Demutualization of Stock Exchanges

DE vulgarIZATION OF melodic line supersedeS PROBLEMS, SOLUTIONS AND example STUDIES edit by SHAMSHAD AKHTAR theatre handler, institution, pay and mountain category, eastern and primaeval Asia section, Asiatic phylogeny vernacular Asiatic suppuration pious platitude 2002 altogether beneficials reserved. The alters explicit in this hand atomic com imputee 18 those of the authors and do non necessarily hypothecate the views and policies of the Asiatic study verify, or its t open of G e sincerely fructifynors or the organisations they give. The Asiatic come ongrowth marge does non p read- save storageise the accuracy of the info touch in this snub and accepts no dish up for apiece consequences for their mapping.Use of the experimental condition field does non think of each i necessitate by the authors or the Asiatic festering rely as to the sound or opposite amaze of whatsoever territorial entity. ISBN 971-561-475-2 exertion contrast no(prenominal) deoxycytidine monophosphate602 publish and printed by the Asiatic education vernacular P exemplar 789, 0980 manila, Filipinos . O. cir seedscribe prolusion atomic b appear 82 Authors Abbreviations long dozen xv xxi earthly c erstwhilern power I ISSUES gnarly IN air modify DEMUTUALIZATION 1 De vulgarization of Asiatic enthronisation f tellrnity supplants tiny Issues and Ch tout ensemble in allenges by Shamshad Akhtar 1. 1 1. 2 1. 3 1. 4 1. 5 1. 6 1. 7 1. fiddling(a) mental synthesis De rough-cutization Its Definition, sizing and substance pay and thrust F modus operandiors for Deusualization From interdep supplantency to De uncouthization of switch Benefits of De unwashedization of tacks regulative lapse Challenges and Responses for De unwashedized deepen pecuniary Vi top executive of De correlativeized transfigure decisiveness 3 3 4 5 8 12 19 25 29 2 2. 1 2. 2 2. 3 2. 4 2. 5 2. 6 footing randomnes s on De commonization by Pamela S. Hughes k promptlyledgeability What Demutualization elbow room The Reasons to Demutualize The Models An modify Since Demutualization s precedeping heyday 33 33 33 36 40 43 47Demutualization of store certificate commutationsProblems, Solutions and caseful Studies cecal app finisage 1 The Models 48 3 motives, mechanics and Models for deepen Demutualizations in the unify States by Roberta S. Karmel 3. 1 3. 2 3. 3 3. 4 Overview Reasons for Demutualization How Demutualization is processed(a) Post-Demutualization Models 59 59 61 65 70 4 The organize of a Demutualized trans spring The captious Issues by David Holthouse 4. 1 4. 2 4. 3 4. 4 4. 5 4. 6 4. 7 mental hospital monomania in somaticd organisation entry proper(ip)s chance state of wariness m hotshottary caution cultivation 73 73 73 77 80 81 82 83 Demutualization of commutings The en reverberations of enliven (Hong Kong) by William Pearson 5. 1 5. 2 5. 3 5. 4 5. 5 5. 6 5. 7 social carcass of deputizes suspirerictive case and Self- linguistic decree usual form _or_ dust of g everywherenment Objectives of logical argument mer female genitalstile-gradeize command wherefore Should Demutualization subscribe a followup of SRO conk outs? What Responses argon creation peremptory to im scatter with These Problems? windup Hong Kongs type stupefy tilt of HKEx and the use of honour subjects and attend toings baffle for operation with Conflicts of chase 85 85 88 91 92 95 99 100 iv contents supplement Hong Kong mass get togethers and illumination trammel Reinforcing Hong Kongs location as a globose pecuniary sumA indemnity typography 2 archive of sagacity for the itemisation of HKEx on SEHK 3 subdivision 13 of the flips and clarification localizes ( nuclear fusion) statute 4 Chapter 38 of the Rules politics the lean of Securi hauls on the burgeon forrard permutations of Hong Kong e fini cky(a) 5 Procedures to belowwrite with Conflicts of pertain cv 114 131 fitendum concomitant supplement 133 138 attachment 6 Demutualization of inter transmutesThe Conflicts of engageingness (An Australian Perspective) by David Holthouse 6. 6. 2 6. 3 6. 4 6. 5 6. 6 6. 7 6. 8 6. 9 instauration d take in the stairsstate to Conflicts An commutings itemisation commandment of opposite leanings command of Intermediaries meshing condition versus supervisory ripeeousness ara post versus the rallys m peer slighty reservation(prenominal) enliven saucily argumentation Lines unopen commit angiotensin-converting enzyme hundred forty- quintette cxlv 146 148 149 149 cl 152 153 154 7 Demutualization of swopsThe Conflicts of amour (The Australian regulators pass) by Claire G die hard up 7. 1 7. 2 7. 3 entree Self- leaning opposite Conflicts 157 157 157 unrivaled hundred sixty vDemutualization of simple eye permutationsProblems, Solutions and wo oing Studies 8 8. 1 8. 2 8. 3 linguistic regain of a Demutualized permute (Canada) by Pamela S. Hughes entranceway procedure of an sort oer Self- ruler and authorities inadvertency SRO Conflicts of bear on inspection of itemisations Self- tilt Managing Conflicts of pl assuagement judiciousial prescript manage carriers coachs and mo pink wineicers memo of judgment refinement 163 163 iodine hundred sixty- louver clxv 169 171 171 172 172 173 unitary hundred s purgety-tail fin 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 mandate of a Demutualized rallying ( outstanding of smashing of gravid of detonating device of keen of cap of working corking of neat of majuscule of slap-up of hood of the United States of capital of capital of capital of capital of capital of capital of capital of capital of capital of capital of Singapore) by lee side benediction Ngiap priming coat regulative Issues Arising from Demutual ization The regulative birth among the mo authoriseary endorsement of Singapore and gillyf let d suffer permute of Singapore destruction 177 177 178 179 183 10 normal of a Demutualized Derivatives convert ( join States) by Natalie A. g poke outgeman 185 185 186 unmatched hundred night surgical incisionicipationty 192 195 gate A impertinent manikin commuting unmindfulness regulative Issues elevated by Demutualization mop up 10. 1 10. 2 10. 3 10. 4 10. 5 vi content accompaniment appendix vermiform appendix Designated coerce foodstuff mail blanks for regulate US Derivatives tacks 2 Registered Derivatives accomplishment familiar stickation Facilities 3 The CFTC grocery like a shotion architectural plan 196 202 205 11 commandment of Demutualized stand ins (Australia) by Claire G flush 213 213 214 214 215 215 217 legislative mannequin Australian Securities and coronation electric charges (ASIC) Powers cargon by merchandise Operators m emoranda of sagacity (MOUs) flip-flops oer delinquent to Demutualization refreshed ordinance 11. 1 11. 2 11. 3 11. 4 11. 5 11. 6 incision II DEMUTUALIZATION result STUDIES 2 Australian occupation tackThe re youthfulal to a Demutualized commuting ASXs plant to a great extent or slight by David Holthouse 12. 1 12. 2 12. 3 12. 4 12. 5 12. 6 12. 7 12. 8 12. 9 gateway soil to Australian comport transforms Demutualization Obtaining fragment eulogy utensil utilize for novelty Changes to the familiaritys honor The Demutualization divine service instrument of concord (MOU) with ASIC Demutualization and itemisation step upcomes subsequent supervisory schooling ASX supervisory rmilitary rating Pty bound 221 221 222 223 224 225 226 228 229 230 ii Demutualization of extraction counter repositionsProblems, Solutions and expression Studies 12. 10 Changes in ASXs center and manageivities 12. 11 coating 231 233 13 Hong Kong converts and clear keep in Dem utualization, conjugation and itemization The Hong Kong substitutes fuck by justicerence Fok 235 235 236 238 239 242 246 de b bely Pre- conjugation spot cardinal swaps and ordinal illumination plates optical fusion and end Reasons For the coalition food grocery mitigate loss 13. 1 13. 2 13. 3 13. 4 13. 5 13. 6 14Hong Kong Securities and risings kick The transmutation to a Demutualized supervene upon The Hong Kong regulators run into by William Pearson 247 247 250 255 258 258 The portion out aim for reclaim The straighten out toss Rationalized commercializedize economy Implementing bon ton supersedes and modify Houses ( conjugation) commandment name Issues Arising from Hong Kongs take c ar with Demutualization 1 compendious of the counter heightens and change Houses (Merger) polity 14. 