World Exchanges calls on regulator to consider impact on emerging markets due to EU CCP recognition delays - WFE letter to EU’s Lord Hill says delays risk capital flight from some EM economies

The World Federation of Exchanges ('WFE') thanks IOSCO for conducting a thorough assessment of best practices in the area of Risk Management and Business Continuity and welcomes the opportunity to comment on the recommendations made in the report CR03/2015 "Mechanisms for Trading Venues to effectively Manage Electronic Trading Risks and Plans for Business Continuity".

Attached the final joint letter from FIA, WFE, CCP 12 and several CCPs on the treatment of segregated margin when calculating centrally cleared derivatives exposures under Basel III. This letter was submitted to the Basel Committee on Banking Supervision (BCBS) on 18 November 2014.   

WFE and CCP12 support the development of international standards that rationalize the different jurisdictional approaches to cross-border recognition and focus on several key elements: 

1. Measuring equivalence holistically by evaluating other aspects of regulation that have a material impact on the overall outcome or effect of any individual regulation.

2. Creating a transparent process for evaluating equivalence, including public consultations. This will facilitate constructive industry input and mitigate substantive and political delays.

3. The need for targeted relief where compliance is not possible due to conflicting home/host rules. 

4. Effective transitional arrangements where gaps in recognition will disrupt the market.  

Well-developed standards will promote a level playing field for markets and provide market participants with certainty regarding the status of exchanges and CCPs.  This will reduce the fragmentation of liquidity, unnecessary costs to infrastructure or market participants, and risk of regulatory arbitrage.

The Research Department of the International Organization of Securities Commissions (IOSCO) today published a joint Staff Working Paper, with the World Federation of Exchanges (WFE), entitled Cyber-crime, securities markets and systemic risk.

The report explores the evolving nature of cyber-crime in securities markets and the threat it poses to the fair and efficient functioning of markets. Importantly, it highlights the urgent need to consider cyber threats to securities markets as a potential systemic risk. 

Executive Summary

·         The soundness, efficiency and stability of securities markets rely on the quality of information provided; the integrity of people and service provision; the effectiveness of regulation; and increasingly the robustness of supporting technological infrastructure. Yet, there is limited public, targeted and in-depth study into how one of the more prominent technology-based risks: cyber-crime could and is impacting securities markets.

·         Cyber-crime can be understood as an attack on the confidentiality, integrity and accessibility of an entity’s online/computer presence or networks – and information contained within. 

(12 October 2011, Johannesburg) Leaders from more than 60 of the world’s foremost exchanges gathered in Johannesburg, South Africa, this week for the 51st General Assembly and Annual Meeting of the World Federation of Exchanges (WFE), the association of regulated stock, futures, and options exchanges. WFE develops and promotes high regulatory standards in markets to assure their transparency, fairness, and certainty of execution.

Executive Summary : The WFE especially welcomes this IOSCO public consultation given the importance of innovation for markets, and the need for its greater understanding. Exchanges believe that they can provide useful insight thanks to their front line role in monitoring, detecting and preventing market abuse, as well as in developing technology. The WFE appreciates the difficulty to deal properly with microstructure phenomena in isolation without considering the overall market structure. The absence of a level playing field in regulation among trade execution venues is one example. This level of fragmentation impairs the ability for listed companies to understand the market in their shares. It weakens the trust in capital markets; it diminishes the capacity of exchanges in raising capital to promote economic growth.

WFE agrees that a global review of market infrastructure institutions is important stock-taking in light of financial market events and operating conditions post-2007. The goal of creating a single set of overarching standards is valuable for WFE and its members, as with International Financial Reporting Standards, the OECD’s Principles of Corporate Governance, and IOSCO’s Principles of Regulation. The member exchanges have voted measures of public endorsement for them in years past, precisely because they promote a sounder global financial system. In this case, the CPSS-IOSCO idea of updating and synthesizing pre-existing work also makes good sense to move ahead in this direction.

The World Federation of Exchanges (“WFE”)[1] welcomes the CPSS-IOSCO Public Consultation on Principles for Financial Market Infrastructures (“FMIs”), and takes this opportunity to comment on the direction in which regulators may advance on several of the interconnected issues set forth in the Consultation Report[2].

Paris (6 December 2010) –Leaders from the World Federation of Exchanges (WFE) expressed concern about continued high risk in today’s the over-the-counter (OTC) derivatives market, and costs to the banking sector necessary to bridge an estimate $2 trillion shortfall for current market exposure.

Paris (29 November 2010) - The World Federation of Exchanges (WFE) and the International Options Market Association (IOMA) have submitted a public comment letter to U.S. Treasury Secretary Timothy F. Geithner urging the Treasury Department not to exempt over-the-counter (OTC) foreign exchange (FX) swaps and FX forwards from mandatory clearing and execution requirements that are imposed on other standardized derivatives products under the recently enacted Dodd-Frank Act.

(11 October 2010, Paris) Chairmen and Chief Executives from more than 68 of the world’s leading exchanges gathered in Paris this week for the 50th General Assembly and Annual Meeting of the World Federation of Exchanges (WFE ). This assembly represents the largest and most widely attended gathering of global exchange leaders.

