Demutualization of Dhaka Stock Exchange: Anwarul Islam 1 , Sk. International Journal of Finance and Banking Research. The Dhaka Stock Exchange is the prime bourse of the country. Through its nonstop highly fault-tolerant screen based automated trading system, the exchange can offer facilities for transparent and highly efficient mechanism provisions for secondary market activities of shares, debentures and wide varieties of other securities.
In this research paper, we used two stock exchanges that have already demutualized and gone public: Hong Kong Stock Exchange, and London Stock Exchange and analyzed pre and post-demutualization performance of them.
The reason of taking two exchanges of different sizes is to provide better suggestion for Dhaka Stock Exchange. Using data from the financial statements from to and by the means of descriptive statistics analysis we show that all the two demutualized exchanges have a better post listing share and operating performance than mutual exchanges. Demutualization, DSE, HKSE, LSE.
Demutualization can be defined as a process by which a mutually owned stock exchange is converted into a company owned one by shareholders through transforming its existing legal structure into a business corporation. In contrast, a mutual stock exchange is a non-profit, mutual organization with monopoly power, owned by its members. Here, the owners are at the same time its clients who are the end users of its trading services. They share the profits of the company, based on their stakes. A demutualised stock exchange will provide most of the same services as a mutual stock exchange but a bit differently.
A mutual stock exchange is owned by the members and most of the time it tends to favors the interest of the members only. This tendency at times does not recognize the rights of other stakeholders of the capital market. In a demutualised stock exchange, ownership is divided between members and outsiders. This is to some extent a balanced approach to remove conflicts of interest and advancing accountability.
A mutual stock exchange is unable to respond quickly and decisively this point is clear when we take the recent decision-making process of our stock exchanges into cognizance.
Dhaka Stock Exchange
It acts well when the interests of all the stakeholders are more or less homogeneous. However, with diverse stakeholders' interests and dynamic business conditions, the consensus decision making of a mutual governance model becomes slow and cumbersome. Bangladesh has initiated to get its exchanges demutualized in On October 9, , the cabinet endorsed the draft of "The Exchanges Demutualization Act, ". Both the stock exchanges in Bangladesh, i.
Some studies argued in favor of demutualization while others suggested against it. On the other side, antagonists to demutualization argue that the above mentioned anticipated benefits of demutualization may in reality not be achieved. Rather, with certain conditions, those may be obtainable under a mutual or cooperative structure Hansman, ; and Hart and Moore, Thus, any cost-saving that caused by demutualization could be low in comparison to the benefits that can be obtained from the presence of brokers, with ownership interests in the exchange.
In many developing countries, the creation of any financial institution is awfully hard, and the creation of investors is often harder than, the creation of the brokers Lee, Demutualization may also allow for new risky businesses that usually do not take place when the stock exchange is under a mutual structure Worthington and Higgs, Nonetheless, now we shall try to find out those authors who have suggested for demutualization.
According to Scullion , demutualization is not merely converting into for profit organization owned by its members. An exchange is genuinely demutualized when it maximizes its potential of market capitalization to the fullest and alongside it also increases its shareholders value. They found that exchange performance tends to improve after the change of governance. Domowitz and Steil list several benefits of demutualization as compared to mutualized stock exchanges.
They believe that demutualized stock exchanges should provide a better quality market than mutualized stock exchanges.
In order to compete efficiently, stock exchanges must operate for-profit. Thus, Hansmann pointed out that Exchanges must raise capital to compete efficiently and investor ownership is the obvious solution to solve.
Demutualization can permit the stock exchange to modernize its technology, create a flexible management structure that is more responsive to market conditions and, get an initial infusion of capital and allow for easier access to capital. Thus, demutualized stock exchanges are in general expected to bring better performance of exchanges. Sarah, Babar and Kashif stated that demutualization is an intricate process, which can result in increased efficiency, capitalization, governance, if done effectively.
Morsy and Rwegasira analyzed and evaluated the financial performance of demutualized stock exchanges between and They examined whether or not financial performance improved after implementing the demutualization program. Financial performance of stock exchanges that have undergone the demutualization program is measured in terms of eleven measures. Results were mixed and exhibited different change in performance for the samples of demutualized stock exchanges.