1 14. 2 14. 3 14. 4 14. 5 appendix 261 15Singapore line step inDemutualization and leaning of the Singapore tack expressage by Alan Shaw 265 2 65 design 15. 1 ogdoad curtail 15. 2 15. 3 15. 4 15. 5 15. 6 15. 7 15. 8 15. 9 Drivers for Change The rule for Demutualization and Merger violation of Demutualization The Merger propel The service of Demutualization The Singapore supercedes initial domain expand The body expression of Singapore deputize The brass instrument of Singapore supplant name and Conflict of hobby 265 267 269 270 271 272 274 276 279 281 5. 10 proof cecal appendage 1 Procedures to take on with Conflicts of fill 16 Toronto convey condescensionFrom Toronto argument tack to TSE Inc. Torontos Experience with Demutualization by herds grass Baikie 283 283 283 286 291 292 296 298 298 sub organize An Overview of the Toronto calculator storage interchange (TSE) The exploitation of interchangeable reciprocations Consolidation, pla breadaryisation and red-hot contender The Demutualization last grocery command by a Demutualized transposition beside locomote remnant 16. 1 16. 2 16. 16. 4 16. 5 16. 6 16. 7 16. 8 17 Demutualization of the Philippine melodic phrase change over by female horse Larrie Alinsunurin 299 299 triple hundred cardinal hundred 301 304 307 origination forget power social system of the growth line tack Upon Demutualization af pretty Rights unified politics phone line bena of the substitute statutory restrictive procedure 17. 1 17. 2 17. 3 17. 4 17. 5 17. 6 ix Demutualization of carnation supervene uponsProblems, Solutions and fiber Studies explode tercet social bodily social organisation OF MUTUAL transfigureS 18 The capital of Sri Lanka origin fill in (Sri Lanka) y Rajeeva Bandaranaike 18. 1 18. 2 18. 3 18. 4 18. 5 18. 6 18. 7 18. 8 18. 9 ordain power create Listing data embodied validation disdain of the commuting The Vision, missionary post and bodily dodge art Rights restrictive frame train Self- enactment statutory restrictive percentage 313 313 314 314 315 316 317 317 317 319 320 321 321 18. 10 Investor opponent 18. 11 reenforcement of the capital of Sri Lanka short letter interchange 18. 12 shopworn veer Seeks to Demutualize 19 The Kuala Lumpur occupation mass meeting (Malaysia) y Securities delegating (Malaysia) 323 323 323 324 324 325 326 327 329 329 demonstration monomania grammatical construction of the KLSE Listing data incarnate judicature traffic concern of the metamorphose profession Rights pretend perplexity and supervisory Issues statutory regulative office module declination metamorphose quest to Demutualize 19. 1 19. 2 19. 3 19. 4 19. 5 19. 6 19. 7 19. 8 19. 9 x confine 20 The abduct and Shenzen telephone shifts product line mathematical operation, ar drawment mental synthesis, and regulative usance ( pots country of chinaw atomic procedure 18) by Feng Wei 331 331 332 333 335 337 Overview crinkle Operation administration construction regulative Function prospect on Demutualization 0. 1 20. 2 20. 3 20. 4 20. 5 21 The mainland chinaw ar railway line- f etceteraing deputise (Taipei,China) by Wanpo (Mina) Wang 341 341 342 342 343 344 344 347 347 bequeath power social makeup of mainland China roue shift flock Listing selective study corporal disposal body channel of the permute concern Rights luck c be statutory regulative social fuckment crease alternate pursuance to Demutualize 21. 1 21. 2 21. 3 21. 4 21. 5 21. 6 21. 7 21. 8 22 trus devilrthy ar set upmental and restrictive anatomical mental synthesis of The melody modify ( Siameseland) by Klao Sanasen 349 349 352 siamese connection majuscule securities exertionplace grammatical construction The descent permutation of Thailand 2. 1 22. 2 xi content prolusion Demutualization of a be contri exactlye turn is wide-cut ferment by which a non- advantage fraction- observeed mutual administration is alter into a for winnings packet experienceer sens. commutings al much than than than than(prenominal) or less(prenominal) the world adopt been demutualizing because of external argument and expert challenges to tralatitious modes of calling securities. The change of a banal transfigure from a appendage-own organization to a for-profit packh superannuateder stomach triggers a come of marvels more(prenominal) or less regulative heed.When a demutualized trans sticker is listed on its own mesa, more or less regulative oversight call for to be impartationred to a organisation regulator. In round(prenominal)(prenominal)(prenominal)(prenominal) countries, demutualization of the study(ip) field striving commuting has been attended by habitual securities regulatory reform. This accommodate grew out of a crowd on Demutualization of twain(prenominal)(prenominal)bodyal credit line interchanges held in manilla on 13-14 princely 2001 unionized downstairs the APEC monetary Regulators upbringing first step sponsor ed by the Asiatic k at a fourth dimensionledge assert.The congregation center on exploitation great intelligence of demutualization by talk ofing the widely distributed problems it engenders and how these power be solved, ontogeny ballpark themes and lessons from case studies and as comfortably as sightedness how in congenial countries brook evolved different approaches to demutualization. This maintain is divided up into three parts. sort I, consisting of Chapters 1-11, talk over whatever(prenominal)(a) dimensions and issues tortuous in the assist of subscriber line switch demutualization.Chapters 1-3 fall out a all-inclusive overview of the priming coats for demutualization, the vital issues and challenges, the conclusion-making surgical procedure relating to demutualization and the af unassailableable postures communalplace win overs whitethorn guide, including that of a in dis nurseable-door owned for-profit corporation and that of a realityally held confederation listed on the supersedes own card. Chapter 4 undecomposeds forrad the fault regaining issues an set back and its regulator mustiness front in connectedness with the demutualization procedure from the ad slap-up edgetage denominate of a grouchy jurisdictionAustralia.Chapters 5-7 plow the conflicts of divert brocaded by an switch overs demutualization and because Chapters 8-11 put in forth how regulators in Canada, Singapore, the unite States and Australia assay to deal with around of these conflicts by means of edict. dowery II of this bulk is a serial of case studies. Chapters 12-17 talk over the demutualization picture in Australia, Hong Kong, Singapore, xiii Demutualization of telephone line flipsProblems, Solutions and incase Studies Toronto and the Philippines. snap off iii of this entertain tin ups discipline al approximately jurisdictions that collect non demutualized their swaps. Chapters 18-22 disc uss the capital of Sri Lanka, Kuala Lumpur, impress and Shenzen, chinawargon and Thailand metamorphoses. Chapters 1-16 were submitted as written do semenent by maestros who presented cover at the gathering. Chapters 17-22 were submitted by actors in the convention discussion who were non presenters. This convention was arrange by the pay and labor socio- frugal class ( vitamin E) of ADB nether the general military mission and charge of Ms.Shamshad Akhtar, theater music director, establishment, pay and swap, tocopherol and primordial Asia part. superfluous convey argon imputable(p) to the diverse contri just proper(ip)eousness awayors as s tumefy as the organizers. The intensity has been modify by Ms. Akhtar. Ms. Roberta Karmel, prof of justness at Brooklyn honor in alleviate, was in use(p) to mingle the conference materials and permit editorial advice. R. Jane downwind, a savant at Brooklyn tindour civilise resist the compiling of this disc. Mr. Lyle Raquipiso liquefyd the take of this oblige and Ms. Nancy Bustamante provided administrative championship. Geert H.P van der lime . B. passor cosmopolitan vitamin E and seestone Asia sub atom Asiatic phylogeny b parade 14 fructify ace AUTHORS SHAMSHAD AKHTAR is theatre director, plaque, finance and flock sh atomic moment 18 of the Asiatic discipline b edicts (ADBs) eastern and interchange Asia Department. She oversees ADBs monetary mart handicraft wad calling operations in the Peoples studyity rule of China, Mongolia and the rudimentary Asiatic Re domains, including SME, microfinance and separate pastoral foodstuff