Stock exchanges should lose SRO status: SIFMA

The Securities Industry and Financial Markets Association today called on the Securities and Exchange Commission to review whether for-profit stock exchanges should continue to act as self-regulatory organizations.
“The self-regulatory model is a crucial area for immediate attention,” the organization wrote in a letter to SEC chairman Mary Jo White.
A “discrete review of the regulatory structure of broker-dealers [and] exchanges should be carried out now,” the trade group said.
SIFMA argues that securities exchanges and broker-dealer trading platforms now perform the same functions — and compete with each other.
“Nonetheless, the status of exchanges as self-regulatory organizations has not changed, even as the exchanges have evolved from member-owned utilities to for-profit businesses, as well as active competitors with their broker-dealer members,” SIFMA said.
SIFMA’s letter was prompted by a speech given by SEC commissioner Daniel Gallagher last October, said Theodore Lazo, associate general counsel at the trade group. In his speech, Mr. Gallagher called on the SEC to review the SRO system with a “comprehensive study that addresses both market structure and self-regulation, but does so under the stipulation that there are no sacred cows.”
“We just want to keep that dialogue going,” Mr. Lazo said.
SIFMA contends that eliminating the exchanges’ SRO status and centralizing regulation would be more efficient.
In fact, much of stock-market regulation is already handled by the Financial Industry Regulatory Authority Inc., raising the question of why exchanges retain their SRO status, Mr. Lazo said.
The NASDAQ Stock Market, the NYSE and Direct Edge, outsource oversight to Finra, Mr. Lazo said.
After signing a deal with Direct Edge in May, Finra said it oversees 90% of U.S. equity trading.
“We think it’s time to take a look at self-regulation” by exchanges, Mr. Lazo said. “It no longer makes sense.”

Related Topics: Trade Organizations