Abstract

Demutualization is a process of segregation of ownership, management and trading membership in an exchange. Studies show that demutualization is a mechanism which minimizes the conflict of interest by reducing the overbearing influence of the members on the affairs and management of the exchange. The Government has initiated demutualization process in Pakistan as part of the capital market reforms program. This paper studies the ongoing process of demutualization in Pakistan and identifies its benefits and challenges. The benefits include better corporate governance, access to economic and human capital, enhancement in listings and international alliances. The study also identifies some challenges which are regulatory framework, conflict of interest, ownership structure issues and agency cost.

Key words: Demutualization, conflict of interest, agency cost, corporate governance, integration and alliance.