‡ Demutualisation refers to the conversion of a ³not for-profit´ organisation into a ³for profit´ company. The concept of Demutualisation can be applied to any ³nonprofit ³organisation or association. It is segregation of management, ownership and trading rights.



resulting in increasing competition. ³Technology´ and ³Cost of Transaction´ are the two main facets of Demutualisation. .HISTORY ‡ ‡ ‡ ‡ Historically. needs to innovate consistently in the contemporary arena. if it has to stay relevant. The stock markets worldwide are experiencing a churning. A stock exchange. stock exchanges were mutual organisations managed by the members located in a single city.

the shares may be offered to its members. If the company is not being listed. ‡ .HOW EXCHANGE IS DEMUTUALISATION? ‡ The exchange values all its assets including the value of seats (membership licence) and arrives at a total value.

WHY DO EXCHANGE DEMUTUALISE? ‡ ³Corporate structure´ is the goal of Demutualisation A company is better equipped to respond to changes when compared to a closely held mutually owned organisation For e.IT into a dedicated info-tech company. BSE. ‡ . hence seems to be an ideal candidate for Demutualisation. and more recently NSE. has spun off its wholly owned subsidiaries like National Securities Clearing Corp.g National Stock Exchange (NSE) for example. is a mutually owned association with less transparency. on the other hand.

ARGUMENTS IN FAVOR ‡ Beyond selfish motives Cope with competition Professionalism ‡ ‡ .

TYPES OF DEMUTUALISATION ‡ ‡ ‡ Full Demutualisation Sponsored Demutualisation A mutual holding company .

It sponsored the establishment of the National Stock Exchange ‡ ‡ . the stock market in India was fragmented with several regional exchanges.RECENT REFORMS ‡ Till the middle of the 1990s. The securities scam of the early Nineties and the involvement of a few members of stock exchanges gave a tainted picture of members controlling stock exchanges and the Government made a hasty and costly move in the process of reforming the stock market.

corporatisation and separation of ownership and trading rights The question is who will buy the shares of the stock exchanges ‡ ‡ . The first two requirements of the ordinance. namely.FATE OF THE EXCHANGES ‡ The present move of the Government like its earlier moves is directionless.

DRAWBACKS ‡ Conflict of interests Brokers were manipulating the market Lack of strict vigilance ‡ ‡ .

ADVANTAGES ‡ ‡ ‡ ‡ ‡ Rationalized Governance Investors Participations Competition from Alternate Trading System¶s (ATS) and Electronic Communication Networks Globalization Resources for capital investment .

SEBI¶S GUIDELINES ‡ SEBI issued its guideline on 31-11-2006 for investment in stock exchanges in India Shareholdings of trading Members have to be brought down to 49% ‡ .

Separate FDI cap of 26% and FII cap of 23%.LIM ITATIONS B Y SEBI ‡ ‡ ‡ Not more than 5% in the paid up capital. No FII shall seek and get representation on the Board of Directors of stock exchanges. No foreign investor including persons acting in concert will hold more than 5% of the equity in the exchange .

10% by Deutsche Borse and Singapore Exchange. Aditya Birla and so on) have picked up 41% stake. 189 crore each . 19 investors (like SBI.DEMUTUALISATION OF BSE ‡ ‡ ‡ ‡ ‡ ‡ Asia¶s oldest stock exchange with 131 790 Brokers It was corporatised on 19 May 2005 Around 51% stakes of 790 brokers were offloaded to 21 investors. Each group has picked up 5 % stake for Rs. LIC.

DEMUTUALISATION OF NSE ‡ ‡ ‡ ‡ National Stock Exchange was formed in November 1992 as a tax paying company From day one. NSE has adopted the form of a demutualized exchange¶s It is owned by a set of leading financial institutions Promoters of the NSE are IDBI. IFCI .

brokers and investing publics are equally represented on the governing board of the demutualized exchanges. A uniform model for corporatization and demutualization ‡ .COMMITTEE FORMED FOR SUGGESTIONS ‡ ‡ ‡ ‡ Stock Exchanges are converted into companies limited by shares Amendment is made to the Income Tax Act 1961 Amendment would also be required in the Indian Stamp Act 1899 and Sales Tax law Shareholders.

THE REGIONAL STOCK EXCHANDES THAT HAS BEEN DEMUTUALIZED ARE:‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Vadodara Stock Exchange Jaipur Stock Exchange Saurashtra Kutch Stock Exchange Bhubaneshwar Stock Exchange Inter Connected Stock Exchange Bangalore Stock Exchange Calcutta Stock Exchange Madhya Pradesh Stock Exchange ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Magadh Stock Exchange Ludhiana Stock Exchange Delhi Stock Exchange Cochin Stock Exchange Pune Stock Exchange Ahmedabad Stock Exchange Madras Stock Exchange Gauhati Stock Exchange .DEMUTUALIZATION OF REGIONAL STOCK EXCHANGES ‡ ‡ Trading arms of BSE & NSE A separate platform.

PROCESS OF DEMUTUALISATION ‡ Valuation of the assets ‡ Sale of shares .

‡ ‡ . Demutualization by itself may not achieve improved governance.CHALLENGES OF DEMUTUALISATION ‡ There will be no changes in the conflict of interest The government can not solve the exchange¶s management problem.

CONCLUSION ‡ If stock exchanges are of self regulatory nature then they find ways to profit making objectives. ‡ . This issue has already gained importance at the international but it needs to be considered more intensely at domestic level.

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