But, in their examination, most of the profitability ratios showed significant increases. Aggarwal took three demutualized stock exchanges: Deutsche Borse, the London Stock Exchange, and the Australia Stock Exchange, as sample to examine their performance.
She found that in the form of the stock-price performance of the three exchanges that have been operating as publicly traded companies for at least one year—is encouraging.
Otchere and Oldford tried to examine whether corporatization of the exchange is necessary to improve the performance of the exchange. They found that both demutualized but member-owned exchanges and publicly traded exchanges exhibit higher levels of profitability and operating efficiency than mutually-owned exchanges.
Based on the above literature, we can say that there are some studies about demutualization in various countries, however a detailed research has not yet been conducted in Bangladesh context.
Hence the present research is made on Comparative Research of "Demutualization of Dhaka Stock Exchange: Objectives of the Research. Methodology of the Research. The data collected for this research is mostly secondary data, which was originally collected for other studies. This data includes both qualitative and quantitative data.
Chittagong Stock Exchange
The quantitative data was collected mostly from different journals and web sites. Qualitative data collected for the research was predominantly from academic articles and books containing the relevant debates consistent with the pros and cons of demutualization.
To evaluate the performance of demutualized stock exchanges, mainly two analyses have been performed: For assessing the stock price performance of the exchanges, we have used cumulative stock return to see the difference with the comparable index or benchmark of the respective stock exchanges.
Daily stock prices are gathered from www. However, financial statements from the official website of the sample stock exchanges, i. Relevant data relating to the research was collected from: Annual Research s of Dhaka Stock Exchange, Relevant books, Journal and Different articles, Monthly Publication of Bangladesh Securities and Exchange Commission, Market Pulse of Lanka Bangla Securities Limited, Website of Lanka bangla Finance http: Overview of Exchange Demutualization.
Demutualization is the process of converting exchanges from non-profit, member-owned organizations to for profit, investor-owned corporations. In the mutual ownership model, a broker seeking to trade on the exchange had first to be approved as an owner.
Conversely, only brokers who wished to trade on the exchange would be approved as owners. If a broker resigned from the exchange or left the business, its membership ownership would cease. Demutualization separates these roles so that one no longer need be a shareholder owner to be granted trading privileges and one can be a shareholder without being a broker. Demutualization, a change in the corporate governance structure of an exchange, is not an end in itself.
The exchanges that have demutualised have done so because they found that their mutual governance structure, which once served them well, had become a hindrance to positioning themselves competitively in a global trading environment. The traditional model of an exchange as a purely national, or even local, entity organized on a mutual basis by market intermediaries is on its last leg.
The big trading houses are now global and have no loyalty to any particular market or exchange. And their big clients, the institutions, no longer need brokers to funnel their orders to exchanges: This means that the exchanges must change their business model entirely to survive.
First, the concept of "membership" is irrelevant with electronic trading—the marginal cost of adding an additional trader to an electronic network is rapidly declining toward zero, meaning that only transaction based charging can survive.
Second, exchanges cannot afford to have their strategic focus dictated by brokers, who are naturally determined to prevent disintermediation of their services. Demutualization is imperative—not to raise capital, which is a smokescreen—but to disenfranchise the members who block trading system expansion and innovation. Providing direct remote access for investors, foreign and domestic, is increasingly essential to attracting, and even keeping, their business.
A demutualized stock exchange might take different organizational forms. Some exchanges have demutualized and become public companies listed on their own exchanges. Other exchanges have demutualized but remained private corporations. Others are subsidiaries of publicly traded holding companies. Empirical examples include the Australian Stock Exchange which is a public company listed on its own exchange, the Amsterdam Exchange and the Toronto Stock Exchange which are presently private corporations, the London Stock Exchange arranged for an off-market trading facility for its shares and the Pacific Exchange in the United States converted its equity business into a wholly owned subsidiary of the exchange and the OM Stockhooms borsen AB is a wholly owned subsidiary of a listed company.
