Guidelines for Writing Thesis

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Causes and Effects of Demutualization of Financial Exchanges
Chinmay Jain1 and Pankaj Jain2
December 2009
1 Doctoral student, Department of Finance, Insurance, and Real Estate, Fogelman College of
Business and Economics, University of Memphis, Memphis, TN 38152. Phone: [phone];
Email: [e-mail]
2 Suzanne D. Palmer Associate Professor of Finance, Department of Finance, Insurance, and
Real Estate, Fogelman College of Business and Economics, University of Memphis, Memphis,
TN 38152. Phone: [phone]; Email: [e-mail]
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Abstract
We model how the forces of automation, competition, and demutualization are rapidly changing the industrial organization, ownership, and capital structure of financial exchanges industry. We propose the conditions under which demutualization becomes optimal from mutually owned exchange owners’ perspective. We then proceed to build an empirical dataset characterizing the evolution of leading stock and derivative exchanges around the World along these dimensions. We empirically find that trade automation appears to be a pre-requisite for demutualization of exchanges and competition serves as stimulus for demutualization. The potential for launching new products, such as derivatives products, stimulates exchange owners to adopt demutualization.
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Introduction
Stock markets have served as engines of modern economic growth. With modest beginnings as private clubs in the seventeenth century, today they are vital financial institutions, which are essential for efficient allocation of capital. Whereas the stock exchanges provide the platform for the expression of demand and supply of equity financing, the derivative exchanges complete the market as conduits for efficient allocation of risk. Taken together, the financial exchanges are the pillars of well functioning capital markets and in this role, they affect a variety of stakeholders such as investors, corporations, regulators and

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