شیوه های تفکیک بورس اوراق بهادار، خود فهرستی و عملکردی: بورس اوراق بهادار استرالیا

This paper examines the effects of the recent spate of financial exchange mutual-to-stock conversion phenomenon on the performance of listed exchanges and the quality of the stock market using the Australian Stock Exchange (ASX) as a case study. We find that the ASX stock significantly outperformed the stock index and the control group on a market-adjusted return basis. The stock market performance is driven by strong operating performance. The profitability ratios of the ASX have significantly improved in the five years following the demutualization and self-listing. The performance improvements remain significant even after controlling for growth in the Australian economy. From a market quality perspective, we document evidence of increased trading activity by foreign investors after ASX’s demutualization and self-listing. Interestingly, we also find that bid-ask spreads of the stock market have narrowed in the post-conversion period. In particular, small-cap firms have become more liquid. The results show that stock exchange conversion from mutual to publicly traded exchange is not only value enhancing for the exchange and its shareholders, but it is also beneficial for the stock market as a whole.

Stock exchanges have traditionally been run as mutual organizations with monopoly power, but in recent years they have experienced new challenges that have short and long term ramifications on their operations. Changes in the competitive environment and technology have had strong impact on their operations. For example, improvements in technology have created both opportunities and threats for the exchange industry. On one hand, technological advancement has fundamentally altered the landscape, enabling exchanges to overcome national boundaries and reducing the intermediary role of exchange members (Galper, 1999). It has also reduced trading costs (Macey and O’Hara, 1999), as well as facilitated the trading of shares on several stock exchanges. Investors do not necessarily have to execute their trades on the local stock exchange. They can place orders wherever and whenever they wish to do so without being limited to specific trading times and location. Thus, technology has expanded trading opportunities. On the other hand, the migration of order flow to other markets has affected the local franchise that the exchanges had in their respective countries. What was once a captive market is no more the sole jurisdiction of the local exchange. Also, the competitive environment is entirely changing. Hitherto, stock exchanges used to enjoy monopoly status in their domestic markets. The increasing internationalization of financial markets has reduced barriers to access and has set national exchanges in direct competition with each other and with electronic communications networks (ECNs). Exchange members are facing difficulties in protecting their intermediation franchise due to the different trading and listing alternatives that are available to investors and companies (Steil, 2002). Competition and technology have also affected the sources of revenues. The major sources of income for exchanges have hitherto been membership fees, listing fees, trading revenue, and sale of company data. Lee, 2002 and Otchere, 2006 show that the importance of these revenue sources is changing. For instance, listing fees have significantly reduced, as the marginal cost for adding new members goes towards zero. In fact, reducing listing fees could be a deliberate policy that can give the exchange a competitive advantage as it can attract more domestic and foreign listings. As a result of the pressure on traditional sources of revenue, exchanges have to explore other sources of revenue, but their ability to do so could be stymied by the members if the undertaken jeopardizes the members’ own business interests. The mutual form of exchange in which ownership rights and the right to consume the exchange’s services are coupled, can indeed hinder the exchange’s ability to adapt to changing circumstances. As the conduits to the trading system, exchange members derive significant profits from intermediating end-customer (non-member) transactions.1Domowitz and Steil (1999) argue that members may resist innovations that reduce demand for their intermediation services even if such innovations would enhance the value of the exchange. Hart and Moore (1996) and Cybo-Ottone et al. (2000) narrate cases where reforms in a number of exchanges in the US, Europe and other countries have been hindered by the exchanges’ inability to secure consensus among their members. The mutual ownership structure can thus be an impediment to the exchange’s efforts to remain competitive and profitable. All these developments taking place in the exchange industry and the rigid nature of the mutual structure pose significant threats to the financial health of stock exchanges. In the mid-90s, the Australian Stock Exchange (ASX) realized that the mutual structure was inadequate in enabling it to respond to the challenges and threats that it faces. Consequently, in 1996, the exchange members voted to demutualize. The demutualization process culminated in the exchange going public in October 1998, listing its shares on its own exchange. The ASX is not an isolated case; since its conversion and subsequent self-listing, the number of exchanges that have converted from mutual, not-for-profit organization to for-profit structure has increased. According to the World Federation of Exchange (WFE, 2004), in the mid-1990s approximately 90% of the exchanges that make up the Federation were run as mutual companies. By 2002, 63% of them had changed their mutual structure. In April 2005, the New York Stock Exchange (NYSE) announced what is perhaps the biggest shake-up in its history by merging with Archipelago Exchange, a publicly traded electronic trading firm and thus becoming a publicly traded exchange and as recently as November 2006, the New York Mercantile Exchange (NYMEX) also joined the NYSE, London Stock Exchange, and the Australian Stock Exchange, among others, as self-listed exchanges. Appendix A lists the names of the exchanges that have demutualized and self listed. Self-listed exchanges are geographically dispersed but most of them are located in North America. Self –listing appears to be a necessary response to the shocks that the industry has experienced in recent years. Of the top 10 stock exchanges in the world by market capitalization in 2005, 80% have demutualized (the exception is the Swiss and Spanish Exchanges), and 7 out of the 10 largest stock exchanges have self listed. A major exchange that is not currently publicly traded is the Tokyo Stock Exchange. However, it has taken the first major step to achieving a public status as it has demutualized. That all the major exchanges have demutualized and become public companies shows the necessity to have a structure that allows the exchange to respond to the challenges in the industry.2 Given the circumstances that have prompted the change in the governance of exchanges, it is reasonable to surmise that the conversion from mutual structure to publicly traded self-listed exchange structure will be value-enhancing for the exchange itself, and also has the potential to improve the quality of the stock market. The improvement in performance could occur because self-listing provides managers of the exchange the free hand to pursue profitable business opportunities that they otherwise would not have been able to undertake under the mutual not-for-profit structure. Also, self-listing leads to greater scrutiny of management by investors; management in turn could respond to the monitoring with greater efforts (Otchere, 2006). It is also reasonable to surmise that because of the for-profit motive, the listed exchanges will embark on strategies that will increase order flow to the market. The increase in trading volume could lead to a fall in bid-ask spread and improve the quality of the market. We examine the effects of the conversion from a mutual organization to publicly traded self-listed exchange structure on exchanges’ performance and on market quality using the Australian Stock Exchange (ASX) as a case study. We focus on the ASX because it was the first exchange to formally demutualize and become publicly traded self-listed exchange; hence, availability of data allows us to examine performance changes over a reasonably long time period.3 We find that the ASX stock has strongly outperformed the market index and the control group following the mutual-to-stock conversion with the stock price more than doubling five years after the self-listing. The stock market performance is driven by strong operating performance. The profitability ratios of the ASX have significantly improved in the five years following the demutualization and self-listing. The post-conversion period mean net income margin, ROE and ROA of 27%, 30% and 31% are significantly greater than the pre-conversion ratios of 15%, 12% and 7% respectively. These performance improvements remain significant even after controlling for growth in the Australian economy. The results clearly indicate that investors have benefited from the conversion. We also document evidence of increased trading activity by foreign investors after the ASX’s demutualization and self-listing. Interestingly, we find that the bid-ask spread of the small firms has improved markedly after the conversion of the exchange to a publicly traded company. Our results have important policy implications for other stock exchanges contemplating changing their mutual structure; that is, stock exchange conversion from mutual to publicly traded self-listed exchange is not only value enhancing for the exchange and its shareholders, but also it enhances the quality of stock market. The rest of the paper is structured as follows. In Section 2, we provide some technical details about the demutualization and self-listing of the Australian Stock Exchange and describe our testable hypotheses. The data and methodology are described in Section 3. The results are presented in Section 4. Concluding remarks are presented in Section 5.

