Stock Exchanges at the Crossroads

Abstract:     
The world of stock exchanges - the very heart of our economy - is at a crossroads. Traditionally, stock exchanges were owned and managed solely by their traders. But with competition from other marketplaces getting stronger and stronger, stock exchanges are compelled to forgo their exclusivity and restructure as publicly traded corporations, a process referred to as demutualization (or demutualisation). In the future, everyone will be able to own a piece of a stock exchange: Shares of stock exchanges will be traded on stock exchanges, like shares of any public company. But stock exchanges will remain unique insofar as they are vested with a public mandate to oversee the securities markets. Demutualization, listing, and self-listing of stock exchanges challenge this concept of self-regulation.

The article discusses the regulatory framework for stock exchanges, identifies the compelling reasons for their transformation into publicly traded companies, and addresses regulatory concerns raised by this reorganization. Based on this analysis, the article proposes amendments to the current regime that would mitigate and overcome the new structure's negative consequences without reducing its positive ones.

Keywords: stock exchange, self-regulatory organization (SRO), regulatory powers, self-regulation, competition among marketplaces, demutualization, conflicts of interest, self-listing, non-profit and for-profit organizations, member regulation, market surveillance, listing requirements, going public

JEL Classifications: D4, D18, D23, G1, G2, G3, G18, G28, G32, G38, L1

Accepted Paper Series