SIFMA Executive Highlights Issues Concerning the Changing Role of Exchanges in the Equity Market Structure

At the 2016 SIFMA Equity Market Structure Conference, SIFMA Executive Vice President of Business Policies and Practices Randy Snook maintained that several issues must be “rethought” if financial professionals and regulators are to “strengthen market structure and increase market resiliency.” In his remarks, Vice President Snook focused on the role of exchanges as self-regulatory organizations (“SROs”). He asserted that the status of exchanges as SROs creates unnecessary conflicts of interest and duplicative regulations, and that even though an exchange should supervise trading that is specific to its own market, “having exchanges establish market-wide regulation and policy no longer works.”

Vice President Snook also addressed several other market structure issues, such as increased disclosure to investors and improvements in the ways in which market data is disseminated.

Lofchie Comment: The SRO structure was developed at a time when the various exchanges were nonprofit membership organizations controlled by their member broker-dealers. Accordingly, the actions of an exchange/SRO reflected the decisions of its member broker-dealers. More recently, the exchanges have become global private corporations that, to a considerable extent, either are in competition with broker-dealers or have an interest in maximizing the fees they charge to broker-dealers. Nothing is inherently wrong with competition or fee maximization, but the two activities become problematic when combined with regulatory authority, the ability to control market structure, and the power to impose sanctions. In short, the SRO regulatory structure, which dates back to the 1930s, is in need of a revisit.

 

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