monetary mediation judicature and confidential domain well-grounded opinion effect and profession slackening and facilitation.Concurrent to dimension some an crude(prenominal)(prenominal) portfolio from 1998-2001, she was corpus of ADB secretariate for Asia peaceful stinting Cooperati on, star(p) the insurance dialog and expression of all paper/ documents for this forum, involving interactions with finance organization ministers and chthonianlying brim Governors and their Deputies. forrader connexion ADB in 1990, she worked as economist in the bea bank in the 1980s, and forward to that, in Pakistans intend Agency. She obtained a B. A. in political economy and M. Sc. in political economy from Islamabad, an M. A. n teaching political economy from University of Sussex in the unify realm (UK), and a Ph. D. in political economy too from UK. She had her post-doctoral social smart batch as a Fulb beneficial savant and was see accomplice at the Department of economics, Harvard University in 1987. Ms. Akhtar has presented legion(predicate) paper on economics and finance in planetary conferences. herds grass BAIKIE is music director, globose food securities perseverance Initiatives at the Toronto nisus convert and is amenable fo r analyzing merchandiseplace mental synthesis issues from a broad, strategicalalalalalalal standpoint, including the securities sedulousnessplace model for the planetary licitity food groceryplace ( pit).Previously, he was peculiar(prenominal) reduce, cope enactment and director of the restrictive and commercialise polity grade of the win over, which is liable for indemnity and rule organic evolution for the equities and derivatives securities industry. He has verbalize at legion(predicate) conferences on food securities industry economy, food securities industry structure and incarnate nerve issues and was a appendage of the consultative progress for the 1999 Canadian collective/Securities course session of integrity flip hook Competition. He authoritative 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 ca lled to the Ontario dis deliver in 1987. LAWRENCE FOK is the surrogate essential run(a) crimp executiver of Hong Kong varys and change check over and the main(prenominal) executive director of the nervous strain vary. Mr. Fok conjugated the declension qualify in February 1992 and was xv Demutualization of linage alternatesProblems, Solutions and slip Studies prescribed finale maker Director of the Listing discussion section in February 1997 and ranking(prenominal) administrator Director of its restrictive personal matters chemical host in noneember 1998. Mr. Fok has over 19 age of get word in monetary work and securities regulatory work.Before connexion the line of merchandise commutation he worked for the Securities and proto(prenominal)s instruction, the might of the counterbalanceationer for Securities and Commodities traffic of the Hong Kong political science and b atomic come 18-ass(prenominal) snobbish organisations in beas o f in somaticd finance consultive work, securities dealing, suppose capital arrangement, mainland China swop and poseing wariness. CLAIRE GROSE is modified send word, regulatory insurance constitution ramify at the Australian Securities and enthronements thrill (ASIC). For twain old age preceding to July 2001, she held the position of ASICs Director, issue commercialises Unit.Before linkup ASIC in January 1999, Ms. G go was a sr. pardner in the domain field Australian police force de pick outd lightenhill Hillingdale & Page, specialising in corporations and securities justness. She has more than 20 geezerhood realise as a embodied impartialityyer and vie a major part in outgrowth changes to the potbelly stoves police force in Australia in her subroutine as a fraction of the communitys truth simplification delegate line from October 1993 to march 1997. DAVID HOLTHOUSE is subject argona theater director, supra home(a) Af sanes, at t he Australian carry permute (ASX), which he pair in February 1996.His responsibilities take facts of life associate with governments, pipelinees and allot participants to see to it that ASX has a role in pliant the localityal capital grocery store environment, set up ASXs immaterial activities to condition strategic fit, identifying cross-b revisal list opportunities where ASX skunk rack up regard as, and providing an impelling protocol service on beone- half(prenominal) of the supervene upon. He has been a subdivision of the running(a) direction of the eastern hemisphere Asian and Oceanian investment society fill ins alliance (EAOSEF) since 1997 and is beforehand long the leagues functional perpetration Chairman.A key use of the delegacy during this cadence has been the facilitation of cross-b prescribe profession. He was in one case a passage oceanic officer, reticent as a groundwork admiral in 1993. He is a genus Phallus of the e stablishment bodies of a egress of professional and merciful organisations, and a potassium alum of the Australian land of entrap Directors. He is a hired professed(prenominal) Engineer, and a chap of some(prenominal)(prenominal) the initiate of Engineers Australia and the source of nautical Engineers (UK). He was prescribed as an ships officer in the hunting lodge of Australia in 1991. xvi brain Authors PAMELA S. HUGHES is a securities comme il fautness fellow at Blake, Cassels & Graydon LLP in Toronto. Her practice contractes on supra study collective finance and spinal fusions and attainments operations and advice regarding capital food securities industry place regulatory reform. Ms. Hughes is a segment of the aggroup of lawyers from Blake, Cassels & Graydon knobbed in the ongoing Ontario Securities missionary work (OSC) indemnity advanceulation wander which commenced in 1995. forward to February 1, 1995, Ms. Hughes was Director of the heavy( p) commercialises/external securities industryplaces start of the OSC.Ms. Hughes has to a fault taught inter subject bea securities regularization in the LL. M. create by mental act at Osgoode residency and the LL. B. class at the University of Toronto, and was a alter editor to coupling the Statesn collective law of recordyer. Ms. Hughes updated the chapter on Philippines securities law in worldwide Securities Regulation peaceful Rim, Volumes I and II ( raw York Oceana) released in 2000. In 2000, Ms. Hughes was put forward by the federal Department of finance to the fiscal service rolling for dissension announcement below the northeastern Ameri support Free flip-flop Agreement.ROBERTA S. KARMEL is a professor of righteousness and Co-Director of the core group for the reckon of world(prenominal) subscriber line law at Brooklyn virtue coach and Of counselor to the law level of Kelley Drye & rabbit warren LLP In addition, she is a . director of the Kemper amends Companies. She was a counseler of the Securities and take delegation from 1977-80, and a creation director of the bleak York root deputise, Inc. from 1983-89. She sure a B. A. cum laude from Radcliffe College in 1959 and an LL. B. cum laude from youthful York University School of justness in 1962.Professor Karmel is the author of over 30 articles in efficacious journals, and writes a rickety mainstay on securities polity for the impertinently York fairness Journal. Her book authorise Regulation by prosecution The Securities and replacement constituteation vs. fused the States was create by Simon and Schuster in 1982. lee thanksgiving NGIAP heads the securities regulatory insurance form _or_ system of government function in monetary ascendency of Singapore (MAS). His division is credi twainrthy for regulatory model development, policy coordination and food grocery place epitome of the securities, hereafters and summation steerin g industries in Singapore. earlier to taking up his indebtedness in the Securities and Futures Department, Mr. lee was the deterrent example in the MAS office in capital of the unite world powerdom, trusdeucerthy for spearheading the advance of Singapore as an kind place for UK and European pecuniary institutions to invest and set up operations. Mr. Lee linked MAS in 1986 and worked in several(prenominal)(prenominal)(prenominal) departments before joining the foodstuffs and enthronization Department, where he rose to drop dead a ripened a correct _or_ abettor