Trends of Demutualization in the World over the Years.
Starting in the early s, stock exchanges around the world have been undergoing major organizational and operational changes. In , the Stockholm Stock Exchange became the first exchange to demutualize. It was followed by several others, including the Helsinki Stock Exchange in , the Copenhagen Exchange in , the Amsterdam Exchange in , the Australian Exchange in , and the Toronto, Hong Kong, and London Stock Exchanges in The only significant and important stock exchange which did not listed its share despite the fact that it demutualized in , is the Tokyo Stock Exchange.
Also the United Sates, the Chicago Mercantile Exchange demutualized in In CME conducted a later initial public offering IPO and listed its shares on the New York Stock Exchange.
On April 20th, New York Stock Exchange announced that it is planning a merger with a publicly listed electronic exchange Archipelago, the new company becoming a public listed for-profit organization.
It is worth noting that NYSE is one the last major global exchanges that is undertaking such an organizational transformation. This tendency is evident both across different continents as well as across stock exchanges that trade different types of securities. While the largest derivative exchanges CME, LIFFE, Eurex, International Securities Exchange and CBOT are already publicly listed, others including the New York Mercantile Exchange NYMEX and International Petroleum Exchange have demutualized and are planning public listings.
This seemingly unstoppable organizational transformation of exchanges from member owned mutual to joint-stock companies is unparalleled. This high percentage indicates that profit has also become a goal for a large majority of exchanges.
The research also found that "listed exchanges were by far the most profitable exchanges". Following table shows the major demutualization cases across the world. Conceptual framework and impact of demutualization. Year of Demutualization of major exchanges Source: Organizational Transformation of Stock Exchanges.
The fact that almost all major exchanges have undergone demutualization and became public companies is showing the necessity of having a structure that will allow the exchange to be able to respond to the industry challenges. As it shown in figure 1 it is absolutely clear that the majority of stock exchanges have already changed their organizational structure. Also we can see that Europe and Americas are dominated by listed exchanges i. Scenario of Stock exchanges in percentage Source: Revenue Breakdown by region Source: Revenue Breakdown by legal status Source: Performance of Demutualized Stock Exchange.
In this part of the research by the means of descriptive statistics we are evaluating the performance of London Stock Exchange and Hong Kong Stock Exchange after demutualization using post listing market performance alongside with the analysis of the most important financial ratios using the official financial statements of the above mentioned stock exchanges.
In this section we discuss the case of the London Stock Exchange and Hong Kong Stock Exchange as examples of the stock market performance that have successfully listed their stocks. According to World Federation of Exchanges, there is a positive relationship between demutualization and the number of companies listed on the exchange and the market capitalization.
The domestic market capitalization increased Market capitalization both domestic and foreign is increased rapidly after demutualization for both the exchanges.
Total market capitalization of LSE and HKSE. Number of Listed Companies. After changing organizational structure the number of listed companies increased for LSE by almost At the end of year number of listing company in LSE and HKSE is and respectively.
Total Number of listed companies in LSE and HKSE. In our analysis of operating performance we used some widely used measures such as the Profit Margin, Return on Equity, Return on Assets and Earning per Share during 15 years between the years and We have calculated these ratios for all the two sample exchanges which are shown in Tables to in Appendix.
Law Chronicles Online: Stock Exchange Demutualization in Bangladesh: Some preliminary issues and challenges
Profits of the analyzed stock exchanges showed a strong growing tendency, profit margin for LSE and HKSE at the end of year was Profit Margin of LSE and HKSE. Also an interesting feature to observe is the structure of the revenues of London Stock Exchange and Hong Kong Stock Exchange.
For HKE the situation is different.
Thus, the major sources of its income were: Major income sources of LSE in year Major income sources of HKSE in year Return on Equity ROE. Both of our stock exchanges have a double-digit number for return on equity.
After demutualization the ROE for tow stock have increased notably. At the end of the year the ROE for London Stock Exchange was While pre-demutualization ROE of HSE ROE of LSE and HKSE. Return on Asset ROA. The EPS of both the stock is increased after demutualization. At the end of the year the EPS for London Stock Exchange was While pre-demutualization EPS of HSE. ROA of LSE and HKSE. Earnings per Share EPS. EPS of LSE and HKSE. Demutualization in Dhaka Stock Exchange.