(Paris, 22 September 2009) The World Federation of Exchanges (WFE) Board of Directors urged leaders of the G20 nations at their upcoming summit in Pittsburgh, Pennsylvania (USA), to press for market reforms that enhance transparency and create more uniform rules between exchange-traded and less-regulated markets.

World Federation of Exchanges (WFE) chairman urges greater coordination, cooperation among international regulators at their annual meeting.

World Federation of Exchanges (WFE) directors promote international regulatory cooperation in meeting with head of SEC.

with the collaboration of Roberta S. Karmel, Brooklyn Law School

The IOSCO Technical Committee Standing Committee on the Regulation of Market Intermediaries (SC3) published for public consultation in August 2004 a Consultation Report on Principles on Outsourcing of Financial Services for Market Intermediaries.

WFE Regulation Committee Chairman R. Ketchum's letter to US SEC on their reform of rule 15-a6 and "mutual recognition" sent on June 16, 2008.

News Article

IOSCO’s Review of the Implementation of IOSCO’s Principles for Financial Benchmarks by Administrators of Libor, Euribor and Tibor was published as part of the Financial Stability Board’s (FSB) report on Reforming Major Interest Rate Benchmarks. The IOSCO Report assesses the three major interest reference rates against the internationally agreed and endorsed IOSCO Principles for Financial Benchmarks.

The report finds that both completed and on-going reforms have raised the overall oversight, governance, transparency and accountability of the three administrators and their respective benchmarks. This has undoubtedly improved the quality and integrity of the three benchmarks. IOSCO also notes that these reforms have occurred in the context of regulatory, operational and organisational changes concerning all three administrators.

* Some of South Africa’s largest financial institutions, including banks, fund managers and the Johannesburg Stock Exchange (JSE), explore collateral optimisation services to efficiently manage collateral within the South African market;

* The service is offered by Strate, South Africa’s Central Securities Depository (CSD), in partnership with Clearstream, the International CSD (ICSD) and national CSD group; and

* The service looks to optimise the use of collateral to meet growing local and international regulatory requirements, such as Basel III, Solvency II and Regulation 28 of the Pension Funds Act.

The Council adopted a directive updating transparency requirements introduced in 2004 for issuers of securities on regulated markets (37/13).


The Irish Stock Exchange (ISE) welcomes the Government’s 2014 Budget announcement that it is to exempt from stamp duty the transfer of shares of companies on the Enterprise Securities Market (ESM). Stamp duty is currently charged at a rate of 1% on investments made in the shares of Irish companies. 


In Switzerland, there are no provisions to regulate short selling in terms of laws or stock exchange regulations. In 2008, an announcement was made by the then Swiss Federal Banking Commission (SFBC) and SIX Swiss Exchange imposing certain restrictions on short selling.

In consultation with FINMA, SIX Swiss Exchange and Scoach Switzerland will now supplement their regulations regarding short selling.


IntercontinentalExchange (NYSE: ICE) announced that the Commodities Futures Trading Commission (CFTC) has granted temporary registration status to ICE Swap Trade, ICE's swap execution facility (SEF), which is expected to launch on September 30, 2013.


Regulators from the Asia-Pacific region came together to bolster cross-border cooperation in market surveillance at the ‘Market Integrity Forum’ and a closed-door ‘Regional Regulators Dialogue on Market Surveillance’, jointly hosted by the Securities Commission Malaysia (SC) and the Australian Securities and Investments Commission (ASIC) in Kuala Lumpur recently.

The Stock Exchange of Hong Kong Limited (the Exchange) issued a guidance letter for long suspended companies. The letter sets out the current practice and rationale for the continued suspension of companies and discusses the criteria for resumption of these long suspended companies.

Singapore Exchange (SGX) announced new Mainboard admission rules and continuing listing obligations for mineral, oil and gas (“MOG”) companies. 

The Commodity Futures Trading Commission (CFTC) approved final rules to implement enhanced risk management standards for systemically important derivatives clearing organizations (SIDCO).

The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) have published a report entitled Authorities' access to trade repository data.

The Stock Exchange of Thailand (SET) agreed on May 27 to make regulations governing member firms more flexible and aligned with the current situation.

ASIC has made new market integrity rules for the Australian Securities Exchange Limited derivatives market (ASX 24).


The amended Stock Exchange Act and amended Stock Exchange Ordinance will come into effect on 1 May 2013. From now on, the provisions outlined in this stock exchange legislation governing the disclosure of shareholdings will also apply to companies domiciled abroad whose equity securities have their main listing at least in part on a Swiss stock exchange.

Shenzhen Stock Exchange (SZSE) made amendments to the Appraisal Measures for Information Disclosure of Listed Companies (hereinafter referred to as the Appraisal Measures) recently, in a move to improve the quality of information disclosure, propel regulated operations of listed companies, intensify the daily supervision over listed companies, and promote the construction of the market-oriented operation mechanism which rewards the good and fines the bad.


