From Mutual Association to Demutualisation: A Paradigm Shift in the Ownership and Governance of Stock Exchanges in India

Abstract

A group dominated by brokers prepared a platform where they can trade in securities of listed companies. Year after year that group got larger and no. of brokers associated themselves which later became stock exchanges. However, with little capital, rising competition, and almost negligible governance, investor’s wealth and confidence over the stock exchanges decreased. Considering such a situation, the Indian Govt. came up with a series of amendments in 2002-2005 to the existing laws so to inspire a sense of confidence among the investors. These amendments not only made the demutualization of stock exchanges compulsory but also streamlined the process of corporate governance. However, this was not the first time when a govt. has tried regulating Indian stock exchanges. The past record shows that even colonial govt. attempted to regulate the Bombay Stock Exchange and the trading done therein. This paper attempts to do a comprehensive study of the changes in the ownership structure from a not-for-profit member-owned organization to a shareholder-owned organization and the role of governments (including the pre-independence governments) in regulating the stock exchanges in India. The primary contribution this study seeks to make in the sphere of corporate governance related to the process of demutualization of Indian stock exchanges. This shall not only help in improving investor’s perception of the stock exchanges but shall also promote the reliability and confidence of investors.