Dhaka Stock Exchange is the leading and the largest stock exchange of Bangladesh. It is also the first stock exchange of Bangladesh.
Before liberation it was known as East Pakistan Stock Exchange Its directory board consists of 24 members, among them 12 are elected and another 12 are nominated by the non-DSE members and approved by the Bangladesh Securities and Exchange Commission. DSE has recently attempted to convert itself into a demutualized stock exchange, and submitted its concept paper to the commission, and parliament of Bangladesh has published the Gadget on the Demutualization Act after the approval of the President.
DSE has submitted a Memorandum of Association to the Registrar of the Joint Stock Companies to starts its operation as a Public Limited Company. The summary of Memorandum of Association is given below: In the Memorandum of Association, submitted by DSE, it has clarified that, Dhaka Stock Exchange will be a Public Limited Company with Authorized share capital of Taka 25,,,, which will be divided into 2,,, shares with a face value of Taka 10 each.
And Exchange has the right to reduce or increase its capital and can convert its shares into different classes. Demutualization will give the exchange DSE the power to acquire any company or to establish its subsidiary or to take part in the management of other companies.
These facilities are not limited in the country; it has also permitted for foreign operations. It will have full power to operate its activities. Diversification of Ownership Risk. Demutualization helps to diversify the ownership structure of the stock exchange. The above discussed advantages for demutualization do not necessarily go with all demutualization.
Because it is not the only panacea that will automatically resolve all the problems. Specific situations or factors bring different advantages for demutualization for different countries. The following are the benefits of demutualization in the context of Bangladesh.
Benefit of Demutualization in DSE. Demutualization, assuming the shares are widely held and freely transferable to non-members, would achieve the objective of spreading ownership risk which currently lies solely with the members of each exchange. However, in reaching that situation, DSE would need to make it more attractive as investment opportunities. However, if the shares in the demutualised exchange are issued only to the members, they become the sole shareholders and retain control of the company which acts against the following benefit; i.
There are a number of models of demutualization that have been used to counter this including distributing a proportion of the shares amongst other stakeholders. This has been successfully carried out in situations that do not involve "seats".
However, a "free" distribution to other stakeholders would be inappropriate in these circumstances. One option would be to have an IPO from the outset. However, this would be contrary to the listing regulations which require a company to have a track record. A second option would be to offer a proportion of the shares in new company to institutional investors. The difficulty here would be in determining the proportion and the issue price.
Furthermore, if the objective is ultimately to list the company on the exchange, this pre-placing of shares could damage the success of any future IPO. Limitations should be put into the Articles of Association of new company on the amount of holdings that can be held by any single person or persons acting in concert this should be capable of being waived by the SEC should circumstances permit e. DSE has gone some way towards improving its governance structure by the addition of non-members on the boards.
This is further evidenced by the Committee structure that exists in the exchange and these should be drastically reduced. The committee should give an independent assessment of whether or not the exchange is fulfilling its regulatory function giving greater comfort to the SEC that the exchange is properly carrying out its SRO duties. The committee would set policy and direction in applying regulatory function, review the policies and procedures, provide research s and express opinions, receive quarterly research s etc.
Providing Greater Access to Capital. Demutualization would enable the exchanges to tap the equity market if they needed capital rather than the more restricted options open to them currently of selling new trading rights or selling land. Providing Greater Speed and Flexibility in Decision Making. With boards of 24 and 25 directors respectfully plus their various committees below that, decision making must be a cumbersome affair.
Diversifying into Other Markets and Services. Being a "mutual" does not prevent an exchange from diversifying into another market or to offer other services. There are numerous examples of product diversification amongst the exchanges of the world.
For example, the Colombo Stock Exchange, and its Debt Securities Trading System DEX — whilst existing members opposed demutualization and an extension of membership to newcomers they approved the creation of a separate category of membership for the trading of government bonds on the exchange; and indeed, the London Stock Exchange did this with membership of its London Traded Options Market twenty years ago.