To guide and rationalize shares repurchase by listed companies through auction trading, safeguard the securities market order, and protect legal rights and interests of investors and listed companies, the Shanghai Stock Exchange (SSE) has revised the “SSE Business Guidelines for Shares Repurchase by Listed Companies through Auction Trading” (Shang Zheng Shang Zi [2008] No. 106 Document).

From the 1st April 2013 South Africa will implement a local Real Estate Investment Trust (REIT) regime that will usher in a new era for the listed property sector. From this date all property companies currently listed on the JSE either property loan stocks or property unit trusts will convert to a REIT structure and any new listings in this sector will have to comply with JSE REIT listing requirements.

In line with the objective to promote market and product innovation, Bursa Malaysia issued its amended rules to enable the listing of business trusts on the Main Market of Bursa Malaysia Securities Berhad (“the Exchange”).

Singapore Exchange (SGX) said it is well positioned to meet the latest international regulatory and risk management standards set by the International Organisation of Securities Commissions (IOSCO)[1] and Committee on Payment and Settlement Systems (CPSS)[2]. This has been achieved after an extensive review and sharpening of SGX’s risk management and operational processes, and the addition of new rules and procedures to enhance the safety and efficiency of its subsidiaries.


  • On 21 November 2012, the Supervisory Board of the Warsaw Stock Exchange approved amendments of the Code of Best Practice for WSE Listed Companies
  • The amendments mainly concern organisation of electronic general meetings by exchange-listed companies

Bursa Malaysia has amended the Main Market and ACE Market Listing Requirements (LR) to strengthen and enhance corporate governance (CG) practices of listed issuers.


The U.S. Commodity Futures Trading Commission (CFTC) on November 20, 2012, approved the application of Chicago Mercantile Exchange, Inc. for provisional registration as a swap data repository pursuant to section 21 of the Commodity Exchange Act and section 49.3(b) of the Commission’s regulations.


Trading Participants (TP) can now widen their operations to any part of the country by setting up branches and kiosks to reach out to a wider market after several amendments were made to the Rules of Bursa Malaysia Derivatives (BMD).

The Securities Commission Malaysia (SC) issued the Guidelines for Registered Persons which provides for two new classes of registered persons, namely Trading Representative and Introducing Representative.

The European Securities and Markets Authority (ESMA) has published its technical standards on the Regulation on OTC derivatives, central counterparties and trade repositories (EMIR), which set out the specific details of how EMIR’s requirements are to be implemented.

Singapore Exchange (SGX) announced, rule changes to allow market participants to access SGX-ST’s trading system directly using systems of their own or of SGX-ST Members. The new rules take effect on 18 September 2012. These rules facilitate the introduction of the ASEAN Trading Link.

The Depository Trust & Clearing Corporation (DTCC) and SWIFT announced that they have launched a Web portal at to begin assigning CFTC Interim Compliant Identifiers (CICIs) after being designated by the U.S. Commodity Futures Trading Commission (CFTC) to do so.

The Stock Exchange of Thailand (SET) announces that the exchange has amended its listing rules to facilitate holding company whose main business in abroad to list on SET, effective from September 1, and CK Power Limited, a holding firm, is preparing to list on SET after the rule adjustment.


The Stock Exchange of Thailand (SET) announces that the exchange has revised its trading rules to comply with practices of leading international stock exchanges in order to boost trading choices and make the exchange ready to cope with trading innovations, new products, and regional connections.

SET President Charamporn Jotikasthira, said: “Some trading rules have been amended to be more in line with standards of global leading stock exchanges. This should help facilitate investors, while enabling broker members to be ready for regional connections and increase our competitiveness at the international level. These changes underline SET’s commitment to enhance its services to match the right financial opportunities for investors and businesses and to increase attractiveness of the Thai capital market.”


By its Circular no. 395, İMKB clearly defines the orders and trades hindering the realization of trades on İMKB in an open, orderly and fair manner, and regulates the principles and rules regarding the measures to be taken by İMKB against the investors that have been found to be engaged in such orders or trades.


The Canadian Securities Administrators (CSA) announced it is proceeding with the implementation of NI 23-103 Electronic Trading, which establishes a regulatory framework for the oversight and management of the risks associated with the use of electronic trading on Canadian market places.


The governance of listed companies is re-spotlighted for the recent cases about the dominance of public funds and minority shareholders in corporate governance. With the gradual development of the capital market and the establishment of fundamental systems for the corporate governance structure in recent years, the governance and the transparency of listed companies have been greatly improved. Meanwhile, the development of the capital market endows corporate governance with new connotation and also poses new requirements for the regulation on corporate governance.


The International Organization of Securities Commissions has published a report entitled International Standards for Derivatives Market Intermediary Regulation, which recommends high-level international standards for the regulation of market participants that are in the business of dealing, making a market or intermediating transactions in over-the-counter (OTC) derivatives. 

The International Organization of Securities Commissions (IOSCO) opens its Annual Conference public sessions focusing on the themes of a new financial architecture for the post-crisis era, financial market infrastructures and market integrity, capital markets development in emerging markets, and regulation of commodity futures and financial derivatives.  

