Demutualization: Secretary · 4 Managing Directors ? Head of


The process by which a mutual company becomes a
publicly-traded company. A mutual company is a company owned by its members or
users for the benefit of those members or users. In demutualization, the
members give up their rights and receive shares in the company in return, which
the (now former) members may then sell. Demutualization happens most often when
a stock exchange owned by its members goes public.

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Moreover, Demutualization is the process by which a
customer-owned mutual organization (mutual) or cooperative changes legal
structure to form a joint stock company. Historically stock exchanges started
as a mutually governed, self-regulated structures where profit was not a very
strong motive. The stock exchanges were authorized to promulgate by-laws to
govern their functioning.

Shareholding structure before merger:

PSX was
previously operating as a non-profit organization with mutualized structure
wherein its Members had trading as well as ownership rights. This structure
inherently created conflict of interest and perceived to jeopardize the
investors’ interest. Therefore, the Stock Exchanges (Corporatization,
Demutualization & Integration) Act, 2012 (“Demutualization Act”)
was promulgated by the Government.

Management structure before merger:

There were physical areas with
trading floors. The stock exchange had a commonly reliant, co-agent structure.
However with mechanical advancement came electronic exchanging framework. The
idea of floor exchanging never again held ground, henceforth the physical
nearness of the broker was not any more imperative, which thus implied that the
cost of drafting extra part fell radically, diminishing the general exchanging
cost. The participation expense did not have quite a bit of centrality. This
thus diminished the significance of common reliance and collaboration. The
result of this was demutualization.

Board of Directors

Audit and Company Secretary

Managing Directors ? Head of Training Institute and Human Resource

house, library, human resource and marketing department

Operating Officer

Marketing surveillance

Exposure and risk management/Clearing house

Head of legal and member affairs

Administrations/building maintenance and company

Financial Officer

and Finance

 Chief IT

Shareholding structure after merger:

As per the
plan imagined under the Act, the whole paid-up capital of the Exchanges as
worked out after the revaluation of benefits and liabilities has been similarly
allocated to initial shareholders who were beforehand the individuals from the
Exchanges. These underlying investors can hold upto 40% offers as apportioned
to them while the 60% stake has been obligatorily held by the Exchange.
According to the arrangements of the Act and Regulations encircled there-under,
upto 40% of these saved offers might be dispensed to a strategic investor and
financial institutions while the staying 20% offers should be assigned to the
overall population through. The returns to be gotten from such divestment are
to be dispensed among 121 investors similarly. As gave under the
Demutualization Act, now Members have stopped to be Members of PSX and they
have been issued Trading Right Entitlement Certificates (“TRECs”) and
PSX’s offers, accordingly isolating exchanging rights from possession rights.
Though TRECs speak to exchanging rights, PSX shares speak to proprietorship.
Presently, TREC holders require not be an investor of PSX nor a PSX investor is
required to be TREC holder of PSX.

Management after

Upon corporatization and demutualization, the Board of
Directors of the Exchange was supplanted by the First Directors containing
eleven individuals out of which four were designated by the Exchange speaking
to TRE authentication holders enthusiasm for an interval period till decision
of Directors inside thirty days from the date of re-enlistment of the Exchange
while six free executives were selected by SECP. The MD is an ex-officio
individual from each Board of the Exchange. The Board of First Directors chose
to lead race of Directors in regard of four seats. In the Extraordinary General
Meetings (EGMs) investors of the Exchanges chose four Directors for a time of
three years. The chosen people of SECP on the Board of the Exchange should
proceed till the time the agents of investors including overall population
after divestment of 60% shareholding are so chosen or co-selected. As per the
plan of demutualization, the agents of TRE testament holders on the Board of
the Exchange can’t surpass four whenever and the Chairman of the Board should
dependably be a man who is neither a TRE declaration holder nor their
associated individual as far as the arrangements contained in the Act.Board of
Directors – 13 Members

Board Committees

Nomination Committee

Regulatory Affairs Committee

Audit Committee

Human Resource and Remuneration Committee

Company Secretary

Acting Chief Regulatory Officer


Legal Advisors


Associate Companie


There are two main forces that drove (KSE, LSE and
ISE) to demutualize:

(1) Increased global competition and

(2) Advances in technology.


Let’s take the scenario in which the KSE, the LSE,
and the ISE merge into a single exchange that is a for-profit company listed on
itself. In this scenario, issuers of listed securities had seven major
advantages from integration and demutualization

The fiscal cost of posting has decreased. Of the aggregate 670 recorded
organizations, four out of five are recorded at more than one trade and one out
of three is recorded at all three trades. These recorded organizations need to
pay posting expenses to each trade independently. Once there is just a single
trade, just a single charge would need to be paid.

The administrative cost of time and exertion went through in
consistence with posting controls has lessened. Organizations that are recorded
at more than one trade need to conform to the directions of each trade.

Trading volumes has expanded in light of the fact that all the
exchanging would occur at one trade as opposed to three trades. Since trades
gain the greater part of their incomes from exchanging volumes.

It would be under steady strain to be a good example for others. This
would make it more sensible in formulating and actualizing controls for
recorded organizations, for example, the Code of Corporate Governance.

Due to its more noteworthy financial and vital noteworthiness, the
trade has possessed the capacity to campaign with the Government for the normal
issues confronting recorded organizations. For example, the trade may viably
look for concessions for the recorded organizations, for example, bring down
duty rates on corporate pay and profits.

There has been a solid business impetus for the trade to look for such
concessions on the grounds that the more the recorded organizations, the more
prominent would be the posting income and exchanging expenses for the trade.

Listing on a prominent and nearly watched trade has conveyed a
component of eminence and helped the recorded organizations in their general
promoting endeavors. By following better administration rehearses, for example,
an abnormal state of on-going exposure, recorded organizations has possessed
the capacity to show signs of improvement terms from banks and different
business accomplices than comparable unlisted organizations.


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