IOSCO Consultation Report on Regulatory Issues Arising From Exchange Evolution

06 March 2006




IOSCO issued a consultation report on regulatory issues arising from exchange evolution. The report recommends that securities regulatory authorities should be prepared to share relevant information concerning cross-border activity. With increased cross-border activities, regulatory authorities should consider whether all necessary information sharing arrangements are in place to facilitate the exchange of relevant information. Regulatory authorities should also consider competition issues that may arise.

In recent years, the rationale and support for continuing mutual ownership of exchanges has tended to weaken and most major exchanges have now converted into for-profit companies with broader shareholder bases. For securities regulatory authorities these changes in exchange ownership and business objectives have been raising significant issues concerning the regulatory role of exchanges and the regulation of exchanges.

The report describes the regulatory role of exchanges and the issues raised for that role by demutualization and the conversion to for-profit business models in combination with the competitive environment existing around them. It also describes the various ways in which securities regulatory authorities have addressed these issues and discusses broader issues arising from exchanges' new business models.

Other recommendations made also include that regulatory authorities:

  • should have adequate arrangements to enable them to keep the changing market environment under review and to identify emerging issues in a timely fashion.
  • should assess whether the changes being made by exchanges require any adjustments to the regulatory framework for an individual exchange or for exchanges generally, and should address any such need for changes promptly.
  • should carefully assess the impact on resources of any changes to the regulatory model for exchanges, and ensure that the core regulatory obligations and operational functions of exchanges are appropriately organized and sufficiently resourced.

    Deadline for comments is 2 June 2006.

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