The Egyptian Exchange (EGX) board approved exemption of companies from the listing fees of the first time.  This exemption is provided that companies finished all listing and offering procedures within a period not exceeding three months from 1/7/2012 to 30/9/2012. EGX listing sector will facilitate the documentation and procedural cycle for listing and public offering. This decision came as a part of EGX marketing policy aiming to attract new companies to list on the stock market. 

Hong Kong Exchanges and Clearing Limited (HKEx) welcomes the enactment of the Securities and Futures (Amendment) Ordinance 2012. HKEx believes the new legislation is significant and a positive development for Hong Kong as an international financial centre.

Deutsche Börse announced the planned rule changes for the Open Market and the current schedule for closing the First Quotation Board. Following close collaboration between Deutsche Börse, the stock exchange regulator of the state of Hesse and the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) and consultation with market participants, the First Quotation Board, in its current form, will be closed on 15 December 2012. As already announced in February, the First Quotation Board, as the segment with the lowest transparency requirements, has experienced suspected cases of market manipulation multiple times.

The Stock Exchange of Thailand (SET) supports renewable energy power plants seeking to list on its Market for Alternative Investment (mai) by issuing new listing rules effective from March 26, 2012.

The Securities and Futures Commission (SFC) announced the establishment of a centralised unit overseeing risk management and strategy planning.

In the recent active secondary market, the speculation on the newly issued shares re-gained its momentum, leading to the abnormal fluctuation of the prices of the new shares issued by Universal Scientific Industrial Co., Ltd. and Jishi Media Co., Ltd. at the beginning of listing. To prevent the risks of speculation on new shares in the market, the SSE strengthens the regulation and supervision on the trading of newly listed shares.

The Australian Securities and Investments Commission (ASIC), the Quebec Autorité des marchés financiers (AMF), the Ontario Securities Commission (OSC), the Alberta Securities Commission (ASC) and the British Columbia Securities Commission (BCSC) announced a comprehensive arrangement to facilitate their supervision of regulated entities that operate both in Australia and Canada.

Deutsche Börse is planning a resegmentation of the Open Market. The First Quotation Board in its current form will be discontinued, the Entry Standard's rules are also being tightened. In future, aside from bonds, only equities which have a listing on another domestic or foreign stock-exchange-like trading venue recognised by Deutsche Börse will be included in the Quotation Board, as was the case in the former Second Quotation Board.

In order to improve the transparency of the annual report information disclosure of ChiNext listed companies, Shenzhen Stock Exchange successively promulgated 2011 Annual Report Notice, Memorandum No.10 on ChiNext Information Disclosure Business, specifying the detailed requirements in terms of management discussion and analysis, profit distribution, Q1 performance warning and so forth in annual report disclosure for the purpose of improving the effectiveness of information disclosure of listed companies. In January, 2012, Jetsen Technology (code: 300182) and Orient National Communication (code: 300166) are the first to disclose 2011 annual report, doing a good job in implementing the new requirements and new policies in the annual report disclosure.

The Government has published legislation which will fundamentally transform and strengthen financial regulation in the United Kingdom, Financial Secretary to the Treasury, Mark Hoban, has announced. The new regime sets out a clear, coherent and comprehensive regulatory framework, replacing the uncertainty and inadequacy of the previous structure, and helping to mitigate against future risks to stability.

MICEX-RTS Group intends to introduce changes into the procedure of removing shares from the list of securities admitted to trading on the Exchange upon a written request of an issuer. The initiative has been undertaken to protect rights of shareholders and ensure the balance of interests for all categories of stock market participants.

Thai Stock Exchange of Thailand (SET) is improving its securities trading rules to be in line with rules of leading foreign stock exchanges in order to increase trading effectiveness for investors, reduce complexity of rules, and boost flexibility. This will underline the SET’s new strategy of strengthening its capabilities, and the new rules will be implemented together with the SET’s new trading engine in July.

The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have published their final report on the OTC derivatives data that should be collected, stored and disseminated by trade repositories (TRs).

These are major amendments introduced to Market Rules and Regulations of the Korea Exchange in 2012.

In order to further complete the governance structure of listed companies and fully exert the positive role of independent directors in company governance, Shenzhen Stock Exchange (SZSE) revised the Independent Director Record Filing Procedures recently to further clarify the standards and record filing procedures for the qualification and independence of independent director candidates of listed companies.

On the occasion of the efforts being done at a European Commission level, in support of the Medium and Small Enterprises regarding the capital raising through Multilateral Trading Facilities (MTFs) and wishing at the same time to incorporate improvements from the experience of the first years of operation of the Alternative Market (EN.A), the Board of Directors of the Athens Exchange, approved various amendments in the institutional framework (Rules of Operation and Resolutions) of the Alternative Market (EN.A) of ATHEX.

The Financial Industry Regulatory Authority (FINRA) and the Ontario Securities Commission (OSC) announced they have entered into a Memorandum of Understanding (MOU) that will facilitate the exchange of information with respect to regulated entities that operate across the U.S.-Canadian border.

