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The traditional appearance of securities exchanges resembled that of a Janus face. Though performing an integral and indispensable role at the core of market economies, they refused playing by the rules of the system they were supporting. Unlike their capital-seeking customers, they were organized as mutual institutions run by a limited number of trader-owners to protect the franchise. And contrary to investors buying into risky securities, they faced little or no competition and enjoyed the safeness of more or less entrenched local monopolies. But as Janus symbolized the progression from one condition to another in Roman mythology, securities exchanges have undergone a tremendous transformation over the last two decades. Today, most have developed into market-oriented for-profit companies, that are dominated by outside investors. And like firms in other competitive industries, exchanges develop new revenue sources, expand their market share through fierce competition and pursue the consolidation of their industry actively. The process of converting an exchange’s ownership and governance structure and of turning it from a mutual organization into an outsider-dominated institution is referred to as . This dissertation thesis aims at contributing to a better understanding of this phenomenon.

The global securities exchange industry is currently undergoing a fundamental transformation. Driven by both political reform and competitive pressure it has turned into a dynamic industry that is in a state of flux and develops at a remarkable pace. On the political side, the drivers behind these changes include the liberalization and deregulation of national exchanges during the Eighties and Nineties of the 20 century. In Europe, the current efforts to fully integrate European capital markets and to open up cross-border competition have provided additional stimuli to change. Fueled by political reform and technological advances, competition among stock exchanges has unfolded in several ways. Exchanges have demutualized and were turned into for-profit entities. Moreover, merger and acquisition activity has caused the formation of large multi-national exchanges. Simultaneously, investors have been enabled to access even the remotest markets without difficulties. Facing increasing competitive pressure, exchanges have developed different approaches to covering the value chain of securities trading while competing for liquidity.

A central thought in modern economic theory is the assumption that firms are owned by investors seeking profits who confer the right of control upon a management. Accordingly, the design of corporate institutions is based upon the idea of separation of ownership and control (; ). However, in a modern capitalist society we observe a variety of ownership and governance structures that mark an alternative to this investor-oriented view. Various firms of the tertiary sector like consultancies and law firms are owned and governed by their employees. Cooperatives operate successfully in sectors like insurance, banking or housing and are owned by their customers. While the various underlying institutional designs and governance structures as well as their economic characteristics have been analyzed at length (), our understanding of the transformation of ownership structures remains vague and incomplete. Little attention has been paid to the reasoning behind firms’ abandoning their traditional ownership structure and converting to others. The same applies to our understanding of the processes of transformation. In this paper I seek answers to these questions by studying an exemplary industry that has recently been subject to a widespread change of ownership structures. The industry in the focus of my analysis is the securities exchange industry, which has witnessed a wave of demutualizations during the last decade.

Over the last decade, the securities exchange industry has witnessed a wave of demutualizations shifting ownership in exchanges from members and other insiders to outside investors. The demutualization of a stock exchange is a complex process that gradually takes it from being a mutual society to being a listed company. Over the course of this process fungibility of ownership increases while conflicts of interest among owners diminish (). This phenomenon has been pioneered in Europe with becoming the first for-profit exchange in 1993 and listing in 1998. Over the past 7 years more than a dozen of the world’s largest exchanges have demutualized and listed their shares publicly. Today, demutualized exchanges control more than 75% of the European market for equity transactions.