| The traditional model of a stock exchange began as a physical place where participants met to negotiate transactions on a face-to-face basis. The participants worked to instill trust and integrity by establishing rules and standards. Access to the exchanges was limited to dues paying members. The members acted as intermediaries to effect transactions for non-members. As exchanges evolved, contracts, collateral, rules, and procedures became more formalized to improve efficiency and promote greater disclosure and transparency. Exchanges ultimately became more sophisticated as technologies enabled new capabilities.; The financial services industry is extremely competitive. Exchange members, bank or broker intermediaries, seek to maximize their own profits from trade intermediation. The traditional financial exchange was established as a non-profit entity and used an open outcry auction based model with a physical trading floor. The operational objectives of exchange were intended to reduce capital costs, increase exchange accessibility to build liquidity, and raise investor returns. These objectives conflict with the rational motives of the member intermediaries. Any decline in intermediation reduces the demand for member services. A fundamental conflict between exchanges and the member intermediaries is becoming more profound. Improved communications and automation because of technological advances, business globalization, and competition are forcing exchanges to demutualize in order to survive.; Demutualization is most beneficial when it leads to a change in control of the exchange management. Demutualization makes it politically and economically feasible to separate membership from ownership. A shift in power can resolve conflicts of interest between exchange members and between exchanges and their members. Decoupling ownership from membership and trading rights is a fundamental concept of demutualization.; The demutualization trend is gaining momentum. A compelling case exists to examine the implications, impact, and potential consequences from the demutualization of exchanges, especially in an emerging market like Russia. A number of the world's exchanges have already converted from nonprofit to a for-profit legal orientation. Further, a parallel trend favoring exchange mergers and consolidation has developed. Change involves more than organizational policies, procedures, processes, and workflows. The cultural dimension and "people" side of change are an essential element of strategy and change management. Successful transformational change must include behavioral considerations. |
