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Exchanges Seek Greater Autonomy

Exchanges are seeking greater profitability, and greater autonomy. No one begrudges them a profit. In the latest news on Bloomberg (Exchanges Object to Brokers Gaining More Stock-Market Oversight) this is demonstrated in the exchanges stating that "Only exchanges should be voting members on committees that govern..."


Safety of our Markets

In seeking greater autonomy we all should keep in mind that our Exchange Traded Securities & Derivatives industry industry is based on shared responsibility and controls. This guarantees a safe system for the investing public. 

  • The Broker Dealer guarantees the investor
  • The Clearing House guarantee the Broker Dealers
  • The exchanges guarantee an orderly and fair market

Excluding others in this chain of responsibility from having a voice may not be the best for the end investor.

Exchanges Marketing To End Investors

As the exchanges have grown from not for profit membership organizations to for  profit corporations they have become more aggressive in seeking new market participants. More participants equal greater liquidity. More liquidity means better prices for the individual investor, but only in such a way as the markets are maintained as "fair and orderly."

This marketing has included seeking new revenue streams from electronic trading systems,  market data,  and co-located high frequency trading firms.

Self Regulatory Organizations (SROs)

Many exchanges have "Self Regulatory" authority. This gives them the ability to maintain fair and orderly markets in the absence of direct government or industry regulator involvement. (See American SROs)

How Have SROs, and BDs Been Doing? Are They Protecting The End Investor?

Collin Woodall of the National Cattlemen's Beef Association is quoted saying "Recently, the cattle markets have been susceptible to volatile limit price moves without corresponding market news,” Woodall says. “The result has been decreased confidence for cattlemen using the futures markets as a risk protection tool. This is not an issue for the government to address, but an issue the industry can resolve by working with CME.” 

This points out that at least one group is complaining about markets. The global regulators agree as shown by the numerous cases of market manipulation including Spoofing on global markets in the US, Europe, Canada show that some degree of change is needed.  Some recent cases:

Needed Changes

Giving exchanges sole control may not be the best changes that is needed.

Maybe the change needed should be either increased oversight or increased technology and tools for the compliance officers at the SROs and the broker dealers. The modernization of these technologies should include Predictive Analytics, Machine Learning, and other more modern computing techniques.

Perhaps the exchanges could even consider spinning off their SROs to an industry regulator.


FINTECH in Chicago and Around The World

Comments: (1)

Tayloe Draughon
Tayloe Draughon - CloudQuant - Chicago 17 February, 2016, 19:09Be the first to give this comment the thumbs up 0 likes

Richard G. Ketchum Chairman and Chief Executive Officer at FINRA has some interersting comments in his speech today about three key areas of the market:


  • market transparency
  • market liquidity
  • market fairness

"...competition and regulatory changes have also led to a more complex, fragmented market. In today's increasingly fragmented market, bad actors can consciously disperse their trading activity across markets, asset classes, and broker-dealers in an attempt to hide their footprints and avoid detection. It is part of our job at FINRA to monitor what's happening in the market and ensure that the markets operate fairly."




Tayloe Draughon

Tayloe Draughon

Senior Product Manager


Member since

10 Dec



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