Among the major stock exchanges that have demutualized, the London Stock Exchange (LSE) provides a classic model of a successful demutualized entity. This article looks at certain key factors that compel an exchange to demutualize.

A Stock exchange is a corporation or mutual organization, which provides facilities for stockbrokers or traders to trade on company stocks or other securities. The term demutualization means transformation of a mutual company into "Stock Share Category Company". A Mutual stock exchange belongs to members having voting rights whereas a stock company or demutualized entity belongs to its shareholders.

Before analyzing the basic factors behind demutualization of the London Stock Exchange (LSE), one needs to be aware of the factors primarily triggering the stock exchanges to demutualize. The traditional forms of stock exchange were floor-based and were quasi-governmental organizations. These institutions were protected from competition by regulatory and currency barriers. These exchanges used to earn huge commissions by providing a wide range of services like listing, membership, transactions clearing settlement services and data dissemination. Thus, these exchanges had monopoly in their actions and worked with a non-profit motive. The members of traditional exchanges used to invest a small portion of their profits after spending on facilities and remaining on giving concessions to its members.

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