However, the advantage of being demutualised is that the exchange company has a much broader range of options available to it e. Adopting Clearer and Simpler Governance. Large boards and large numbers of committees with duties and responsibilities that inter-relate have the effect of creating an environment that often results in management time and resources servicing the board and its committees rather than getting on with the job of managing the business.
Over the long run, for-profit exchanges run by entrepreneurs and disciplined by profit-seeking investors will produce better-financed organizations with greater ability to respond quickly to preserve the value of their franchises.
Equipped with better financing, more flexible decision mechanisms, and heightened accountability to shareholders , demutualised exchanges are emerging as leaner, more competitive, and more transparent organizations. Greater Flexibility in Negotiations with Others. If a mutual exchange wishes to enter into a contract with another exchange or supplier of services, it has limited options as to how it would pay for the service or how it would negotiate on the contract. Payment will either have to be in cash or in kind or a share of revenue resulting from the new service.
Demutualization opens up the possibility of paying through an issue of shares or granting an option on the shares of the exchange company. Management and more particularly the board will be encouraged to, in fact, must adopt a more proactive and business- like approach to the running of the exchange company. Under a mutual structure, board and management can all too often fall into the civil service mentality because there is no profit incentive. Mutual exchanges are not-for-profit and although board and management will wish to operate to budget, they know that budget variations will be acceptable.
Senior management is accountable to the board but the board is only accountable to the membership. In a shareholder owned environment, shareholders will criticize if the company fails to perform and directors and management may risk losing their positions as a result.
By and large, managing directors of stock exchanges and the writer once was one were not incentivized by financial reward but by the position they held. Historically, managing directors or chief executives of exchanges were appointed from within and the post was one for life if the incumbent so desired. Very rarely were the MDs of stock exchanges sacked or "asked to resign". However, in recent years that has changed. Only one CEO of the London Stock Exchange has resigned voluntarily in the last 25 years.
CEOs of major exchanges are now very rarely appointed from within. Most are in fact appointed because of their business acumen rather than their knowledge of securities markets.
Running a mutual stock exchange is a major undertaking. Running a demutualised stock exchange is big business and requires very different skills. At this level, position is very important but money and financial reward come more to the fore.
Many companies have found that management and workers are more incentivized if they have a share in the business they are working for and more importantly, helping to build. This cannot happen in a mutual exchange. As stated earlier, the demutualization of the Dhaka and Chittagong stock exchanges will simplify the process by which a merger of the two exchanges can take place.
Risk Associated with Demutualization on DSE. There is no doubt that demutualization resolves many of the problems faced by the mutual organization. But it does not mean that demutualization necessarily solves all of the problems. It is not without risk. Some of the risks that might be involved in the process of demutualization of DSE are as follows: One is that once ownership and use are decoupled, brokers may not feel any loyalty in the market and may easily turn to alternatives domestic or foreign markets or alternative trading systems.
They may develop alternative trading systems to internalize their order flow rather than send it to the exchange. However, in some markets e. The London Stock Exchange and Nasdaq this occurred before demutualization and the need to compete with these new systems itself became a catalyst for demutualization.
Once it demutualises, it must become a profit oriented, competitive organization accountable to its shareholders. If the exchange also becomes a public company as many have , it will also become subject to the disciplines of the market, having to release bad news as well as good, meet financial and periodic researching obligations and meet market earnings expectations. Many exchanges adopted a two stage demutualization process where the shares initially issued to the members were not transferable for a period of time.
This was to give the exchange time to change its internal culture.
DSE Demutualization Scheme
Both bids ultimately failed. The exchange may adopt anti-competitive rules e. Restricting the ability of trading participants to trade elsewhere. A for-profit exchange may not adequately fund its regulatory activities because there is insufficient return on investment. Conversely, the exchange may view its regulatory program as a profit centre and begin to aggressively fine trading participants for minor rule infractions.
Concerns about such conflicts forced the Toronto Stock Exchange to spin off its market regulation functions into a new body jointly owned by it and the Investment Dealers Association of Canada.