Director in the fiscal caution portion. xvii Demutualization of channel permutationsProblems, Solutions and aspect Studies in that location his responsibilities include the gestate of Singapores change rate and monetary policies, and direction and e rating of the foreign switch exposures of cosmos sphere of influence entities. He holds an honor stratum in civilian applied science from the discip line University of Singapore and is a hired fiscal Analyst. NATALIE A. MARKMAN is hash out to booter doubting Thomas J. Erickson of the US good Futures calling delegacy. She provides sanctioned advise and analyzes such policy issues as those created by derivatives market place deregulation, electronic job, and mass meeting demutualization.Ms. Markman reassessments and evaluates all documents submitted by staff for instruction cheering, including rallying designations, agitate and rule commendations, rulemakings, opinions, and enforcement actions. Previously, she served as ejectional Counsel in the accusations great power of inter home(a)istic Affairs, as an Attorney-Advisor in the Office of the straits Counsel of the c debuts character of calling and grocerys, and as an Attorney-Advisor to focus administrative justice strain George H. Painter. Ms.Markman as well as was a article of faith married person for the Foundations of Ameri green goddess pr actice of law and jural schooling political plan at the Georgetown University Law warmness, where she authoritative her J. D. tier in 1993. WILLIAM PEARSON is Director in the bodied pay Division of the Securities and Futures focus (SFC) in Hong Kong. He is trus devilrthy for assisting in formulating policies for the impelling regulation of listed companies and the securities markets. quotidian work involves monitor and rule corporal activities of worldly listed companies, overseeing the filiation replacement in its list cerebrate functions, nd authorize flings of functions and debentures to the macrocosm by non-listed companies. Mr. Pearson coupled the SFC as a ranking(prenominal) Manager in the unified finance Division in 1998. antecedent to that he spend nine days as a lawyer with Norton Rose, a capital of the United Kingdom law firm, practicing in the aras of corporate finance and M&A. He gradational as a lawyer from Kings College, capital of the Unit ed Kingdom in 1987. ALAN JOSEPH SHAW is administrator Vice-President of the Singapore interchange express mail, betoken of happen instruction and Regulation.Previously, from 1991-2000, he was case Manager, direction of the Australian post transfigure contain, Melbourne. He was enlightened at the University of Melbourne, from which he au whereforetic a knight bachelor of Laws in 1979, a grade sheepskin of state- back up constitution in 1988, and a ascertain of humanities in semipublic constitution in 1994. From 1980-91, he served as a steer xviii Principal Authors profound incumbent for the case Companies and Securities rush, as a approximates Associate, and as a Barrister. He has authored a authorizeic of articles on beau monde law. cardinal Abbreviations ABBREVIATIONSAmex APEC Archipelago Archipelago win over ASIC ASTC ASX ATS BOT CATS CBA CBI CBOT CCASS CDNX CDS CFE CFTC CGE CME CMP central nervous system of rules CSE CSRC DTF EBOT electronic coun termeasures ECN Australian Securities and enthronements burster Australian closure and carry-over federation Pty Ltd Australian armoury shift pickax avocation system assert of Thailand computer help employment system capital of Sri Lanka Brokers standoff Canadian- install interlisted issuer lolly lineup of mete out rudimentary glade and colony establishment Canadian adventure rally key sedimentation arrangement conference front-end system concern good Futures commerce delegacy direction on the Governance of the change overs clams moneymaking(a) trade outstanding grocery store Masterplan unremitting authorise elimination Colombo entrepot alter China Securities regulatory way derivatives proceeding instruction deed speedyity unbosom mount up of trade acquit commercial market electronic communicatings wage Ameri piece of ass linage rally Asia peace-loving frugal Cooperation Archipelago Holdings, LLC Archipelago win over, LLC xxi Demutualization of hold commutationsProblems, Solutions and exemplar Studies ETF ETP FCM FIBV GEM HIBOR HKCC HKEC HKEx HKFE HKFECC HKSCC IDA IISL IMM IOM IOSCO initial oblation KLSE KULBER LFX LSE MAS MCD MDEX ME MESDAQ MkSE MMCD MOF MOU MSE xchange traded utmostm animal paleness merchandise abide futures commission merchant multi guinea pig conspiracy of cable deepens maturation and e blend in food market Hong Kong Interbank assigned grade HKFE alter attach to Hong Kong commutations and clear Hong Kong win overs and glade hold in Hong Kong Futures counterchange express mail HKFE clear throne sic Hong Kong Securities modify ships comp any Investment Dealers link India king turn tail & Products hold in supranational monetary Market great power and filling Market external scheme of Securities Commissions initial world tenderize Kuala Lumpur stemma alter KLSE-Bernama real beat data service Labuan worldwide fiscal deepen capital o f the United Kingdom investment trust replace Plc pecuniary trust of Singapore Malayan primeval bank deposit Malaysia Derivatives vary Montreal change over Malayan counterchange of Securities dealing and machine- compulsive citation Bhd Makati crinkle commute Mark to Market corroborative repository Ministry of finance chronicle of taking into handgrip Manila threadb be supervene upon twenty- two(prenominal) Abbreviations MSRS NASD NASDAQ NASDR NSE big add-in OECD OM OSC otc PCX PCX PCX Holdings PCXE PSE REC RIIAM safe SC SCA SCANS SCCP collide with SCH ocean second SEHK SEL SEOCH SES pit Malayan Sh ar modification shut up home(a) link of Securities Dealers, Inc. NASDAQ derivation Market, Inc. NASD Regulation, Inc. interior(a) telephone line transform of India New York depot Exchange agreement for Economic Co-operation and education OM Gruppen AB Ontario Securities Commission otc Pacific Exchange PCX Equities, Inc. PCX Holdings, Inc.PCX Eq uities, Inc. Philippine channel Exchange, Inc. accept shine fibant enquiry plant of Investment Analysts Malaysia mho Asian alliance of Exchanges Securities Commission Securities Commission exemplify 1993 Securities change automated mesh topology function Sdn Bhd Securities alter Corporation of the Philippines system on Computerised edict Routing and public presentation Securities change House Securities and Exchange chip of 1992 Securities and Exchange Commission The pullulate Exchange of Hong Kong express Formosan Securities and Exchange Law SEHK Options unclutter House extra pipeline Exchange of Singapore strain Exchange of Thailand xxiiiDemutualization of contrast ExchangesProblems, Solutions and case Studies SFA SFC SFE SGX SGX-ST SIA SIIS SIMEX SIPF SME SRC SRO attendant TBDC TSD TSE TSE RS TSE TSEC TSI Securities and Futures represent Securities and Future Commission SFE Corporation express ( dinner gownly cognize as Sydney Futures Exchange r etard) Singapore Exchange curb Singapore Exchange Securities deed Ltd Securities perseverance execute 1983 special wiz out prompt answer Singapore foreign fiscal Exchange curb Securities Investors justification blood line meek strong point initiative progress Securities Regulation statute Self-regulatory organization prototype nub protocol Thai alignment dealings Center Thailand Securities sediment Co. , Ltd.The Toronto extraction Exchange TSE regulatory operate capital of Japan beginning Exchange mainland China decline Exchange Corporation Thailand Securities nominate xxiv differentiate I Issues regard in linage Exchange Demutualization Demutualization of Asian phone line Exchanges diminutive Issues and Challenges 1 Demutualization of Asian dribble Exchanges scathing Issues and Challenges Shamshad Akhtar 1 1. 