The process of automating the Ghana Stock Exchange (GSE), which is currently at a very advanced stage, is a welcome news for many industry participants.

It will not only bring the Ghanaian market to be at par with some of the more advanced markets on the continent, but also enhance market liquidity, which is essential for the further development of the capital market in Ghana.

It is against this background that the indication by the exchange that it is seeking the services of a consultant to draw up a business plan as part of the process of converting it into a limited liability company is a very important development.

This is certainly an indication of moves to position the stock market to play a central role in the mobilisation of domestic capital for the development of the Ghanaian economy.
 
That the exchange is seeking to become a profit-oriented entity is a departure from the traditional structure of exchanges as non-profit making organisations.
 
Article by Prince Akpesey

Background

Companies around the world are incorporated in several forms. Some are incorporated as limited liability companies with a profit objective and others as companies limited by guarantee that by their nature they do not have a profit objective.

Stock exchanges are one of those companies that are incorporated without a profit objective.
 
They are usually member-owned institutions, with the shareholders being users of their services.
 
 An entity becomes a member of a stock exchange by contributing funds to purchase a seat or contributing to the achievement of its objectives.
 

The members of the exchange usually work together to achieve common goals and protect their collective interests. The distinguishing feature of the traditional stock exchange structure is its mutual governance model.

The close identity between the ownership of the exchange and the direct use of its trading services. In effect, the owners of the mutual enterprise are also its customers.

Owner/customers may share in the net gains/losses of the enterprise in proportion to their ownership interest.
 
Decisions are made on a one-member-one-vote basis and are often made by committees of representatives of member firms.

Stock exchanges have over the years performed the vital role of helping companies raise equity capital and providing a secondary market for the trading of listed securities. This dual role has provided an access to capital for companies and liquidity for investors.

The GSE is incorporated as a company limited by guarantee with two groups of members. The licensed dealing members and the associate members.
 
The licensed dealing members are those companies that act as dealers in securities on the exchange.
 
The associate members are individuals or corporate entities that share in the mission of the exchange and have committed to contribute to the attainment of those objectives.

Evolution of stock exchanges

Mutually owned exchanges have served their purposes, and markets are increasingly recognising that a trading infrastructure, as well as modern corporate and governance structure, is essential to reducing transaction costs, attracting the funds of investors, and attracting new firms to raise their capital requirements.

In the light of this, exchanges around the world are converting from non-profit entities to corporate entities with a profit-making objective.

This is to enable the exchanges to be able to raise funds on their own to undertake those investment projects that will make them able to continuously play their role as intermediaries between owners and users of funds.
 
This process of converting from a mutual member-owned company to a public company with a more diverse ownership is called demutualisation.

Demutualisation is the process of converting a mutual member-based association or company where decisions are taken on a one-vote-per-member basis to an organisation where decisions are taken one vote per share.
 
Demutualisation is literally the process of changing an organisation from its mutual ownership structure to a share ownership structure.

The process entails first converting memberships into shares, which step may or may not be followed by a public issue of those shares.
 
In this manner, a quasi-governmental institution transforms itself into a profit-oriented, publicly owned/traded company. This way, there is a clear distinction between ownership and the use of the services of the exchange.

It has been argued that demutualisation makes sense only if it induces a change in the exchanges' objectives.
 Continued    Source: Daily Graphic - Daily Graphic