From Mutualized Exchange to Investor-Owned Demutualized Entity: The Case of Pakistan Stock Exchange

Abstract

This study provides an overview of the Pakistan Stock Exchange (PSX) journey from not-for-profit mutually owned company to the for-profit demutualized entity. The wave of demutualization and public listing of stock markets around the globe is being witnessed for the last three decades. This study focuses on three main areas. First, in 2012, the stock market stood corporatized and demutualized as a public company limited by shares. Prior to 2012, the PSX (formerly called Karachi stock exchange) was a broker-owned company. The three national stock exchanges of Pakistan merged together to form PSX in January 2016. Moreover, the 40% strategic ownership of PSX is transferred to the Chinese investors. The Pakistan stock market is listed on its own exchange from June 29, 2017 (self-listing) following the IPO process. Second, this study discusses the reasons for demutualization, such as investment in technology and global competition; and regulatory implications of for-profit demutualized exchange. Lastly, selected market efficiency indicators are compared before and after integration to assess the benefit of demutualization. On a positive note, so far, the market witnessed higher liquidity, less excessive volatility, and better returns for investors in the post-merger period compared to pre-merger period.