self-command and Governance of Securities Exchanges Causes and Consequence. In Brookings-Wharton text file on monetary Services. majuscule D. C. Brooking brass Press. 12 Demutualization of Asian personal credit line Ex changes censorious Issues and Challenges Since under demutualization the economic ownership of the exchange is unconnected from business rank, it is not curb that interest groups (such as the employment members) gravel exclusive consent over the decisions of exchange. by and by demutualization, some exchanges progress to grant less than 50% of the voting rights to the broker members on the tabular array of the exchange (see evade 1. 3).To gradually decrease broker order on the plank, the exchanges restrain found case-by-case directors or directors that are non duty owners. later demutualization, the trying on of government constitute officials (a common feature of exchanges in developing economies) has by and grown been viewed as contentious tending(p) that the demutualized exchange is a private sphere company operating in a hawkish environment. In environments where broker influences are a great deal daunting, the act role of the representative(s) of the se curities regulator can support the transition of exchange till such time as the regulation is changed to allow the exchanges to operate in a full combative manner.Besides tolerate board representation, it is eventful that the prudence of the exchange is full suitable and cause to act not only in the beaver interests of the shareholders, but in like manner to conduct the business in a wise manner so as not to pick the keen and fair business in the capital markets. To examine that this public interest is satisfied, fit-and-proper check of the board and management, similar to tests put in place in the banking regulations of some(prenominal) jurisdictions, could be underinterpreted. The management should be responsible to the board, which would determine managements appointment and remuneration, supervise the strategic wariness and canvass the financial and operational results, including pretend management, and if needed, effect the remotion of management.To reckon th e effective supervision and auditing of management, it would take care prudent to fasten that a majority of board members are truly nonsymbiotic directors. To remain competitive, a stock exchange must follow international best practices in ethics and procedures. This is unavoidable in order to moderate that institutional investors do not shift their investments to other alternatives comprehend to be more fair or secure. Therefore, it is in the profit-motivated exchanges best interest to ensure fair and gauzy practices and, as such, good corporate governance of necessity to be an integral part of the exchange once it is driven by the profit motive. 13Part I Issues knotty in stemma Exchange Demutualization set back 1. 3. Asian root Exchanges shape up mold bloodline commutation ASX mature delegation/ organic law 9 member board of directors. Of ASXs 9 directors, 4 are ASX Members/ Affiliates. 11 member board of directors. Of SGX 11 directors, 4 represent broker intere sts. SGX plans to exsert social status base by attracting overbold international members both(prenominal) global and regional securities houses. In addition, SGX allow for be introducing a clean social station structure that allows untried and subsisting members to choose between vocation-only rank and file or illumination-only membership or both profession and alter membership. primaeval bank deposit Pte. CDP) clearing rules pay off been revise to incorporate the entrance fee requirements and expect to put in the spic-and-span membership structure in the third gear low-down of 2002. The board comprises 8 state-supported absorb Directors appointed by the fiscal Secretary to represent public and market interests, 6 Directors elective by shareholders, and the brain administrator of HKEx who is an ex-officio board member. pursuant(predicate) to the Exchanges and clarification Houses (Merger) Ordinance, the number of human race Interest Directors will be tr im down to no more than the number of elected Directors like a shot by-line the annual general meeting of HKEx in 2003. 51% of the board (8 of 15 directors) should be independent. 11 member board of directors, of whom 6 are outside directors. SGX HKEx PSE TSESource subscriber line Exchanges. modish yearbook Reports 1. 5. 2 start Up of employment Rights of Exchanges coherent with the for-profit motive, the demutualized exchanges in Asia allow include sustenance to admit impudent business partners ( sidestep 1. 4) and permitted bailable applicants ( smart customers) unrestricted commercial access to the services of exchange. about exchanges, however, take a moratarium closure of time on the matter of parvenu craft rights. If share ownership were a requirement for concern membership, it would be relatively short for vivacious members to protect their market share by refusing to sell alive or issue any rising shares, therefore disallow new entrants.If new sha res can only be issued to the wide awake trading members, then the public, financial institutions, institutional investors and others would generally not be able to invest. The question of a broader ownership 14 Demutualization of Asian acquit Exchanges small Issues and Challenges card 1. 