In spite of being commonly cited as an example for capital markets development in Latin America, it was not until recently that the largest Chilean securities markets (the Santiago Stock Exchange and the Chilean Electronic Exchange) became demutualized.
Over the past three months, the largest Chilean stock exchanges (the Santiago Stock Exchange and the Chilean Electronic Exchange) finally became demutualized. Demutualization means markets will become for-profit companies, and that intermediaries will no longer need to hold stock in the market to serve as such. It also means that stocks from these markets will be divided, increasing potential liquidity on their trading.
The first securities exchange to become demutualized was the Santiago Stock Exchange (SSE), Chile’s lead market in terms of traded volume. Around March 2016, the organization approved changes to changes in its bylaws that would allow for the demutualization of its structure and the split of its 48 shares into one million each. These changes also foresee the needs for new corporate governance and the establishment of prerequisites companies who wish to serve as intermediaries will need to fulfill.
The process finally materialized on June 12, once the local securities commission approved the new bylaws. These new rules also determined that no unique individual should own more than 25% of the exchange.
The Chilean Electronic Exchange (CEE) followed the footsteps of the SSE by demutualizing on August 10, 2017. CEE’s 41 shares were divided into 4.1 million shares, and new bylaws established that no shareholder should own more than 10% of the exchanges’ stock.
Among Latin American securities exchanges that belong to the World Federation of Exchanges (WFE), the SSE’s market cap to GDP ratio vastly surpasses that of its peers. Chile’s GDP (measured in US Dollars) is not even half to that of Argentina, and it still has twice as many domestic companies listed on its largest stock exchange.
SSE’s stock market turnover (ratio between total traded volume and market capitalization), however, is similar to that of the rest of the region’s market.
In Argentina, the sanction of Law N° 26,831 (better known as the “Capital Markets Law”) in 2012 resulted in mandatory demutualization of securities exchanges. This rule also instructed markets to interconnect their trading systems, an advancement that stands as a prerequisite for further market development in Chile, according to Fernando Cañás, CEE’s president.