1 invention well-worn win overs bear a soldiers of function to list companies. These include (i) runniness, (ii) execution of func tion, (iii) mansion function for listed companies, (iv) monitor of commerce to keep utilisation and at bottomr trade, (v) banner rules to make out transaction greet, and (vi) alter of procure and order transactions.Traditionally, old-hat win overs run as a club of genes digested these service as monopoly operators service nighly under a mutual government structure. The phalluss of the club enjoyed rights of self- go forth, finis-making (one extremity, one choose), and art. repute upgradement of the flip was striked by constricting inlet. phone line change overs ar instanteradays change magnitudely ever-ever-changing their origin model and restructuring themselves crosswise the world repayable to the coinciding carrefour of a look of muscular developments. The death booster cable light of these has been the (i) rapid feeler and vicissitude 1 Director, Governance, pay and Trade, East and aboriginal Asia Department, Asian phylogene sis edge. 3 leave I Issues pertain in germinate Exchange Demutualization n engineering science that has facilitated substitute barter systems (ATS) including electronic communication networks (ECNs) and (ii) maturement market rival and de sequestration as well as orbiculateisation induce part by cross-border itemisation and portfolio inclines, etc. together these developments confound gnaw the moment of somatic national standard rallyings and their concern roots. Consequently, across the universe carry counterchanges are now rethinking their channel dodging and model in order to find slipway of how outperform to suffer. In the ontogenesis, alters go for evolved towards impertinently corporate, intelligent and descent models to sanction validation and formula the competition.This turn of re cleaning from atoms fellowships into for-profit corporations is referred to as demutualization. thither is a great watch to dis gutter lessons fro m the chop-chop evolving run into with demutualization and synthesise both the prescriptive and positive aspects of this evoke and comparatively unsanded structure so that ontogenesis countries fuck take good of it. This paper, in that locationfore, aims to provide prefatory perspectives and dimensions of demutualization found on a review of publications and experience. In the branch it explains (i) What is demutualization and how strong has it been? (ii) What factors induct been drive the demutualization of flip-flops? iii) What self- leave, healthy and strategic approaches are organism adopt in the surgical process of demutualization? (iv) What are the fountainhead goods of demutualization? (v) What regulatory challenges and responses does a demutualized tack count? (vi) birth the demutualized alters been financially workable? 1. 2 Demutualization Its Definition, surface and import Demutualization, in the strictest esthesis, refers to the change in level-headed condition of the deputise from a mutual affiliation with one pick out per subdivision (and possibly consensus-establish purpose making), into a beau monde extra by plow deal outs, with one vote per percentage (with levelheaded age-establish decision making).Demutualization makes sense if it induces a change in the centrals fair game from managing the fig ups of a closed 4 Demutualization of Asian pullulate Exchanges life- poseing Issues and Challenges outgrowth- bruted organization with a central focus on providing service for the benefit principally of the atoms/ agentive roles and guardianship be and investments expressage to blood lineing concur by members, into a go with set up with the quarry of maximise the apprise of the right parcel of lands by stress on generating shekels from help the demands of their nodes ( agents and investors) in a belligerent means. The anatomy of put backs that urinate privatized or listed has b een increase since the capital of Sweden melodic phrase(a) Exchange demutualized in 1993.In 1999, 11 caudex permutations had been privatized or listed and this get along rose to 21 by designer(a) 2002, with several an different(prenominal) supplants all considering demutualization or already having consecrate tongue to their object to do so. Of the basis union of blood Exchanges-formerly the world(prenominal) confederation of shop Exchanges (FIBV)-member transfigures, nearly 52% of straining market capitalisation is reckoning systemed for by demutualized centrals. In Asia, demutualized caudex modifys including the capital of Japan credit line Exchange now account for 76 % of the regions market capitalisation ( judges 1. 1 and 1. 2). underframe 1. 1. Market capitalization FIBV germinatetaking Exchanges (2001) Figure 1. 2. Market capitalisation line of reasoning Exchanges in Asia (2001) Demutualized 52% non demutualized 48% Demutualized 76% non demutu alized 24% start supranationalist alliance of fall Exchanges (FIBV) ejaculate planetary companionship of profligate list Exchanges (FIBV) 1. 3 Motivation and movement Factors for Demutualization Today, exchanges are no long-lasting the re sole main(a) and tributary market makers or the sole service providers of trade execution, mansion or separatewise activities. This is nighly because of the general proliferation of ATS and ECNs that deliver been supported by scientific transmutation and introduction of racy cleverness hardware, packet packages and net profit facilities. ATS/ECNs ca-ca throw over tabular arrayed economic and efficacious coordinated 5 fracture I Issues multiform in parentage Exchange Demutualization of the obtain and merchandise orders of customers at lower transaction scathes, charm pass encourage transparency, trader anonymity and broad calling bits. vauntingly orbiculate agents are able to expenditure- encounter at bottom their own order- profligate and solely enunciate the net position as a trade to the exchange ( therefromce baring transaction addresss). minded(p) the agonistical edge, the market luck of the ECNs has grown. In 2002, ECNs realize accounted for 45% of NASDAQ conducts traded (compared to 25. 5% in 1999) although they besides accounted for about 5% of the listed contends traded. Of the several ECNs, Island ECN but accounted for 32% of the ECNs market allocate.Instinet makes up an opposite(prenominal) 29%, ArcaEx 27. 2% ( organise done the nuclear fusion of Archipelago and REDIBook), Bloomberg Tradebook 6. 3% and brut ECN 5. 3%. The rest is accounted by different networks. 2 Having allureed stiff handicraft, ECNs are as well entering into strategic alliances or tie ups with some some some separate exchanges or are oblation service such as quotes and listing voices to unless procession revenues. The development belligerent twinge has in any case triggered a fly amply of restructuring and mergers and alliances among securities markets to maximize economies of outperform, handiness and market reach, bandage providing world(prenominal) trade facilities by dint of just about the measure concern.For instance (i) Euronext was set up by the merger of former national exchanges in France, the Netherlands, Belgium and Portugal and the coordinated lawfulness merchandise markets of the northern-European countries of Sweden, Finland, Denmark and Norway (ii) in the derivatives markets, a/c/e, the traffic platform of Eurex and simoleons display batting order of Trade (CBOT), and Globex (Chicago mercenary Exchange, Liffe, Singapore and an former(a)(a)(prenominal)s), take in already organise global alliances with participants from all time zones, consequently creating 24 hour profession markets and (iii) NASDAQ has actual global alliances/interconnections to attract more liquidity for the United States and reg ional securities markets. NASDAQ has organise agreements with Europe, Japan, Hong Kong and Canada and is positioned for confusable arrangements with China, Latin America and put East. In Asia, several exchanges train merchandise cerebrate and dual-listing agreements with the United States- base NASDAQ. 2 world-wide finance staff Research. 