ISLAMABAD, April 23: Chairman, the Securities Futures Exchange of Australia, Alan Cameron, suggested here on Tuesday that the three stock exchanges of Pakistan be demutualized as well as merged at the same time in the interests of better governance and efficiency.
Noting that all the bourses mostly had the same members, he said at a seminar held at the Securities & Exchange Commission of Pakistan on Demutualization of Stock Exchanges that simultaneous changes along those lines would help improve the governance by getting rid of the large number of committees that exist in each stock exchange.
The Chairman, SECP, Khalid A. Mirza, presided over the seminar which was attended, besides officials of the Commission, by capital market experts from all over the country.
The purpose of the seminar, which is to be followed by a 4-day workshop, an SECP spokesman explained, was to educate the stakeholders as well as the regulators on demutualizing stock exchanges and its likely healthy effect on the growth of the capital market.
The expression “demutualization”, according to the explanation, means the transition from a mutual company in which there are no shares and every member has one vote to a company limited by shares and one vote per share.
The issue in this connection was: How to permit non-brokers to own shares in the exchange, while the brokers do not have ownership interest of any kind in an exchange so demutualized. A demutualized stock exchange will be a shareholder-owned company with a clear commitment to generating competitive returns for its shareholders, while having regard to the interests of all its customers and those of the broader economic community.
A stock exchange thus demutualized could help bring about better efficiency and governance of the stock exchange thus improving investor confidence, the spokesman stated.
Cameron, who is former chairman of the Australian Securities and Investments Commission, has come to Pakistan on behalf of the Asian Development Bank as a part of its assistance for capital market reforms under its programme loan, spoke at length on the reasons, importance and future benefits of demutualizing stock exchanges.
All the members of the World Federation of Exchanges had been or were in the process of being demutualized, he argued.
Relating his own experience in Australia, Cameron recalled how the Australian Stock Exchanges (ASX) were first merged and then demutualized while pointing out the issues that arose during and after the process of demutualization.
The Australian model, he went on to state, was relevant to Pakistan in that in both countries corporate regulation was combined with market supervision.
After his presentation, there followed a free-ranging discussion as capital market representatives raised questions about the separation of ownership from trading rights.
Responding to some of these questions, the SECP chairman commented, “We have to develop a model that makes commercial sense for the members. I would not opt for demutualization if the existing members don’t get due value for their shares.”
There were 52 stock exchanges in the world, Mirza pointed out. Out of these, 32 had demutualized, while 14 others had decided, in principle, to follow suit. “If the stock market in Pakistan is to grow, I would rather prefer that it grows on a commercial basis,” he added.