Stock exchange demutualization: a precondition for their capacity to innovate?

Demutualization is a response of stock exchanges to face increasing competition from globalization and innovation. In theory, with greater competition and incentive to raise efficiency and innovate, demutualized exchanges should be more market focused and produce important innovations. So far, the evidence is not conclusive. Demutualization is a trade-off between profit motivation and the non-profit and public good of market development and regulation. Being important utilities, stock exchanges in smaller markets can easily become monopolies that may focus on profit and neglect their role as regulators. The key to innovation therefore depends on good corporate governance, proper oversight and the internal incentive structure. Some exchanges demonstrate capacity to change through internal restructuring without demutualizing. Hence, the case for demutualization is not definitive. This paper summarizes the various views on demutualization. JEL classification : G2, G28Sheng Andrew. Stock exchange demutualization: a precondition for their capacity to innovate? . In: Revue d'économie financière (English ed.), n°82, 2006. The future of financial exchanges. pp. 143-152