VII. B. Demutualization: PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA
VII. B. Demutualization: PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA
an exchange from a non-profit, protected interest one to a profit oriented.11 The process of
demutualization involves a change in ownership structure and a change in legal and
organization form. With regards to the ownership structure, members’ seats are monetized
and values assigned per seat. Members then either keep or sell shares. Ownership restrictions
are placed (for example, 5-10 percent non-controlling stakes) on individuals and groups to
prevent potential takeovers by other exchanges. The legal and organizational change
normally entails the exchange becoming a typical profit making company with limited
liabilities and abiding by company laws.
Demutualization started gaining popularity in the 1990s, due to a number of factors. These
include competition among exchanges, need for increased capital, need for good corporate
governance in exchanges and the urge to open up ownership of exchanges to public investors
(Pirrong, 2000). Between 1999 and 2003, the number of demutualized and public exchanges
in the world increased from 10 to 25 (IOSCO, 2005).
Demutualization is expected to solve mutual structure problems by opening up trading rights,
admitting new trading partners, and broadening ownership such that the public can invest in
exchanges. The absence of these in mutual exchanges tends to breed poor governance
structures. In a mutualized exchange, traders and brokers enjoy monopoly power through
exclusive rights and access to trading systems, resulting in a protection of vested interests for
traders. In a demutualized exchange there is a vote per share and once incentives for equity
stakes to nonmembers exists there is separation of powers. Decision making is on ownership
structure not trades intermediation. Thus, demutualization induces better corporate
governance systems. In addition, undue governmental influence in mutual exchanges in
Africa is likely to be absent in demutualized exchanges since appointment of government
officials become unnecessary due to the fact that a demutualized exchange is a private
company.
Demutualization also increases access to services of the exchange and removes excessive
investment costs for fund holders. For instance, brokers usually package non-trade related
fees (research, computer systems and IPO access) into institutional traditional commissions
often known as “soft commissions” or “bundled commissions” and pass on to clients. With
demutualization, fund holders can directly access such information without the use of
brokers. Finally, it is also argued that demutualization instills efficiency and better structures
in exchanges and results in commercial gains for exchanges (Ryden, 1995).
A major problem with demutualization is that of conflict of interest and regulatory oversight.
Exchanges tend to shy away from taking enforcement actions against their own customers
who are a source of income. There is a potential commercialization of services; data and
trade information that traditionally is offered freely is now sold. Listing standards and
oversight can be compromised by the exchange concerned. To solve these problems selflisting
arrangements can be implemented.12
For mutual African stock exchanges, potential conflict of interest could pose huge problems,
since current regulatory structures are still undergoing restructuring to meet international
standards. In many African countries, the establishment of formal stock exchanges preceded
the creation of formal independent securities regulators. However, it could also be argued
that perhaps being a private venture, demutualized exchanges could speed up the formation
of strong regulatory systems in Africa.
The policy of demutualization should not be of immediate concern to most African
exchanges. The reason is that most African exchanges have barely existed for three decades,
and are grappling with teething issues of poor infrastructure and illiquidity. Demutualization
would, therefore, be more relevant in the medium to long term when the teething issues have
been properly managed. Indeed demutualization should be the step after Africans have
consolidated gains on improving liquidity problems and strengthening cooperation. For now
other African markets can study the JSE to learn from their current experiences as a
demutualized exchange. Admittedly the JSE case poses a challenge for advocacy for a
regional exchange for SADC. This is because a regional exchange in the SADC in the near
future is expected to be demutualized given the current stance of the JSE.
IMF Working Paper
African Department
Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges
Prepared by Charles Amo Yartey and Charles Komla Adjasi
August 2007
VII B Demutualization PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA - To learn more about this author, visit International Monetary Fund's Website.
Like this article? Share it with your friends
Demutualization can be defined as a change in the legal status, structure and governance of
an exchange from a non-profit, protected interest one to a profit oriented.11 The process of
demutualization involves a change in ownership structure and a change in legal and
organization form. With regards to the ownership structure, members’ seats are monetized
and values assigned per seat. Members then either keep or sell shares. Ownership restrictions
are placed (for example, 5-10 percent non-controlling stakes) on individuals and groups to
prevent potential takeovers by other exchanges. The legal and organizational change
normally entails the exchange becoming a typical profit making company with limited
liabilities and abiding by company laws.
Demutualization started gaining popularity in the 1990s, due to a number of factors. These
include competition among exchanges, need for increased capital, need for good corporate
governance in exchanges and the urge to open up ownership of exchanges to public investors
(Pirrong, 2000). Between 1999 and 2003, the number of demutualized and public exchanges
in the world increased from 10 to 25 (IOSCO, 2005).
Demutualization is expected to solve mutual structure problems by opening up trading rights,
admitting new trading partners, and broadening ownership such that the public can invest in
exchanges. The absence of these in mutual exchanges tends to breed poor governance
structures. In a mutualized exchange, traders and brokers enjoy monopoly power through
exclusive rights and access to trading systems, resulting in a protection of vested interests for
traders. In a demutualized exchange there is a vote per share and once incentives for equity
stakes to nonmembers exists there is separation of powers. Decision making is on ownership
structure not trades intermediation. Thus, demutualization induces better corporate
governance systems. In addition, undue governmental influence in mutual exchanges in
Africa is likely to be absent in demutualized exchanges since appointment of government
officials become unnecessary due to the fact that a demutualized exchange is a private
company.
Demutualization also increases access to services of the exchange and removes excessive
investment costs for fund holders. For instance, brokers usually package non-trade related
fees (research, computer systems and IPO access) into institutional traditional commissions
often known as “soft commissions” or “bundled commissions” and pass on to clients. With
demutualization, fund holders can directly access such information without the use of
brokers. Finally, it is also argued that demutualization instills efficiency and better structures
in exchanges and results in commercial gains for exchanges (Ryden, 1995).
A major problem with demutualization is that of conflict of interest and regulatory oversight.
Exchanges tend to shy away from taking enforcement actions against their own customers
who are a source of income. There is a potential commercialization of services; data and
trade information that traditionally is offered freely is now sold. Listing standards and
oversight can be compromised by the exchange concerned. To solve these problems selflisting
arrangements can be implemented.12
For mutual African stock exchanges, potential conflict of interest could pose huge problems,
since current regulatory structures are still undergoing restructuring to meet international
standards. In many African countries, the establishment of formal stock exchanges preceded
the creation of formal independent securities regulators. However, it could also be argued
that perhaps being a private venture, demutualized exchanges could speed up the formation
of strong regulatory systems in Africa.
The policy of demutualization should not be of immediate concern to most African
exchanges. The reason is that most African exchanges have barely existed for three decades,
and are grappling with teething issues of poor infrastructure and illiquidity. Demutualization
would, therefore, be more relevant in the medium to long term when the teething issues have
been properly managed. Indeed demutualization should be the step after Africans have
consolidated gains on improving liquidity problems and strengthening cooperation. For now
other African markets can study the JSE to learn from their current experiences as a
demutualized exchange. Admittedly the JSE case poses a challenge for advocacy for a
regional exchange for SADC. This is because a regional exchange in the SADC in the near
future is expected to be demutualized given the current stance of the JSE.
IMF Working Paper
African Department
Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges
Prepared by Charles Amo Yartey and Charles Komla Adjasi
August 2007
VII B Demutualization PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA - To learn more about this author, visit International Monetary Fund's Website.
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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