In order to intensify the supervision of information disclosure of listed companies, press listed companies and relevant disclosure parties to improve information disclosure and regulate operations as well as to facilitate the successful implementation of information disclosure through system, the SZSE recently made some amendments to the measures for appraisal on information disclosure of listed companies. The significant features of the amendments include adding the indicators of quantitative appraisal, building up the comprehensive quantitative appraisal indicator system, putting in self-evaluation of listed companies and so forth.

The Taiwan Futures Exchange (TAIFEX) received a No-Action Letter from the US Commodity Futures Trading Commission (CFTC) dated October 24, 2011, permitting the offer and sale in the US of a TAIFEX futures contract based on the GreTai Securities Market Capitalized Weighted Stock Index, a broad-based, free-float, market-capitalization-weighted composite index composed of highly capitalized and actively traded stocks listed on the GreTai Securities Market.

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), today (Friday) published its “Consultation Conclusions on Review of the Corporate Governance Code and Associated Listing Rules” (Consultation Conclusions).

The Market Arbitration Panel (CAM - Câmara de Arbitragem do Mercado) is the most appropriate forum to settle both corporate and stock market disputes.

The following regulatory measures on short selling are currently in place, with regard to all listed stocks in Japan:

1. An "uptick rule requirement" which prohibits, in principle, short selling at the same as or prices lower than the latest market price
2. Requirements for traders to verify and flag whether or not the transactions in question are short selling; and
3. Request the exchanges to make daily announcements on their aggregate price of short selling regarding all securities and aggregate price of short selling by sector (The announcements have been made sequentially since October 14, 2008). (See the FSA press release on October 14, 2008.)

* The WSE Supervisory Board amended the provisions of the “Best Practice for WSE Listed Companies” on 19 October 2011
* Pursuant to the amendment, listed companies should publish on their websites information about the participation of women and men in the Management Board and the Supervisory Board in the last two years

The Stock Exchange of Mauritius (SEM) has been awarded the “Most Innovative African Stock Exchange of the year Award” at the Institutional Investment Summit and Index Series Awards organised by Africa investor (Ai), a leading international research and communication group, in collaboration with New York Stock Exchange (NYSE) Euronext. The Award was presented to the SEM at the New York Stock Exchange on 26th September 2011.

As part of its ongoing efforts to promote high standards of corporate disclosure, Bursa Malaysia has made various amendments to its Listing Requirements (LR) and introduced a Corporate Disclosure Guide (CD Guide) aimed at assisting listed issuers elevate their standards of disclosure. High standards of disclosure is a value proposition that can enhance a listed issuer’s investability.

Singapore Exchange Ltd (“SGX”) announced amendments to listing rules to strengthen corporate governance practices and foster greater corporate disclosure. These amendments are undertaken to keep abreast of the challenges and developments of the industry and are part of SGX’s ongoing efforts to enhance the quality of the marketplace.

The Committee on Payment and Settlement Systems and the Technical Committee of IOSCO have today released for comment a report on the OTC derivatives data that should be collected, stored and disseminated by trade repositories (TRs).

The committees support the view that TRs, by collecting such data centrally, would provide the authorities and the public with better and timely information. This would make markets more transparent, help to prevent market abuse, and promote financial stability.

The Technical Committee of the IOSCO has published a Consultation Report on Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency (Report), which is aimed at developing recommendations to mitigate the risks posed to the financial system by the latest technological developments, such as high frequency trading. The work is being carried out in response to a G20 Leaders request during the Seoul Summit in 2010.


Thursday, December 23, 2010

Views Article

The key question that has been posed to this panel is whether the global standards in commodity derivatives markets are fit for purpose. To address this question there are three sub-questions that I believe would be relevant in this regard.

The first one is why commodity markets are in focus for securities markets regulators in the first place? A second sub-question to this would be what trends are developing and impacting market infrastructure? And finally, what risks are being considered and addressed by market authorities of developed and emerging markets around the globe. I will share with you some of my observations around these three sub-questions.

This article presents ways in which an exchange can structure its rule development processes so that they are effective, transparent, and consistent.

Exchanges tend not to focus on rule development unless it threatens to impede business initiatives they want to implement. And that’s not surprising – new rules can be abstruse, time consuming to vet once they’re written, and complex to code or implement, particularly if rule-writers and programmers don’t work together. Amending existing rules, or even clarifying them to describe what actually happens in the market, can be daunting, especially if the rules were originally crafted to favor entrenched interests, or to protect local market participants.



On the June issue of Focus, we are pleased to feature an article by Daniel Labovitz, Managing Director at MarketReg Advisors.  While the responsibilities of self-regulatory organizations have changed much over the years, and differ widely between jurisdictions, implementing rule changes is a sometimes overlooked feature of the process. 

In a letter to the FSB and other policy organizations, WFE encouraged global standard setting bodies to demonstrate continued support for the G20  commitments to bring greater transparency and central clearing to derivative markets by ensuring that the costs of ETD markets are not unnecessarily increased. 

