By becoming a demutualized entity BSE promises to improve governance and efficiency. However, the big question is will it be enough to take its fierce rival NSE head on
When on August 19, 2005, the
Bombay Stock Exchange
(BSE) changed its name to
Bombay Stock Exchange Limited, it
was not just any other routine namechange
ritual. It marked a major
milestone in the history of Asia’s oldest
stock exchange which came into
existence in 1875 as ‘The Native Share &
Stock Brokers Association’. Through itsreincarnation as BSE Ltd., it becomes
one of the few stock exchanges among the
emerging markets, and also in the
developed arkets, to be demutualized.
Demutualization refers to the
segregation of management and the
trading rights at an exchange. Now, with
the demutualization, the trading rights
and ownership rights have been delinked
so as to assuage concerns
regarding any, perceived as well as real,
conflicts of interest.
BSE’s demutualization initiative is
not an isolated example. In fact, world
over, stock exchanges are giving up the
old way of doing business by embracing
new systems which address the concerns
over trading malpractices and
lack of ethics on the part of brokers who
also happened to be the owners of stock
exchanges. The drive towards
demutualization gained momentum towards
the late-1990s as the concerns
over corporate governance, in the wake
of NYSE crisis among others, increased
substantially. However, a set of other
factors have also triggered the move on
part of the global exchanges to convert
themselves into publicly-traded, forprofit
organizations from being closely
held, broker cooperatives.
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