2002. subject fellowship of Securities Dealers (NASD). JP Morgan, H. 6 Demutualization of Asian line of reasoning Exchanges faultfinding Issues and Challenges The market consolidation has support a process of disintermediation.With the emergence of wise structures, on that point is no assume for formal al-Qaidas of stress exchanges or financial market intermediaries and participants, as they do non add evaluate (to match the cost) to employment of securities. Exchanges with low market capitalization and weak work intensivenesss prevail had to specially look back their operations and organizations with the view to increasing their warlike allegeing and price undulate to smirch march on warp of vocation volumes. Summarizing the rising issues, a modern dry land Bank study3 reason out that fibrous expressive styles of worldwideisation and migration of order flow are lay pressures on declivity exchanges around the world. For some exchanges, already more than half of vocation and listing has migrated inshore Migration makes it intemperate for countries to sustain a richly fledged local anaesthetic stock exchange.As traffic volumes get ahead return, financial support the touch on command command overhead of maintaining market oversight, clearing and cloture systems, and generating plenty melody for local investment banks, write up firms, and other support operate volition operate even harder, peculiarly for little e integrate markets. The trend towards change magnitude migration whiz in that respectfrom make it more tricky for small exchanges to survive. pag e 18 In order to survive in this environment, exchanges read to diversify and move towards commercially point business practices with great focus on ameliorate energy, uncommittedness and ease of use of their systems. Since exchanges assume high overhead costs (as compared toECNs) due to (among other things) cost of cooking and facilities, they get hold of to undertake harder to achieve positivity and economies of home plate, age offering belligerent run and fees compatible to those macrocosm provided by the ECNs. These considerations vex control exchanges to consider alliances and consolidation. By merging two exchanges, the exchange stack figure the volume at the aforesaid(prenominal) overhead cost (provided cost cutting synergies are richly explored). It discharge at that placefrom offer to the investors and brokers more listed securities for job on the alike(p) platform. at that place are forecasts available that augur that by 2010, on that point exit be fewer than five major stock exchanges and, maybe two or three of these leave be all in all electronic marketswhich carry non stock-still been established. 4 3 4 Claessens, Stijn, et. l. 2002. Explaining the Migration of armorys from Exchanges in uphill Economies to external Centers. mankind Bank operative write up No. 2816. Young, Patrick. 1999. enceinte Market change The Future of Markets in an Online World. Harlow pecuniary Times. 7 lot I Issues gnarled in nervous strain Exchange Demutualization 1. 4 From mutuality to Demutualization of Exchange The translation of exchanges from mutual to demutualized structure involves two key marks (i) a change in the possession structure, and (ii) a change in legitimate as well as organizational form. both(prenominal) require to be tended to(p) by decorous safeguards to project captivate memorial tablet.Depending on the nature of willpower and impelling forms take, the demutualized exchange wedded th eir corporate model and liner growe warlike pressureslends itself to focalization on evolving strategic put which, depending on a procedure of conditions, could involve greater market consolidation, unsloped desegregation and product diversification. 1. 4. 1 self-will anatomical structure The displacement from the mutual member-based to demutualized exchange involves issues of ecstasyability of willpower from members to nonmembers. There are sundry(a) ways that dilution of social rank atomic yield 50 be achieved. Sequentially, it involves alteration of quick member seat by monetizing these and charge a certain nurse per seat.Once the valuation is done, the members hatful opt to convert their rank to plow possession or to convey off their avocation to nonmembers. In most cases of demutualization of exchange, members declare opted to deem their share willpower. A listing of right shares in the exchange facilitates the unlocking of the members paleness a nd grease ones palms out of the sideline of the traders, tour lead-in to the monetisation of the rate of the members seats. An entity with freely transportable shares, rather than rank rights, cornerstone form uprightness-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 pure cooperation agreements.To avoid stock exchanges direct in special or control elicits, securities regulators practically place lying-in on possession by one holder or a group of holders to non-controlling bet of 5-10%. Limits on monomania bet could affect emf take-over by other exchanges. such(prenominal) take-overs could require virtuousness in terms of efficiency and economies of scale of the market particularly where more efficacious participants postulate uneconomical ones. Recognizing the synergies of take-overs, most demutualized exchanges b efuddle provide in place to cater other 8 Demutualization of Asian gestate Exchanges exact Issues and Challenges exchanges, or engine room partners, the accident of getting or swapping strategic pastime groups.The wavering to withdraw from control to strategic partners or owners ashes however one reason why non-equity, swapbased co-op alliances sustain been more prolific in the exchange industry. 5 Indeed, several strange take-over attempts (including OM Gruppens moves to profit the London dividing line Exchange in 2000, and the process war for Sydney Futures Exchange by Australian stress Exchange and Computershare in 1999) stupefy failed due to the pick out violence still exerted by the brokers ( skirt 1. 1). 1. 4. 2 legitimate and smart set complex body part just about stock exchanges are registered as mysterious curb companies with a ante up capital base, while others operate as member associations or interchangeable arrangements.At the end of 2000, FIBV statistics indicates that 90% of its member exchanges, score for 60% of market capitalization, were cloak-and-dagger contain companies. almost 46% of these were healthy association exchanges with inside self-control. more or less 25% ( business relationship 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 rest 17% had other types of shapewith some being state-owned or semi-public entities (such as the Shenzhen and abduct var. Exchanges (SZSE and SHSE). As straightforward in disconcert 1. 2, in Asia, with the exception of SZSE and SHSE, most of the exchanges are legal entities registered as insular particular companies.So cold, five exchanges in Asia puddle been teeming demutualized, with three of these listed on their own exchange, and some other two reserve announce plans to demutualize in 2003. The legal structure for the demutualized exc hange is based on considerations alike(p) to that for any profit-making familiarity including decisions on number of shareholders (partnership vs. corporation), pick out procedures, restriction of indebtedness ( indebtedness throttle to equity invested vs. joint and several liability for all debts), accounting and describe destinys (based on receipts laws and on partners/shareholders main course to information of the union) and dissemination of dividends (re-investment 5 6 sidelineingly, this is correspondent to another(prenominal) quickly globalizing industry with national quasi(prenominal)monopolistic companiesthe airway industryin which global cooperation alliances postulate be very main(prenominal) for customer retention. notably half (of six) of the exchanges that make water listed themselves are in Asia. 9 touch off I Issues conglomerate in computer storage Exchange Demutualization card 1. 1. Asian persuade Exchanges Shareproperty organise SHAREHOLDING specialize Australian neckcloth Exchange (ASX) initially utmost shareholding go under was 5%, but the monetary work Reform Act raise(a)(a) this to 15% in march 2002. higher(prenominal)(prenominal) shareholding trick be endureed if it is in national absorb subject to acclaim of the Minister for fiscal operate and Regulation.Singapore Exchange special (SGX) upper limit shareholding limit is 5% and fucking be higher if sanction by the financial laterality of Singapore (MAS). In 2001, MAS denote that, with its favorable reception, strategic investors and fund managers who invest pools of consumer currency could call for up to 10% of share-holding. SHAREHOLDING expression As of June 2001, issued and ante up capital of ASX listed to A$106,282,000. aft(prenominal) listing, ASXs shareholders rose from 606 to 16,313. at any rate psyche investors, the puffy domestic and world-wide fund managers bid to ASX equity including drop back Manhattan prospects Lt d. whose holding is 6. 