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FLASHBACK FRIDAY: Above the Law - What Exchanges and Kings Have in Common

Traders Magazine Online News, August 17, 2018

John D'Antona Jr.

For the most part, it’s always been good to be a King. The same can be said of being a public stock exchange – life’s been good.

But why should life be so good for royalty and the exchanges? What have they done to merit such favor?

As Traders Magazine delved back into its archives it came across the following commentary by one-time contributor and well-respected market veteran Dan Mathisson – but also consequently worked for Credit Suisse’s Advanced Execution Services group. Mathisson also ran Crossfinder, the bank’s ATS, which put him often at odds with his exchange competitors for order flow and market supremacy. Back in 2012, he was engaged, often publicly, in heated debate on the merits of ATS trading and how exchanges enjoyed many many perks – including preferable treatment from the government when it came to legal matters.

Fast forward to now and things look awfully familiar. Debate about the exchanges conduct their businesses – being for profit and yet policing themselves remain debated. Their ownership and alleged monopoly on trading data is also hotly contested by many in the marketplace.

Robert Jackson

The US Securities and Exchange Commission is now turning a sharper eye toward exchange governance, which has been on its back burner for too long, according to one commissioner. Market data access fees and the self-regulatory organizations’ limited immunity likely will be reviewed in depth, Commissioner Robert Jackson told Traders Magazine’s sister publication Markets Media.

“I hope to get to exchanges at the top of the list because they have been left unaddressed for so long,” he said.

Jackson noted that Brett Redfearn, director of the Division of Trading and Markets at the SEC, has announced his division’s plans to hold industry roundtables on SRO governance, which will include market-data pricing and other issues.

The Commissioner also would like the regulator and its staff to take a deep dive in review SRO immunity for a possible update to reflect the current governance of the exchanges.

“The reason for this is because when the regulator first established an SRO model, exchanges were mutually owned organizations,” he said. “Now, they are privately held and do what privately held businesses do, which is pursue profits.”

Commissioner Jackson questioned why profit-making institutions should wield government immunity that prevents them from being accountable for mistakes that harm investors.

He cited Nasdaq’s botched initial public offering of Facebook in 2012, which market makers estimated cost them about $500 million, but the exchange operator’s ultimate payout was only a bit more than $75 million total covering a voluntary payment, fines, and a legal settlement.

As long as exchanges keep making profits for private shareholders, they should be held accountable for any harm they inflict by mistake, according to Commissioner Jackson.

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