In recent years, developments in the stock exchange industry have forced some exchanges, including the Australian Stock Exchange, New York Stock Exchange (NYSE), the London Stock Exchange, the Toronto Stock Exchange, Singapore Stock Exchange and Hong Kong Stock Exchange among others, to change their governance structure from not-for-profit mutual exchange to publicly traded companies, listing their shares on their own stock exchanges. We examine whether the conversion from mutual exchange to publicly traded self-listed exchange has improved the performance of the Australian Stock Exchange (ASX) and the market quality. We focused on the ASX because it was the first exchange to demutualize and become publicly traded exchange; hence, the availability of data allows us to examine performance changes over a reasonably long time period. We find that the ASX and its shareholders have benefited immensely from the conversion. The firm has outperformed the S&P/ASX All Ordinaries Index and a control group following the conversion from mutual to public company, with the ASX outperforming the matched firms on a market-adjusted return basis sometimes by as much as 150%. The firm’s strong stock market performance is real, as it is driven by strong operating performance. Profitability ratios of the Exchange doubled in the years following the conversion. These performance improvements remain significant even after controlling for growth in the Australian economy. We also document evidence of increased trading activity by foreign investors after the ASX’s conversion. Our results indicate that the quality of the market has improved following the conversion of the ASX to a public traded exchange. In particular, the bidask spreads of the small-cap firms have improved markedly. We conclude that the change of governance structure from mutual to publicly traded, self-listed structure has benefited the Australian Stock Exchange as a company, as well as the Australian stock market. The implications of the study for other exchanges contemplating self-listing is that conversion from mutual to publicly traded self-listed exchange is value enhancing for the exchange and its shareholders. Our results also provide preliminary evidence to suggest that the conversion can lead to an improvement in market quality.