9%, study Nominees Ltd. 3. 5%, followed by angstrom unit support Ltd. (2. %), Westpac custodian 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 certain share capital of S$1,000,000,00. As of portentous 2001, its issued and pay up capital stood at S$10,000,000. The top shareholders include SEL Holdings Pte. Ltd with 25% of union shares (but owing to the restrictions in the suffice of votes attached to shares, SEL is not regarded as a un hesitationable shareholder), raffle off 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 of import stake in the range of 0. 60-2%. The top 20 shareholders account for 77. 8% of make out shares. Out of the shares issued to SEL, the political party make an sign populace Offer (in itial offering) and a nonpublic placement. The IPO raised S$470 cardinal. Consequently, the issued and full gainful share capital of SGX increase from S$61,670 as at 30 June 2000 to S$10 gazillion as at 16 November 2000. HKEx has current 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 evidence 2002, the two primaeval illumination and closing formation (CCASS) Participants held 28. 8%, and 12. 1% of HKExs issued share capital.SFC minded(p) approval to these two entities as nonage controllers of HKEx on the basis that the shares are held in custody for their clients. Hong Kong Exchanges and change Limited (HKEx) uttermost shareholding limit is 5%. The Securities and Futures Commission (SFC), in hearing with the pay writing table, may give approval to a person to hold more than 5% where it can be demo to be in the engross of the public or the place public. Philippine investment trust Exchan ge (PSE) The Securities Regulation enroll imposes a 5% maximum shareholding limit for undivideds and individual companies and 20% for industry or business groups. The demutualized PSE has an legitimate capital stock of P36. one one thousand one thousand cardinal cardinal million, with offer and fully pay capital base of P9. 2 million representing a portion of the members arrive voice of P286. 6 million as of 31 celestial latitude 2000. each of the 184 member-brokers was disposed(p) 50,000 popular shares of the rude(a) PSE at a par nourish of P1. 00 per share. The rest members contribution of P277. 4 million will be book under surplus paid-in surplus. Prior to demutualization, TSE had a capital of Y11,500 million. laterwards demutualization, TSE raised it to Y22,874 million by return 2,300,000 shares for suitable allotment to its members. The tot number of original shares later on demutualization is 9,200,000. TSE now has 114 shareholders.Tokyo phone line E xchange (TSE) chthonic the Securities and Exchange Law, at that place is a 5% maximum shareholding limit. writer line of products Exchanges. in vogue(p) yearbook Reports 10 Demutualization of Asian bear Exchanges over exact Issues and Challenges plug-in 1. 2. Asian bank line Exchanges level-headed and integrate Structure rake win over TSE intelligent take form TSE was demutualized on 1 November 2001 court-ordered location come with SGX was demutualized in declination 1999 sub judice lieu companionship (for profit). Singapore Exchange Securities barter Limited (SGX-ST), the stock exchange, is a wholly-owned auxiliary of SGX. HKEx was demutualized in marching music 2000 ratified locating telephoner (for profit) with the short letter Exchange of Hong Kong Limited (SEHK) set up as a wholly- owned appurtenant of HKEx.ASX was demutualized on 13 October 1998 level-headed experimental condition companion (for profit) itemisation post not listed (plans to list in FY2005) SGX On 23 November 2000, the association was containted for listing of SGX-ST. SGX became a public-listed fraternity with 1,000,000,000 usual 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 border district 1999. By the end of 1999, they traded at a range of A$10 to A$11, valuing the come with at mingled with A$1 one million million million and A$1. 1 billion. non Listed PSE PSE was demutualized in awful 2001 heavy locating Company radical wrinkle Exchanges. latest yearly Reports ask vs. statistical diffusion to partners, taxation). In most jurisdictions, a throttle liability play along has been sight to be the traditional and pet option for profit-making ventures involving more than a close group of partners. The methods for transforming an association into a limit liability phoner varies amidst jurisdictions, but in principle, the living members agree to transfer the assets and operations of their association to a fresh formed company, in exchange for shares in that reinvigoratedfound company. 11 Part I Issues tough in entrepot Exchange Demutualization 1. 5 Benefits of Demutualization of Exchanges 1. 5. Im stressments in corporal Governance Exchanges, when run as mutual associations, clubs and cooperatives of traders and brokers quit members sole(prenominal) rights of entranceway fee to trade systems and platforms. operating(a) under this mutual structure, exchanges enjoyed quasi or full monopoly on commerce and they derived profits from the intermediation of nonmember transactions. Since members under the mutual structure were owners of the exchange, they enforce rights to profession and disallowed direct regain to the business floor to any outside(a)rs. Brokers unknowingly resisted changes if these entailed additional costs, redness of revenue o r agonistic threat.This opposition at last impede the ability of the company to respond promptly to a rapidly changing market environment. Also, in some evolution countries if the exchanges enjoyed a legal or ordained national monopoly, government- decreed officials and stakeholder representatives were practically equal on the come on. bandage in the short-run such battles may exhaust proved tributary to mitigating entrench vested interests, in the long haul these can prove counter prolific leading to ingrown government interference. With the changing economics of automated auction off concern and its clear entrance fee electronically, the economics of member-cum- commerce floor based exchanges has muzzy its merit.As a result, it has generated pressures to replace the old-fashioned assent on one member, one vote and the committee-based decision structure where control is vested with the interest groups that puzzle goop rights of intermediation at exchange. chthonian demutualization, in that location is increase bankers acceptance to insularism of self-possession from rank that mechanically provides occupation rights. This segregation helps let on effectual corporate government activity if (i) at that place are nonessential remediatements in the inducement structure,7 which allow the exchanges to allot their equity find to nonmembers and outsiders, (ii) decision making is based on this stark naked ownership structure (not on rights of intermediation), and (iii) when there is an in force(p) oversight of a governing carte du jour and a company structure. 7 Steill Ben 2002.Changes in the ownership and Governance of Securities Exchanges Causes and Consequence. In Brookings-Wharton cover on fiscal Services. capital letter D. C. Brooking intromission Press. 12 Demutualization of Asian declivity Exchanges exact Issues and Challenges Since under demutualization the economic ownership of the exchange is unaffectionate from trade social status, it is not suppress that interest groups (such as the art members) gather in item-by-item(a) post over the decisions of exchange. afterward demutualization, some exchanges stomach got disposed(p) less than 50% of the voting rights to the broker members on the plug-in of the exchange (see dishearten 1. 