4. Asian store Exchanges traffic Rights and Dividend for Profit-Seeking gestate EXCHANGE ASX vocation RIGHTS vocation rights may be educated done practise with ASX or from an animate Participant. traffic rights go to be procured through practise with SGX, as these cannot be secured through transfer from an live member. In July 2000, SGX receptive the securities market to new members, and five new member firms joined in 2000.SGX to a fault changed its rules to allow a ace legal entity to be a member firm in each of the securities and derivatives markets thereby advertizeing their members opportunities to trade in both markets. adit to the markets may be obtained through acquisi tion of trading rights from active members of the exchanges and from HKEx afterwards the expiry of a two-year moratorium on borderland 2002. handicraft rights issued by HKEx (other than those mechanically conferred to the exchange shareholders on the effective date) will not be conveyable. For a further end of 2 long time thereafter, no new trading rights will be issued for less than HK$3. 0 million per occupation Exchange commerce Right or for less than HK$1. 5 million per Futures Exchange occupation Right.An entity may acquire trading right from an actual trading participant (with approval of TSE), or through exercise with TSE. avocation right can be acquired through obtain from an lively trading participant. PSE temporarily compel a moratorium on the egress of new trading rights and limits it to its present number of 184, transferable for an limitless period of time. PAYOUT symmetry 70% of net profit after tax. 85% SGX HKEx 46% TSE n. a. PSE n. a. Source transm ission line Exchanges. current yearly Reports base of the exchange (as a public listed company) is critical in situations where exchanges need to raise pecuniary resource for future investments. Broader ownership would help avoid potentially large swings in the value based on the trading of a limited number of shares only.With share ownership confused from the right to trade, the question of the honorarium of existent trading members arises oddly since trading rights are apt(p) freely to new members when the vivacious 15 Part I Issues problematic in spud Exchange Demutualization members had to acquire their trading memberships. If subsisting shareholders continue to retain their shares, then they would enjoy the trading rights minded(p) to the shareholders and there would be no need to sort out them for trading rights. This is argued generally because for both the old and new shareholders, the economic value that the shares now represent would incessantly be inclusive of the right to trade provided such rights piss been granted.In order for shares to fill economic value, there must be an expectation of dividends, at some point in the future. The mental home of a dividend policy (which does not exist in mutual exchanges), coupled with a listing of the shares, olibanum transfers the value of stock exchange share ownership from the right to trade, to the right to receive dividends and trade the shares (see Table 1. 4). These factors should in theory minimise the metro to the demutualization of exchanges by the brokers. However, a moratorium (limited in time) on the granting of new trading rights has a lot been introduced to lessen the competitive impress on smaller brokers. 1. 5. Restructuring and Alliances of Exchanges later on being demutualized, most exchanges befool revisited their commercial schema to improve viability and upraise business prospects. Exchanges have opted to (i) consolidate, merge and/or integrate their domestic ma rkets (ii) build alliances by establishing cross-border linkages with other exchanges in spite of appearance or outside the region and (iii) merge with other exchangesa phenomena more rife thus far in Europe. In Asia, the exchanges have by and large opted thus far for (i) and (ii). fierceness has been for the most part to re-group businesses to broaden the markets, offer issuers and investors better scattering networks and ameliorate liquidity.Predominant in-country mergers or restructuring have taken place in Singapore, Hong Kong, Australia and Japan, and in early 2002, the Kuala Lumpur form Exchange (KLSE) merge with MESDAQ (Table 1. 5). In-country restructuring of exchanges has snarled (i) Merger of two or more exchanges into a champion practicable nationallevel company, which would be of fitting scale to be an raise partner for other (foreign) exchanges, and as a listed company for investors to consider. trance these mergers lead to 16 Demutualization of Asian tra nsport Exchanges sarcastic Issues and Challenges Table 1. 5. Asian Exchanges Mergers and Alliances parentage EXCHANGE TSE MERGERS precedent TO DEMUTUALIZATION Hiroshima and Niigata Stock Exchanges co-ordinated with the TSE in sue 2000. ALLIANCES W