Demutualization has generally involved conversion of an exchange from a not-for-profit member-owned organization to a for-profit shareholder owned corporation. Most broadly stated, a regulator of a DE must balance the profit motives of the stock exchange with the greater goal of investor protection.
Toronto Stock Exchange
1. Background to the TSX’s Demutualization
The Toronto Stock Exchange was formed in 1852 as a mutual member-owned, not-for profit corporation. Members of the exchange were brokerage firms whose membership interests (or seats) in the exchange gave them access rights to trade in listed securities, either as principal or on behalf of clients.
. In 1997, The Toronto Stock Exchange closed the trading floor and became a fully electronic major exchange. In 1998, the TSE’s Board of Governors undertook a strategy development process that was called blueprints.
the Blueprint recognized the need for a different governance model and recommended a new ownership and governance model for the TSE with the following elements:
(a) for-profit instead of not-for-profit;
(b) shareholder structure instead of member-seatholder structure; (c) separation of access from ownership; and
(d) initially designating at least half of the seats on the Board of Directors from outside the brokerage community.‘
2. Rationale for the Demutualization of TSE
---both the size of members and the markets in which they compete were becoming more diverse. ---the existing governance model was becoming an increasingly slow and cumbersome method of making decisions. --- limiting ownership to members, the TSE had not been as flexible and proactive in responding to all of its customers’ needs.
---TSE more opportunities to raise capital for itself, aside from its power to impose levies on its seatholders.
Lastly, the notion of using “seats” as the basic governance structure of the TSE appeared outmoded and outdated.
3. The Demutualization Process of the TSE
a) a brief...
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