This working paper presents important interim findings of the international Foresight project: The Future of Computer Trading in Financial Markets. In particular, it considers the costs, risks and benefits of six possible regulatory measures which are currently being considered within the European Union’s Markets in Financial Instruments Directive 2 (MiFID II). It precedes the final project report which will be published later in 2012, and which will consider a broader set of issues surrounding computerbased trading (CBT) over the next ten years.


What kind of financial oversight system is now developing in Europe? In June 2009, the Heads of EU Member States and governments called for a move towards more harmonised regulation and integrated European supervision in order to ensure a true level playing field for all actors at the EU level. This call reflected not only the repercussions of the financial crisis, which has deeply affected, and continues to affect, Europe, but it also responded to failings in the areas of cooperation, coordination, consistent application of Union law and trust between national supervisors.

William Brodsky - CBOE.jpg

CBOE Holdings Chairman and CEO William J. Brodsky, the former chairman of WFE, was the only U.S. exchange representative invited to participate in a high-level Institute of International Finance conference preceding February’s G-20 Summit in Mexico City.

A year and a half ago the European Commission published its proposal for the European Market Infrastructure Regulation (EMIR). In line with G20 commitments, EMIR’s objective is to force OTC-traded derivatives through a clearing house and ensure that all derivatives trades are reported to a trade repository.

Recent regulatory and market developments have thrust clearing houses into the limelight. In this brave new world, traditional clearing practice will need to change.

The financial services sector was tested last year: by clients looking for secure investments and efficient, effective trading solutions, by regulators scrutinizing “speculation,” short selling, and systemic risks, and by the general public protesting bailouts or financial conditions. In 2011, they came to exchanges with their questions – sometimes literally. Beyond their well-known brands, and beyond being symbols for business and wealth creation, why would an exchange be the focus of this attention? Was this a misguided or outdated concept about markets? In recent years, what was once a relatively homogenous group of market operators is now a diverse group of companies. The differences continue to expand between exchanges in key areas of business and strategy. 

An average Self-Regulatory Organization (SRO) looks like a rather unusual animal with elephant’s feet, tiger’s body, giraffe’s neck and rooster’s head. Instead of trying to identify “an average” strange creature, we should, in fact, accept the fact that SROs are so diverse that some are as big as an elephant, while others are as fierce as a tiger, or as farsighted as a giraffe and some even give wake-up calls like a rooster. To begin with, exchanges, industry associations, central clearing and settlement institutions can all be SROs or can have some sort of a self-regulatory function. Obviously, the focus of these institutions would be different from one another. Second, the level of authority, the range of activities, financial and human resources of the SROs differ quite significantly. In other words, the concept of a “Self-Regulatory Organization” is too broad to address the entire range of activities properly. Therefore, we should create a distinction between Self-Regulatory Associations (SRA) and Self-Regulatory Exchanges (SRE).

Imagine a car with no brakes. If it is traveling along a long, straight highway with no other traffic, the ride could continue indefinitely without any issues. What would happen if the highway ends? The inevitable crash is akin to the “flash crash” that affected the market on May 6, 2010. To call it a “flash crash” is somewhat of a misnomer. Yes, the market dropped precipitously and rose again in rapid succession. In that sense, the events did happen in a flash. The factors that contributed to the market shock, however, have been in the making for over a decade. Many of us knew that the car was running without brakes. We just did not yet know when the highway would end until that day.

Canada’s equity market has a history of respecting the role played by retail clients in the price discovery process. Although rules have been in place for some time that aim to preserve liquidity on Canadian equity exchanges, the creation of dark pools and dark order functionality has chipped away at the protection provided by these rules. Recent proposals address gaps in the rules that have allowed order flow to migrate away from lit marketplaces. This article can serve as a guide to those in other jurisdictions who wage the battle against internalization. For this purpose, the following information is provided:

Keynote address by Dr. Subir Gokarn, Deputy Governor, Reserve Bank of India at the International Options Market Association, World Federation of Exchanges Annual Conference organised by the National Stock Exchange at Mumbai on May 4, 2011

Once again, the world’s equity markets are witnessing a period of dramatic change. Driven by advances in technology, changes in regulatory and competition policy, and the evolution of exchanges from mutual to publicly traded, for-profit entities, we are seeing the simultaneous consolidation of exchange markets and the concurrent proliferation of alternative trading venues. A spectrum of market operators, traders and investors has raised concerns about these developments and their implications for transparency and market fragmentation.

The business of financial intermediation – bringing capital to new endeavours, securing a well-regulated set of investment choices for savers, and enabling risks to be laid off or assumed – has been one of the world’s great growth industries. Regulated securities and futures’ exchanges have stood at the apex of the burgeoning business of financial intermediation. Were we not so used to it, we would be startled that a single type of business could be so prominent that its street address would serve as short-hand for the entire economy, and an index of its prices a key barometer of economic outlook. Wall Street, Threadneedle Street, Hang Sen, Sensex, CAC40: these and other such names have become accepted barometers for economic wellbeing or otherwise.

This paper canvasses the trends in self-regulation and the role of self-regulation in securities markets in different parts of the world. It describes the conditions in which self-regulation might be an effective element of securities markets regulation, particularly in emerging markets. The paper also discusses important issues for the effective operation of SROs, including corporate governance, managing conflicts of interest, and regulatory oversight by government authorities.

