Demutualization of stock exchange 

STOCKS 

Stocks that may particularly represented as a type of security purposes that gives out a share of leadership in one’s company. It may also refer as “Equities”. In this, stocks may differentiate into four categories, namely. Growth, Dividend yield, public offering and Defensive Stocks. All categories have it own functionalities. There were various industries that stocks were categorized including: Conglomerates, consumer goods, Financial, health care, industrial goods, service, technology and utilities. 

In this regard, exchanging the securities of the stockbrokers and traders can buy and sell securities, such bonds, stocks, payment and dividends and other financial equipment. This will be termed as Stock exchanges. These exchanges were followed from early vintage period of east India Company. It came to existence in modern world where it achieved its highest growth in this modern world. 

Demutualization  

Demutualization is termed as transition of the stock exchanges that were made from operating non-profit association to limited profit made company which accountable to shareholders. In this manner, the above-mentioned industrial sector plays a major role in demutualization process to exchange their stocks to make an accountable stock for a limited period.  

This demutualization of stock market may vary with developed and developing countries according to its shareholding structure and investing capabilities. For now, we will  have detailed overview about demutualization process happening over the developing country  in India and any one developed country around the world and see what causing the major  issue between these two countries. 

Demutualization over developing countries 

Demutualization of stock exchanges involved with the separation of member’s rights into distinct parts, i.e., ownership rights and trading rights. It may vary with the relationship between members and the stock exchange. The shareholders in a corporate stock exchange may be a multiple group, as members may decide to retain their shares or to sell them.  Members while holding their trade rights to obtain ownership rights in the security exchange, which have a market value, and they also get the welfare of limited liability. However, demutualization, does not wrap up them for competition. A stock exchange is an exchanging process whose management does not effectively work to keep its position in the market may soon become a take-over target. 

This term is not restricted only to corporate level of stock exchanges but also any company that is a non-profit body which is not the same as loss-making, and is not distributing its profits to owner-members but maintain the same to develop infrastructure of the organization, can demutualise.

In order make all the process, several countries were managed their countries market to make a stable process flow, they have organized different platform. In this manner, few countries were organized with, SEBI had united to form a group on Corporatization and Demutualization of Stock  Exchanges under the Chairmanship of Justice M H Kania, former Chief Justice of India, for  advising SEBI on corporatization and demutualization of exchanges. They were meant to recommend the steps that have to be taken in order to implement the same in all other sectors.  The group has submitted its Report to SEBI on August 28, 2002. SEBI has taken up with  Central Government to amend the SCR A to affect Corporatization and Demutualization. 

Advantages 

1) This process may take a period of 18 to 24 months. 

2) Once the specified period is complete, the newly re-organized company can trade its shares on the open market and float new issues that will be needed to generate capital. 

3) This will make the companies to regain the quick thinking and better solutions that may able to respond for the quick changing market conditions. 

4) It will be an easier, acquisition, attract and repel to takeover a bid. Demutualization in Developed Countries 

In developed countries, as of now there were so many countries were there that were dealing with this process. Out of those, the recent trend setting market is NYSE which is New York Stock Exchange.  

The NYSE supplies a lot for both of buyers and as well as sellers to trade their shares of stock in their companies that is registered for public trading. The NYSE is open Trade platform that will be available in all week days in day hour, and off-days will be declared in advance it. On September-1995, NYSE trade member named Michael Einersen, designed  and developed this system, had executed the 1000 shares of IBM stock market organization  which had ended with a process of 203-year which gives paper transactions and ushering in an  manner of automated trading. 

The NYSE traders, where traders can execute their own stock transactions on behalf of investors. They will do all these on occasion which will be 10% of the time that facilitates the  trades by performing their own capital and spread-out information to the others as well stock  peoples where that will be helpful for both buyers and sellers together. They will form together to get appropriate post where a specialized broker, who will be employed by a own member acts as an auctioneer in auction market environment.  

As of growth in technology in this modern world, day-by-day this process was also became automation process on the developing process. In 1995 through the use of modern computerized system which is wireless technology lead this process which has made this market valuable one. It has managed its traders to buy and sell trades via wireless transmission electronically.

Advantages Over this market 

1) These will be access to all over the global companies such as Apple, Facebook etc.

2) With a limited money, it may able to construct a portfolio of investments.

3) By investing on these markets, the traders may end up with profits and dividend.

4) Moreover, gain over the overseas market underperform or remain unchanged.

5) The companies over the world will diversifies the portfolio in promising investment.

Guiding Factors over the Demutualization 

There were forecasts that are available which indicates that by 2010, there will be only fewer than five major stock exchanges in the future markets, perhaps two or three of these will be entirely electronic markets. 

To retain and survive in this environment, exchanges that should need to diversify and have to move towards commercial business with greater focus on improving efficiency, liability, accessibility and ease of use of their systems. Since exchanges were having higher overhead costs, compared to the Electronic Communication networks due to cost of building and facilities, they need to aim harder to get profit and economies of scale. These were the considerations that have driven exchanges to alliances and consolidation.  

By merging two exchanges, the exchanges can multiply the volume and overall mechanism at the same overhead cost which may end up with providing cost cutting synergies that are fully explored. Thus, it can offer to the investors and brokers more listed securities for trading on the same platform. 

Conclusion

Due to a various reasons, the competitive and technological, exchanges around the global market are constantly converting into for-profit venue. This technology has the trigger for competition, in the sense that it was technology that came to compete with the traditional exchanges. As a result, the traditional cooperative venues had to adopt maximization strategy, in opposition to the self-interest policies implemented by single members. However, due to the structures’ conditions, exchanges were not being able to implement competitive strategies and, consequently, their revenues were eroding. The solution for the problem was demutualization.

References

1) Wahid, Abdul & Talib, Nadeem & Ashkanani, Fayqa & Alam, Muhammad. (2015). Demutualization of Stock Exchanges: A Corporate Blessing in Disguise for Stock Market Growth. Strategic Change. 24. 10.1002/jsc.2017.

Aishwarya Says:

If you are a lawyer or a law student who is looking for a job, then you can find details about the latest openings here.

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

IF YOU ARE INTERESTED IN PARTICIPATING IN THE SAME, DO LET ME KNOW.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at secondinnings.hr@gmail.com

In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.