IOSCO Proposes Enhanced Supervision of Global Stock Exchanges
In a significant move to bolster the integrity of financial markets, the International Organization of Securities Commissions (IOSCO) has put forward a set of recommendations aimed at tightening the oversight of stock exchanges worldwide. This comes amid the evolving landscape where exchanges are not only becoming publicly traded entities but are also diversifying their services and expanding their global footprint.
IOSCO, representing a broad spectrum of financial regulators from regions including the United States, Europe, and Asia, highlighted the transformation of exchanges over the past twenty years. Traditionally, exchanges operated under a mutualised structure, focusing on listing and trading stocks. However, they have now ventured into new territories such as technology and data services, forming alliances with tech giants like Google Cloud and Microsoft.
The implications of Brexit in Europe have also been noted by IOSCO as a factor contributing to the increased cross-border activities of exchanges and other trading venues. These market evolutions have reshaped the organizational structures of exchanges and exchange groups, potentially leading to new conflicts of interest and operational interdependencies that could pose regulatory and supervisory challenges.
One particular area of concern identified by IOSCO is the practice of ‘dual-hatting’, where directors serve on multiple boards within an exchange group. While this may reduce costs and complexity, it raises questions about the ability of these board members to impartially serve the interests of each individual exchange, especially when conflicting interests arise.
To address these concerns, IOSCO’s report sets forth six “good practices” for regulators. These practices are designed to ensure that exchanges maintain their regulatory independence and that controls are effectively implemented at the individual exchange level within a group. Moreover, regulators are encouraged to closely monitor the activities of multinational exchange groups operating within their jurisdictions.
The guidance from IOSCO underscores the need for a robust regulatory framework that can adapt to the dynamic nature of global financial markets. By implementing these good practices, regulators can better safeguard against potential risks, ensuring that the foundational role exchanges play in the economy remains secure and reliable.
