The New York Stock Exchange is part of NYSE Euronext, a publicly quoted stock exchange group
Modern stock markets have been operating for more than 200 years and are marketplaces where buyers and sellers can come together to trade in a regulated environment. Stock markets enable companies to raise money and investors to lend and invest capital in companies, government bonds and other financial products. Stock market participants, brokers, dealers and investment houses facilitate these trades.
The Facts
Stock exchanges around the world have different ownership structures. The most common is a mutual structure in which the exchange is a membership organization run by and often exclusively accessible to its member organizations. The world's largest exchanges--New York, London, Tokyo and Frankfurt--all began as mutual organizations. The New York Stock Exchange (NYSE), for instance, was a mutual organization from 1817 until 2006, and the London Stock Exchange was from 1801 until 1986.
Mutual Status
An exchange with mutual status is run as a nonprofit organization for the benefit of its members, which include stock brokerage companies, banks and trading organizations. Membership in the stock exchange usually is purchased and ratified by the board. Being a member provides exclusive benefits, such as trading access in the stock exchange, influence and management in the exchange and receipt of any trading surplus the stock exchange earns. The highest price paid for membership in the NYSE was $4 million, in December 2005, just before demutualization.
Demutualization
The process of demutualization is essentially the conversion of an exchange from mutual status to ownership by a private or public company. Some exclusive rights of membership are given up and shares in the new organization are created, which can be sold. The biggest difference is that companies and institutions who were not members can directly access the stock market and become a trader. Traders typically must be licensed.
The process involves establishing a value for the new company, apportioning the shares to members, creating a company structure, and determining ownership style. Because it is a for-profit operation, license fees and other services can be instituted. Once these elements are determined, they are put to a vote of the membership and a conversion date is set.
Private Exchanges
After the conversion date, or demutualization, some exchanges become private limited companies. In 1986, the London Stock Exchange converted to a private, for-profit, limited company with private shareholders. The exchange acts like a business and is subject to the same regulations. Other private exchanges include CHX Holdings, the parent of the Chicago Exchange, which converted in 2005.
Public Exchanges
Some exchanges choose to become public companies and issue shares on the open market. The New York Stock Exchange converted to a publicly traded company in 2006 under ticker NYY, in essence listing itself on its own exchange. NYSE later merged with Euronext to become one of the largest stock exchange groups in the world.
London also went public in 2000, when its shareholders voted to float on its own exchange. Many European exchanges are also publicly traded or form part of a larger stock exchange group.