The events of May 6, 2010 and the subsequent investigation, analysis, and reporting by the staffs of the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC” and together with the CFTC, the “Commissions”) have highlighted many important policy and practice issues in today’s securities and futures market environment. In this Summary Report, the CFTC-SEC Joint Advisory Committee on Emerging Regulatory Issues focuses on recommendations targeted at the most important and pervasive issues affecting investors and the markets, rather than attempting to address all of the topics that have been raised in the course of our work.

Given that the WFE promotes high standards for markets, growth of the regulated exchange model, and international coordination among regulators, CME Group would like to draw your attention to a recent proposal by the U.S. Commodity Futures Trading Commission (CFTC) that could limit competition by “Foreign Boards of Trade” (FBOTs) in U.S. derivatives markets and undermine global coordination among regulators.

As US and European policymakers push ahead to complete drafting new rules to govern global securities market, the need for transparency and risk mitigation in global over-the-counter derivatives markets remains a critical focus. Although much of their initial focus was on requiring OTC derivative trades to be cleared through a central counterparty (CCP), policymakers and regulators are now examining other steps that are equally critical to helping mitigate risk, enhance transparency and ensure that regulators have access to crucial market data. One of the most effective proposals under consideration is to require the reporting of all OTC derivatives trades to a central repository where all underlying position data (and possibly transaction data) can be held, with unfettered access provided to all regulators globally. This paper explores the value of such a premise—particularly in terms of the powerful tool that a global repository provides for regulators—as well as the severe data fragmentation problems that are likely to hinder effective regulation if the result of policy decisions on both sides of the Atlantic is a reporting system that is not unified.

On 18 September 2008 the SEC surprised the US financial markets by issuing an emergency order prohibiting the short selling of about 1,000 stocks of financial institutions from the NYSE, the AMEX, and the NASDAQ. Market authorities in the UK, France, Germany, and elsewhere took similar steps. The preamble to the SEC press release stated.

PARIS (Reuters) - The 20-minute "flash crash" will reverberate for quite some time to come. For years, America's stock markets were the envy of the world, the model for modern trading -- fast, stable, efficient and for the most part transparent.

But after the Dow Jones industrial average plunged nearly 700 points on May 6 before sharply rebounding, that perception changed, possibly for good.

The wake of corporate failures in the early part of the decade and the subsequent economic crisis, which for many countries and industries is still not something of the past, resulted in a flurry of new laws and rules by legislatures and regulators. The intention of such reforms is clearly to enhance public protection, and ultimately the sustainability of corporations, economies and nations.

An exchange used to be a place – yes, a physical place -- where people would come together to buy or sell, hoping to achieve the best price for themselves. The more the exchange was able to attract all of the buy and sell interests in a product, the more the prices on the exchange would reflect the truestate of supply and demand.

Traditionally exchanges have been monopolies. They were owned by their members, blessed by governments, and acted like utilities. The cost of building a market center, developing a network, and gaining critical mass virtually ensured an exchange’s success. The more liquidity an exchange attracted, the more critical it was to trade there. This created a virtuous cycle where the big got bigger and the small became irrelevant. For decades this allowed larger exchanges to operate virtually unopposed, as they may as well have carved the adage “Where Liquidity Begets Liquidity” on their marble cornerstone.

The old economic order, the recent financial crisis showed, was not sustainable. Developed countries were living beyond their means, and risk management measures across the financial chain with limited exceptions were inadequate to prevent the situation from worsening and eventually resulting in a systemic collapse that affected all of us.

believe that as an industry, we must act together to grasp this opportunity to reshape our economy towards a far more sustainable footing, based on the key characteristics of exchange trading: transparency, neutrality and liquidity. From my conversations with political leaders in London, Brussels and Washington I believe that there is recognition at the highest levels that this was not a crisis of equity or exchange trading.

Through the economic crisis, while credit markets failed, banks ceased lending and many financial institutions went hat in hand to governments for survival, organized, transparent stock and derivatives exchanges performed well. While the news wasn’t always good, buyers and sellers met in the market, trades were cleared and settled, and price discovery was orderly. May 6 changed that perception, and issuers and the public have lost some confidence in our markets.

While many were relieved by the short duration of the flash crash on May 6 and the fact that it didn’t go nearly as far as the crashes of 1987 or 1929, in important respects, it was far worse than either of those. True, the Dow only dropped five and a half percent. But that drop took just five minutes, a speed of decline that exceeds anything in U.S. stock market history. Moreover, the decline in the averages sugarcoats the real carnage, which includes some stocks that went to zero for a few brief moments.

Around the world, financial markets are giving investors a bumpy ride. The sudden swoon of US stocks on May 6 - now referred to as the "flash crash" - was followed, 10 days later, by huge drops in Shanghai and Hong Kong. With continued nervousness about Europe's fiscal situation, civil unrest in Thailand, fears of conflict in Korea, and the unprecedented oil spill in the Gulf of Mexico, global markets have been hit with a string of bad news recently.