The Australian Stock Exchange competed against Computershare, a listed company, in a take-over bid for the Sydney Futures Exchange neither was successful. Nevertheless, Stock exchange demutualization is a challenging issue, both from regulatory and business perspectives in a developing country like Bangladesh.
After passing the Demutualization Act by the parliament in Bangladesh, the actual process of demutualization will be started by the exchange. At that time DSE may face some sort of challenges and threats. In the following, we have stretched out some challenges, threats and made some suggestions to DSE: However, it can be attained through having an efficient corporate governance system, rigorous regulatory oversight, enhanced transparency; and the separation of the commercial activities of the stock exchange from regulatory functions.
Hong Kong Stock exchanges and Clearing Limited HKEs give some example of applying these principles in order to recognize, minimize and manage conflicts of interests.
Defending the take-over bid involves significant costs. Although this hostile take-over can be managed through ownership limits. However, from the official website and annual research s of LSE we found that after demutualization and self-listing the London Stock Exchange experienced several hostile take-over bids. Dhaka Stock Exchange can also impose ownership restriction on shareholding by single entity to avoid any potential hostile take-over.
It is hoped that demutualization will be a blessing for Dhaka Stock Exchange. It will ensure efficient corporate governance and attract foreign investments through the exchange. Many multinational institutions in Bangladesh have to follow a series of regulatory framework according to the guideline of their parent companies. Demutualization is one step to ensure the level playing field for those companies and let the local companies adhere to it.
The more accurate the structure of the stock exchange, the more interest will be the investors to divert their savings.
Demutualization will also create new jobs in the investment banks, brokerage houses, credit rating agencies and banks. The most challenging step will be to teach the general investors about the effect and reasons for demutualization. But as the time will go by, general investors will get the benefit of demutualization.
We are quite optimistic that if the given suggestions of this paper are implemented then the Dhaka Stock Exchange may be able to overcome its present problems and may contribute in the rapid development of the economy of Bangladesh.. Use of this Web site signifies your agreement to the terms and conditions.
Volume 1, Issue 1, October , Pages: Opportunities and Challenges K. Alamgir Hossain 2 1 Department of Business Administration, the Millennium University, Dhaka, Bangladesh 2 Departmentof Finance, Faculty of Business Studies, Jagannath University Dhaka, Bangladesh Email address: Objectives of the Research 4. Methodology of the Research 5. Conceptual Framework Demutualization 5.
Overview of Exchange Demutualization 5. Forms of Demutualization 6. Trends of Demutualization in the World over the Years 7. Organizational Transformation of Stock Exchanges 8. Performance of Demutualized Stock Exchange 8. Number of Listed Companies 8. Demutualization in Dhaka Stock Exchange 9.
Access to Capital 9. Diversification of Ownership Risk Benefit of Demutualization in DSE Spreading Ownership Risk Providing Greater Access to Capital Providing Greater Speed and Flexibility in Decision Making Diversifying into Other Markets and Services Adopting Clearer and Simpler Governance Greater Flexibility in Negotiations with Others Bringing Market Discipline Risk Associated with Demutualization on DSE Introduction Demutualization can be defined as a process by which a mutually owned stock exchange is converted into a company owned one by shareholders through transforming its existing legal structure into a business corporation.
Literature Review Some studies argued in favor of demutualization while others suggested against it. Objectives of the Research The objectives of the research are: Methodology of the Research The data collected for this research is mostly secondary data, which was originally collected for other studies.
