Markets for Sale: Causes and Consequences of Stock Exchange Demutualization

Helen Callaghan, (MPIfG)Paul Lagneau-Ymonet, (Paris-Dauphine)Angelo Riva (EBS-Paris & IDHE Paris-Ouest-La-Defense)

Research Agenda: What drives change in capitalist social systems?

=> Streeck 2009: •move beyond abstract labels to identify mechanisms of change in specific historical contexts. •Focus on competition and innovation

Our case study: Stock market demutualization in France and Germany, 1980-2010

Findings: -Innovation as one resource among others-Competition as “rule of the game”-Political agency as the crucial initiator

Background (2): What is demutualization, and why does it matter?

Traditional governance structure“Durkheimian”:• Ownership by users (mainly

financial intermediaries)• Self-governance and self-

regulation by user-owners

New governance structure“Williamsonian”:• Separation of ownership rights

from membership rights• conversion of membership rights

into common stock holdings

• The incorporation;• The IPO;• The sell of their shares by the

former owners-users.

Demutualization as a three-step process

Illustration: Demutualization in Germany

Significance of strategic investors in the ownership structure of Deutsche Börse Group

Significance of Anglo-American Investors in the Ownership Structure of Deutsche Börse Group

Illustration: Demutualization in France

Mainstream explanations and their limits

Standard three-level rationale:• normative optimality of market coordination (Ansidei 2001; Ramos 2003)

• IT-revolution (Schwartz et alii 2009)

Predicted outcome of demutualisation Actual outcome of demutualization

-lower trading fees -supremacy of the bigger intermediaries

-increased liquidity -Fragmentation, opacity & privatisation of liquidity among exchanges and alternative trading venues

-lower capital costs for issuers -growing conflicts between users (intermediaries and issuers) & shareholders (funds of all kind)

Case study: the political economic constitution of markets for markets in France and Germany

France GermanyThe (national) political impetus

In the 1980s, the struggle against inflation through the reform of the financial system.

In the 1990s, the containment of inflation caused by reunification.

The business drive •The capture of intermediation profits by banks, against local intermediaries;•Stock exchanges ceased to be perceived by banks as strategic holdings.

The EU political drive Since the dawn of the millennium, the contested disembedding of stock exchanges from their historical financial centres

Conclusion: Lessons from the case study

•At the policy-making level: A “sorcerer’s apprentice” sequence

•At the industry level: The failure of “efficiency through competition”

•At the organizational level: The end of exchanges?

About the drivers of change in capitalist systems:Political agency shaped the competitive arena in which technological innovation was one resource among others