Thinking Upon Prospect For Demutualization Of China’s Stock Exchanges

In the1990s, the global stock exchange set off a wave of demutualization, and have transformed from not-for-profit membership organizations into the for-profit shareholder-owned companies, even become listed companies.what prompted the decisive transformation of these stock exchanges? Many domestic and foreign experts and scholars pay a great deal of attention and in-depth research into demutualization of exchanges, analysis from each surface of inherent drawbacks of the membership and significant advantages of corporate system. Under the background of the surging world reform, China’s Exchange be widely questioned and criticized by sticking to the "membership", causing the topic on the restructuring and development of the exchange. The major cause not only due to deal with the integration of international securities market and competitive environment, but also solve our Exchange’s problem of ambiguously defined property rights, lack of independence and weaken self-regulatory. The prospect for the development of China’s stock exchanges, to establish real membership or to join the wave of corporate reform, has become the issue can’t be ignored and delayed, especially today when the wave of exchange demutualization and Cross-border M&A rise, China’s exchanges will lose development opportunities, if a timely response to the international competitive environment is not available.This paper attempts based on the organizational form and present situation of China’s Exchange, analysis the differences and the pros and cons of membership and corporate system of exchange, and seek a more appropriate development path for China’s Exchange.Through analyzing the organizational form of China’s Exchange from legal, academic and practical aspects, We can see the "Membership" mode is only a phrase without much substance. The legal Definition is Indeterminate and evasive, scholars also have different opinions, in particular, practical operation management of exchange is far away from the so-called "membership", exchange in fact becomes subsidiary body of the SFC, quasi-public agency to assume organization and operation of securities trade, the quasi-government departments under government lead. This particular organizational structure make the exchange lack of independence and autonomy, weaken self-regulatory. Shenzhen and Shanghai Exchange form a high degree of monopoly setup and their business pattern appear advolution trend, the competitive environment is quite closed. Scholars have reached a consensus about the restructuring and development of the exchange, but differences still exist in the path selection of the membership and the corporate system. The author discusses the two forms of ownership deeply, investigate its suitability for the development of China’s Exchange situation respectively. First, the exchange of membership came into being with the historical background of technology underdevelopment and transaction non-automated. System designed around the monopoly interests of the member, has defects unable to overcome by itself like conflict of interest, decision-making inefficient. China’s Exchange has advanced technical advantages, there is no need to revert to the start point of membership development and copy its intermediary trading patterns; Member monopoly interests can’t be accepted by the Government in China’s national conditions, coupled with the inherent drawbacks, the membership is not suitable for development of China’s Exchange. Company system solve the problems of membership with its perfect governance structure, efficient decision-making mechanism, decision orientation consistent with the exchange interests, convenient financing mechanism. Moreover, there is a special practical significance for China Stock Exchange to establish independent legal personality, expand autonomous powers, clear property rights and strengthen its self-management. Therefore China’s Exchange establishing corporate system has its necessity and feasibility. Nevertheless, the company system is not perfect, it has profound contradictions between public duty and rentability, may lead to the weakening of self-regulation. The author propose learning from international experience to overcome conflicts of interest by adopting hybrid regulatory mode and establishing independent supervisory department under the board of directors. In addition, in order to truly establish the corporate exchange mode, should perfect system construction in4aspects:legislation improvement, clear property rights, perfect governance structure and government supervisory.