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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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San Pico is a rapidly growing Latin American developing country. The country is blessed with miles of scenic beaches that have attracted tourists by the thousands in recent years to new resort hotels financed by joint ventures of San Pico businessmen and moneymen from the Middle East, Japan, and the United States. Additionally, San Pico has good natural harbors that are conducive for receiving imported merchandise from abroad and exporting merchandise produced in San Pico and other surrounding countries that lack access to the sea. Because of these advantages, many new businesses are being started in San Pico.

Presently, stock is traded in a cramped building in La Cobijio, the nation’s capital. Admittedly, the San Pico Stock Exchange system is rather archaic. Twice a day an official of the exchange will call out the name of each of the 43 companies whose stock trades on the exchange. Brokers wanting to buy or sell shares for their clients then attempt to make a trade with one another. This crowd trading system has worked well for over one hundred years, but the government desires to replace it with a new modern system that will allow greater and more frequent opportunities for trading in each company, and will allow for trading the shares of the many new start-up companies that are expected to trade in the secondary market. Additionally, the government administration is rapidly privatizing many state -owned businesses in an attempt to foster their efficiency, obtain foreign exchange from the sale, and convert the country to a more capitalist economy. The government believes that it could conduct this privatization faster and perhaps at more attractive prices if it had a modern stock exchange facility where the shares of the newly privatized companies will eventually trade.

You are an expert in the operation of secondary stock markets and have been retained as a consultant to the San Pico Stock Exchange to offer your expertise in modernizing the stock market.

What would you advise?

Aslo we need to have power point presentation.

Some old case study of Similar stock exchange system failed.

Minimumreference 15

Answered Same Day Apr 30, 2020


Abr Writing answered on May 05 2020
145 Votes
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...

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