Risks arise as exchanges evolve, IOSCO says

Amid the shifting securities trading landscape, global securities regulators are undertaking a consultation on the risks that arise as the business models, organizational structures and governance arrangements of the world’s stock exchanges evolve.

The International Organization of Securities Commissions (IOSCO) issued a consultation paper that examines the impact of recent shifts in the exchange business toward more sprawling, complex, diversified and multinational corporate entities, alongside trends such as the greater reliance on outsourcing and the operation of regulated and unregulated businesses under the same roof.  

“The expansion into various business lines, including data services and technology provision, reflects a response to market competition, technological advancements and regulatory changes,” the paper said.

“While these changes create opportunities for increased efficiency and revenue diversification, they also introduce new regulatory challenges, such as preserving the independence of the regulatory function, potential conflicts of interest and organizational complexities,” IOSCO said.

The paper aims to identify these new risks, conflicts and regulatory issues that arise from changes in the business.

It also sets out a series of proposed good practices for regulators to consider when overseeing exchanges, particularly exchanges that offer a wide array of services.

The proposed best practices aim to address the organization of exchanges and their parent companies, the supervision of trading venues within these companies, and the oversight of multinational exchange groups. The report also details the supervisory tools used in various jurisdictions to address these issues.

“The regulatory considerations and good practices outlined in the report emphasize the importance of adapting supervisory approaches to address these evolving market structures, helping to ensure the continued integrity and efficiency of financial markets in the face of ongoing developments and globalized operations while maintaining the regulatory independence of member jurisdictions,” IOSCO said.

IOSCO noted that, while the report focuses on equities exchanges, its findings are also relevant to derivatives exchanges and alternative trading systems.

The group is seeking feedback on the trends, risks and regulatory challenges set out in the report, along with the proposed best practices.

The deadline for responding to the report is July 3.

“In today’s rapidly evolving financial landscape, this consultation report sheds light on the shifts occurring within exchanges worldwide and offers six good practices as well as supervisory toolkits which aim to address the challenges and ensure effective oversight in this evolving environment,” said Isadora Tarola, chair of IOSCO’s Committee on Regulation of Secondary Markets, in a release.