Overview of Exchange Demutualization Demutualization is the process of converting exchanges from non-profit, member-owned organizations to for profit, investor-owned corporations. Forms of Demutualization A demutualized stock exchange might take different organizational forms. Trends of Demutualization in the World over the Years Starting in the early s, stock exchanges around the world have been undergoing major organizational and operational changes. Name of the Exchanges Year of Demutualization Year of Listing Stockholm Stock Exchange Borsa Italiana - Australian Stock Exchange Singapore Stock Exchange Hong Kong Stock Exchange London Stock Exchange Deutsche Borse Euronext Toronto Stock Exchange The NASDAQ Stock Market The Philippine Stock Exchange Osaka Stock Exchange Tokyo Stock Exchange New Zealand Stock Exchange Bursa Malaysia Bombay Stock Exchange - New York Stock Exchange Mexico Stock Exchange NYBOT Teheran Stock Exchange BOVESPA Brazil Boston Stock Exchange Bolsa da Colombia Thai Exchange Tokyo Commodity Exchange Chicago Board Options Exchange Warsaw Stock Exchange Bucharest Stock Exchange Islamabad Stock Exchange Performance of Demutualized Stock Exchange In this part of the research by the means of descriptive statistics we are evaluating the performance of London Stock Exchange and Hong Kong Stock Exchange after demutualization using post listing market performance alongside with the analysis of the most important financial ratios using the official financial statements of the above mentioned stock exchanges.
Market Performance In this section we discuss the case of the London Stock Exchange and Hong Kong Stock Exchange as examples of the stock market performance that have successfully listed their stocks. Number of Listed Companies After changing organizational structure the number of listed companies increased for LSE by almost Operating Performance In our analysis of operating performance we used some widely used measures such as the Profit Margin, Return on Equity, Return on Assets and Earning per Share during 15 years between the years and Profit Margin Profits of the analyzed stock exchanges showed a strong growing tendency, profit margin for LSE and HKSE at the end of year was Income sources Also an interesting feature to observe is the structure of the revenues of London Stock Exchange and Hong Kong Stock Exchange.
Return on Asset ROA The EPS of both the stock is increased after demutualization. Earnings per Share EPS The EPS of both the stock is increased after demutualization. Demutualization in Dhaka Stock Exchange Dhaka Stock Exchange is the leading and the largest stock exchange of Bangladesh.
Access to Capital In the Memorandum of Association, submitted by DSE, it has clarified that, Dhaka Stock Exchange will be a Public Limited Company with Authorized share capital of Taka 25,,,, which will be divided into 2,,, shares with a face value of Taka 10 each. Business Expansion Demutualization will give the exchange DSE the power to acquire any company or to establish its subsidiary or to take part in the management of other companies.
Diversification of Ownership Risk Demutualization helps to diversify the ownership structure of the stock exchange. Spreading Ownership Risk Demutualization, assuming the shares are widely held and freely transferable to non-members, would achieve the objective of spreading ownership risk which currently lies solely with the members of each exchange.
Providing Greater Access to Capital Demutualization would enable the exchanges to tap the equity market if they needed capital rather than the more restricted options open to them currently of selling new trading rights or selling land.
Providing Greater Speed and Flexibility in Decision Making With boards of 24 and 25 directors respectfully plus their various committees below that, decision making must be a cumbersome affair. Diversifying into Other Markets and Services Being a "mutual" does not prevent an exchange from diversifying into another market or to offer other services. Adopting Clearer and Simpler Governance Large boards and large numbers of committees with duties and responsibilities that inter-relate have the effect of creating an environment that often results in management time and resources servicing the board and its committees rather than getting on with the job of managing the business.
Greater Flexibility in Negotiations with Others If a mutual exchange wishes to enter into a contract with another exchange or supplier of services, it has limited options as to how it would pay for the service or how it would negotiate on the contract.
Bringing Market Discipline Management and more particularly the board will be encouraged to, in fact, must adopt a more proactive and business- like approach to the running of the exchange company. Incentivizing Management By and large, managing directors of stock exchanges and the writer once was one were not incentivized by financial reward but by the position they held. Facilitate Merger As stated earlier, the demutualization of the Dhaka and Chittagong stock exchanges will simplify the process by which a merger of the two exchanges can take place.
Risk Associated with Demutualization on DSE There is no doubt that demutualization resolves many of the problems faced by the mutual organization.
Recommendation Nevertheless, Stock exchange demutualization is a challenging issue, both from regulatory and business perspectives in a developing country like Bangladesh. Conclusion It is hoped that demutualization will be a blessing for Dhaka Stock Exchange. Appendix Total Number of listed companies LSE HKSE Join as an Editor-in-Chief.
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