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Changes in the Ownership and Governance of Securities Exchanges: Causes and Consequences

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  • Benn Steil
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    Abstract

    Over the past five years we have witnessed substantial changes in the ownership and governance structures of securities exchanges, particularly in Europe. Recent surveys indicate that a substantial majority of the world’s exchanges would like to “demutualize” in the coming years. The concept of demutualization remains a hazy one, however, along multiple dimensions: the factors that distinguish a demutualized from a mutualized exchange, the factors that motivate demutualization, and the implications of demutualization for the way in which exchanges are regulated. In seeking to clarify the meaning of demutualization, we hope as well to clarify the sources of conflict between the role of an exchange as a commercial enterprise acting in the interests of its owners and its role as a quasi-regulatory body. Government regulators around the world have expressed concern about the effect of exchange ownership and governance reforms on the ability of exchanges to meet the self-regulatory obligations devolved to them. Mutuality and self-regulation in the public interest are typically seen as going hand-in-hand. As we discuss in some detail, it is this misapprehension that lies at the heart of many concerns directed at demutualization. Regulatory failures are inevitable any time self-regulatory obligations imposed on an exchange conflict with the commercial interests of the exchange’s owners. Such commercial interests are no less powerful for a mutualized exchange than for a demutualized one.

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    Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 02-15.

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    Handle: RePEc:wop:pennin:02-15

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    Cited by:
    1. Ramos, Sofia B. & von Thadden, Ernst-Ludwig, 2008. "Stock exchange competition in a simple model of capital market equilibrium," Journal of Financial Markets, Elsevier, vol. 11(3), pages 284-307, August.
    2. Baris Serifsoy, 2008. "Demutualization, Outsider Ownership and Stock Exchange Performance - Empirical Evidence," Working Paper Series: Finance and Accounting 157, Department of Finance, Goethe University Frankfurt am Main.
    3. Claessens, Stijn & Kingebiel, Daniela & Schmukler, Sergio L., 2002. "Explaining the Migration of Stocks from Exchanges in Emerging Economies to International Centres," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    4. Andrew Worthington & Helen Higgs, 2005. "Market Risk in Demutualised Self-Listed Stock Exchanges: An International Analysis of Selected Time-Varying Betas," School of Economics and Finance Discussion Papers and Working Papers Series 201, School of Economics and Finance, Queensland University of Technology.
    5. John P. Caskey, 2003. "The evolution of the Philadelphia Stock Exchange: 1964-2002," Working Papers 03-21, Federal Reserve Bank of Philadelphia.
    6. Otchere, Isaac & Abou-Zied, Khaled, 2008. "Stock exchange demutualization, self-listing and performance: The case of the Australian Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 512-525, April.
    7. Amira, Khaled & Muzere, Mark L., 2011. "Competition among stock exchanges for equity," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2355-2373, September.
    8. Otchere, Isaac, 2006. "Stock exchange self-listing and value effects," Journal of Corporate Finance, Elsevier, vol. 12(5), pages 926-953, December.
    9. Serifsoy, Baris, 2007. "Stock exchange business models and their operative performance," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2978-3012, October.
    10. Faten Ben Slimane, 2012. "Stock exchange consolidation and return volatility," Managerial Finance, Emerald Group Publishing, vol. 38(6), pages 606-627, May.
    11. Ben Slimane, FATEN, 2007. "L'Evolution des Marchés Boursiers Européens: Enjeux et limites
      [European Stock Market Evolution]
      ," MPRA Paper 2607, University Library of Munich, Germany.

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