China Stock Exchange, The Legal Form And Governance Structure Study

To have a clear view on the legal status of a corporate body is very important in market economy and is critical for the smooth operation of market system as well. Since the instauration of Shanghai Stock Exchange in December 1990, thirteen years have witnessed the tough course of the development of stock market in China. Although having played a special role in the formation of China's corporation system, stock exchanges lag behind in the reform of their own legal form and corporate status.In nature, stock exchanges should be seen as financial organizations, which provide trading system and relative services and charge from such services. Membership, for centuries, has been the typical governance stucture for stock exchanges all through the world. Tracing back the history about the foundation of early stock exchanges, we can conclude that, "membership" really is a wise choice under the traditional conditions of hand trading and limited trading floor. Nevertheless, communication and computer technology have experienced rapid development during the last several decades in 20 century, which lead to great convenience for capital flow and stock investment across borders. Kinds of alternative trading system have mushroomed and cut out the market share of traditional exchanges, relying on advanced technology and considerably low cost.The electronic trading networks always set up as business corporations and operate for profit. Under the pressure of their competition, traditional stock exchanges have to review their own legal status and governance structure. Throughout the past decade, more than 20 stock exchanges have undergone "demutualization" and transferred into joint-stock corporations. Even 14 exchanges among them went public on their own markets.Stock market in China is fairly young. Though having growed rapidly, stock exchanges have no clear orientation for their leagal form. Nowadays the bureaucratic tendency even erodes exchanges' creativity and efficiency.Demutualization has been a successful option for many stock exchanges, whether in developed or emerging market. Experience of these exchanges provides us good examples for reference. First, there need a modification of our Securities Law, which should allow stock exchanges to take the legal form of business corporations. Exchanges then offer shares to outside stockholders other than their members, and transfer into stock companies. Besides, stock exchanges should constantly improve their corporate governance and carry out ambitious development strategy, in order to build up a custom-oriented, for-profit market body. In the long run, stock exchanges in China should strengthen themselves and try to set up their own brand advantages in the international capital market.