Technology, Demutualisation and Stock Exchanges: The Case for Co-Regulation

Abstract

Self-regulation should involve expertise, and efficiency, and may work better across national borders than legal regulation anchored to a particular national legal system. On the other hand, self-regulation may be self-interested regulation. The paper describes recent changes in financial exchange structure and how regulators are reacting to these changes. I examine arguments for and against treating the new exchanges as self-regulatory bodies, and argue that we should move away from traditional self-regulation of exchanges, and instead move explicitly towards a system of co-regulation of exchanges and their competitors in which stakeholder interests are consciously built into the regulatory system. The development of multinational exchanges and transnational linkages between exchanges makes the nurturing of co-regulation in exchanges more problematic. A first attempt to solve this problem should involve building co-regulation into our models of how to regulate exchanges at the domestic level, at the regional level, and at the supranational level through bodies such as IOSCO.

Keywords: self-regulation, stock exchange, demutualization

JEL Classification: K2