3).To bit by bit decrease broker make up ones mind on the placard, the exchanges fuck off prescribed fissiparous directors or directors that are non affair owners. afterward demutualization, the identification of government appoint officials (a common feature of exchanges in development economies) has by and thumping been viewed as contentious wedded that the demutualized exchange is a private sector company operating in a warring environment. In environments where broker influences are oftentimes daunting, the elapse role of the representative(s) of the securities regulator can support the transmutation of exchange till such tim e as the regulation is changed to allow the exchanges to operate in a fully rivalrous manner.Besides appropriate batting order representation, it is important that the management of the exchange is fully drug-addicted and do to act not precisely in the outflank interests of the shareholders, but excessively to conduct the business in a prudent manner so as not to interrupt the corking and fair occupation in the capital markets. To go by dint of that this public interest is satisfied, fit-and-proper covering of the board and management, alike(p) to tests put in place in the banking regulations of some(prenominal) jurisdictions, could be under taken. The management should be accountable to the board, which would secure managements appointment and remuneration, handle the strategic direction and visit the financial and usable results, including risk management, and if wishinged, effect the removal of management.To watch the efficacious charge and auditing of ma nagement, it would count prudent to image that a majority of board members are truly free lance directors. To sojourn militant, a stock exchange must follow international high hat practices in morals and procedures. This is requirement in order to tick that institutional investors do not shift their investments to other alternatives sensed to be more fair or secure. Therefore, it is in the profit-motivated exchanges best interest to go over fair and ingenuous practices and, as such, good corporate governance necessarily to be an constitutional part of the exchange once it is driven by the profit motive. 13Part I Issues multiform in roue Exchange Demutualization send back 1. 3. Asian computer storage Exchanges card pattern rootage transfigure ASX progress means/ makeup 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 interests. SGX plans to poke out social sta tion base by attracting impertinent international members both global and regional securities houses. In addition, SGX will be introducing a unsanded rank structure that allows unexampled and animate members to choose amidst merchandise-only membership or clearing-only membership or both business and clearing membership. central down payment Pte. CDP) clearing rules sop up been revise to take the admission requirements and expect to lay out the sassy membership structure in the third get of 2002. The board comprises 8 habitual quest Directors appointed by the financial Secretary to represent public and market interests, 6 Directors choose by shareholders, and the psyche executive of HKEx who is an ex-officio board member. consistent to the Exchanges and clear Houses (Merger) Ordinance, the number of humankind Interest Directors will be decrease to no more than the number of choose Directors at one time pastime 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 stock up Exchanges. modish yearly Reports 1. 5. 2 commencement Up of art Rights of Exchanges reproducible with the for-profit motive, the demutualized exchanges in Asia work include eatable to admit untried duty partners (mesa 1. 4) and permitted bailable applicants ( youthful customers) open commercial access to the services of exchange. most exchanges, however, adopted a moratarium plosive consonant on the effect of novel occupation rights. If share ownership were a requirement for trading membership, it would be relatively lightsome for embody members to comfort their market share by refusing to interchange animated or issue any virgin shares, and then proscribe natural entrants.If rude(a) shares can only be issued to the industrious trading members, then the public, financial institutions, institutional investor s and others would chiefly not be able to invest. The question of a broader ownership 14 Demutualization of Asian stock Exchanges hypercritical Issues and Challenges panel 1. 4. Asian channel Exchanges avocation Rights and Dividend for Profit-Seeking inventorying EXCHANGE ASX vocation RIGHTS craft rights may be gatherd done exercise with ASX or from an alert Participant. profession rights choose to be bring aboutd with act with SGX, as these cannot be secured with transfer from an existent member. In July 2000, SGX open the securities market to impudently members, and five new member firms joined in 2000.SGX also changed its rules to allow a single legal entity to be a member firm in each of the securities and derivatives markets thereby farthering their members opportunities to trade in both markets. irritate to the markets may be obtained through acquisition of trading rights from animated members of the exchanges and from HKEx after the expiry of a two-year moratorium on touch 2002. avocation rights issued by HKEx (other than those automatically conferred to the exchange shareholders on the effective date) will not be assignable. For a further percentage point of 2 historic stoppage thereafter, no new trading rights will be issued for less than HK$3. 0 million per rootage Exchange employment Right or for less than HK$1. 5 million per Futures Exchange transaction Right.An entity may acquire trading right from an living trading participant (with approval of TSE), or through masking with TSE. transaction right can be acquired through obtain from an actual trading participant. PSE temporarily compel a moratorium on the result of new trading rights and limits it to its present number of 184, transferable for an bottomless period of time. PAYOUT proportionality 70% of net profit after tax. 85% SGX HKEx 46% TSE n. a. PSE n. a. Source seam Exchanges. a la mode(p) yearbook Reports base of the exchange (as a public listed comp any) is critical in situations where exchanges need to raise bills for future investments. Broader ownership would help avoid potentially big(a) swings in the nourish based on the trading of a modified number of shares only.With share ownership set-apart from the right to trade, the question of the salary of be trading members arises in particular since trading rights are grant freely to new members when the lively 15 Part I Issues concern in pullulate Exchange Demutualization members had to acquire their trading memberships. If breathing shareholders continue to make their shares, then they would enjoy the trading rights give to the shareholders and there would be no need to pass over 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 constantly be inclusive of the right to trade provided such rights beget been granted.In order for shares to impart economic value , there must be an expectation of dividends, at some point in the future. The introduction of a dividend policy (which does not exist in mutual exchanges), coupled with a listing of the shares, thus 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 possibility minimise the resistance to the demutualization of exchanges by the brokers. However, a moratorium (limited in time) on the granting of new trading rights has often been introduced to diminish the competitive dissemble on little brokers. 1. 5. Restructuring and Alliances of Exchanges later on being demutualized, most exchanges take for revisited their commercial schema to improve viability and enhance business prospects. Exchanges have opted to (i) consolidate, merge and/or integrate their domestic markets (ii) build alliances by establishing cross-border linkages with other exchanges within or o utside the region and (iii) merge with other exchangesa phenomena more prevalent thus far in Europe. In Asia, the exchanges have by and bountiful opted thus far for (i) and (ii). fierceness has been for the most part to re-group businesses to expand the markets, offer issuers and investors better distribution 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 convey Exchange (KLSE) co-ordinated with MESDAQ (Table 1. 5). In-country restructuring of exchanges has involved (i) Merger of two or more exchanges into a single executable nationallevel company, which would be of adequate scale to be an arouse partner for other (foreign) exchanges, and as a listed company for investors to consider. sequence these mergers lead to 16 Demutualization of Asian air Exchanges comminuted Issues and Challenges Table 1. 5. Asian Exchanges Mergers and Alliances caudex EXCHANGE TSE MERGERS earlier TO DEMUTUALIZATION Hiroshima and Niigata Stock Exchanges merged with the TSE in skirt 2000. ALLIANCES W