A Study on Demutualization of Stock Exchanges －Focusing on the Case of Korea Exchange－

Demutualization generally refers to the process of reorganizing a mutualized, or member-owned, entity into a for-profit corporation with shareholders, and demutualization of stock exchanges means a process of converting exchanges from non-profit, member- owned organizations to for-profit, investor-owned stock corporations. The process of demutualization proceeds in several steps. Exchange demutualization commences when the membership of a traditional non-profit organization that operates a stock exchange reorganizes the exchange as a for-profit institution, and concludes when the exchange goes public and thus become listed. Nowadays demutualization of stock exchanges is no longer unusual. Many stock exchanges around the world have already demutualized in order to achieve economies of scale as a response to increased competition. In response to such phenomenon, the Korea Exchange (KRX) announced its self-listing plan in the end of February 2011, purporting to make it easier to participate in the ongoing consolidation of global stock exchanges. KRX takes form of a stock company, but has not gone public yet. Thus being a listed exchange means the completion of demutualization to KRX. The exchange began to push for its self-listing from 2003, but the current situation around KRX is somewhat different from before, because since January 29, 2009 the exchange has been designated a public institution. The primary purpose of this paper is to study demutualization of KRX and related legal issues. Before examining the case of KRX, the paper first provides overview of exchange demutualization and discusses its implications.