The forthcoming review of the Markets in Financial Instruments Directive (MiFID), which came into force on 1 November 2007, is being undertaken against the backdrop of the financial crisis. It will prove crucial both for the re-regulation of financial activities and for the stability of the global financial system.

Traditional stock exchanges were membership organizations where stock exchange members dealt with one another on a preferential price basis. Fixed minimum commissions were the glue that held the New York Stock Exchange (NYSE) and other exchanges together, while members of the National Association of Securities Dealers (NASD) dealt with one another at an inside trading price. Commission price regulation similarly was the norm in Canada, Australia, London, Japan, and elsewhere. In addition, NYSE rules required members to bring all of their orders to the NYSE floor for execution, prohibited access to the exchange by non-members, and required member firms to be engaged primarily in the securities business. NYSE member firms could not incorporate or become public companies.

Legislators and regulators in Washington, D.C. are working to make changes to the way banks and markets are governed in the U.S. and how those rules are to be enforced. While this is true around the world, this article will focus on the U.S.

In March 2010, the WFE was invited to take part in a conference organized by the Australian market regulator, ASIC. The topic was the transparency: how had or transparent or ‘lit’ markets performed compared to the counter markets or ‘dark’ trading venues.

While the financial crisis caused massive fallout on the bilaterally traded over-the-counter (OTC) side, exchange-traded and centrally cleared derivatives escaped with barely a scratch. Since then, growing clearing volumes point to centralised clearing becoming one of the major growth areas of the financial market. The crisis exposed inefficiencies as large segments of the market were neither standardised nor automated – despite the speed of global trading activity and the increased complexity of transactions. This was not seen to be a problem in a bull market but, when the credit crisis rapidly unfolded, users of bilateral transactions were scrambling to pick up the pieces. OTC market participants and regulators alike have realized that clearing houses offering central counterparty services (CCP) provide practical solutions that the market desperately needs: transparency, neutrality and efficiency enabling the mitigation of counterparty risk.

The global derivatives market is a main pillar of the international financial system and the economy as a whole. Today, businesses around the world use derivatives to effectively hedge risks and reduce uncertainty about future prices. Derivatives contribute to economic growth and increase the efficiency of markets by improving price discovery for assets.

This article is adapted from the book being prepared to commemorate the WFE’s 50th anniversary. The book is based on a dozen essays, reflecting on transformations of various sorts – trading floor to screen, member cooperative to demutualized company, starting a regulated market from scratch, the value of regulation, the effects of deregulation, etc. The book’s purpose is to examine the various roles exchanges play in public life, and the ways in which they have contributed to the growth of capital markets over these decades.

Trade reporting and market transparency in the U.S. fixed income OTC market will expand substantially this year as trade reporting encompasses entire new classes of debt. Two initiatives by the Financial Industry Regulatory Authority (FINRA) would more than double the percentage of the U.S. debt market subject to FINRA data collection.

The financial crisis brought over-the-counter (OTC) derivatives to the forefront of regulatory attention. The default of Lehman Brothers, the near collapse of Bear Stearns and the bailout of AIG highlighted to all involved the significant role played by OTC products. Since then, regulators on both sides of the Atlantic have begun to look at how the derivatives market, or “weapons of mass destruction” as they have fashionably come to be known, can made safer. Although derivatives have been around for centuries, from the most basic contracts for the transfer of risk, the innovation within the sector has been fast and finding a solution to producing effective regulation from a policy-making point of view has not been easy.

IOSCO Secretary General, Greg Tanzer addresses WFE Focus newsletter readers.

In the waning days of 2008, governments and central banks worldwide—with the best of intentions—lurched from one ad hoc intervention to another, multiplying daily the amount of public funds deployed to shore up our faltering financial system. Pundits and academics criticized each approach and forecast the death of investment banking, securitization, community lending, and even in some cases capitalism. Hedge fund managers locked in clients, banks refused to lend, multilateral over-the-counter netting arrangements morphed into bilateral deals. Exiting, discredited, CEOs found that their parachutes refused to open. Pyramid schemes were “outed.” The public puzzled over the different bail-out treatment of seemingly similar market players. And, regulators cringed at the wreckage and tried to sweep up the debris. But through it all, there was one lone ray of light: The performance of our domestic and international exchanges (ie, regulated markets)!

Volatility and risk are of central importance to those of us involved in finance. They lie at the center of virtually all of our work. Without volatility, without risk, finance would not exist as a subject in our business school curriculum, in our academic research. Finance, quite simply, would not be distinguishable from deterministic economics. Neither would finance departments in banks and industrial firms be endowed with anywhere near the importance that they currently have.


WFE Annual Meeting, Paris 2010 - Panel 2 Exchanges, clearers and OTC derivatives

WFE Annual Meeting, Paris 2010 - Panel 2 Exchanges, clearers and OTC derivatives summary

WFE Annual Meeting, Paris 2010 - Panel 1 Exchange Strategy

WFE Annual Meeting, Paris 2010 - Panel 1 Exchange Strategy

Short preview of the WFE 50th Anniversary