10. MINI CASE: SAN PICO’S NEW STOCK EXCHANGE (PAGE 346, CH 13) San Pico is a rapidly growing Latin American developing country. The country is blessed with miles of scenic beaches that have attracted...

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In the modern era where ICT (Information and Communication technology) is undergoing transformational change through the espousal of Web 2.0 capabilities, mostly new stock markets are inaugurated as either fully automated or partially automated trading system. These days a dramatic shift in power structure of the stock markets are cu
ently in progress. That’s why more and morestock exchanges are also becoming demutualized. In small and developing countries like San Pico fully automated demutualized stock exchange is more fruitful as opposed to MILA (Market integration in Latin America) that failed in Latin America.The solution to this case study is divided into three parts. In first part we will discuss why demutualize automated stock exchanges are better than traditional exchanges. Then we will discuss why MILA fails. In last part we will discuss why automated and demutualized exchange will work in San Pico.
Now we will discuss how automated demutualized stock exchange system is more beneficial than traditional system. Firstly question arises how we measure success of a stock exchange. According to the study by Beck and Dijk(2016) generally three measures are used to measure the success of a stock exchange. These three measures are Turnover, Market capitalisation to GDP and Total Number of companies listed in the stock exchange. Market capitalisation to GDP is determined by division of the total outstanding stock at the exchanges and real economic activity. The ratio is a substitute of the size of the stock exchange. The turnover ratio is anindicator of the liquidity of the stock market. A Share is said to be liquid if the spread is very small (difference between Bid and ask) and Bid and Ask price is immediately available to immediately buy and sell shares. Total Number of companies listed on the stock market is an indicator of diversification potential of stock exchanges. Apart from these three measures there are some other measures used to determine stock market development. If you are thinking only automation is sufficient for the success of a stock market then you may be wrong. Automation and Demutualization these two factor ensures success of a stock market. Demutualization is a process which involves changing a stock exchange financial structure from a non-profit limited liability mutualAssociation of stock members to Joint stock company. There are many academic as well as professional studies which prove that automation and demutualization are crucial factors in the success of a stock exchange. Some of these studies are discussed below. Krishnamurti (2012) in his study concluded that automated and demutualization has increased number of listed firms in BSE and NSE (two Indian prominent stock exchanges). Hazarika (2010) concluded that demutualization has helped two stock exchanges named London Stock Exchange and the Borsa Italiana to increase its trading volume. Davis(2015) concluded that demutualized exchanges performedsuperior than traditional exchanges in terms ofmarket turnover, market capitalization and listings of companies.
Now we will discuss another possible alternative to the problem that is integration of San Pico with another Latin American developing stock exchanges. We will discuss a case regarding it. This case will prove that Integration with another developing economics will not work in Latin America. We named it as Failure of MILA.
Failure of Latin American Integrated Market(MILA): The MILA started working on May 2011. MILA used computer-generated integration to associate different stock markets of its member nations to expedite...