Demutualization and Customer Protection at Self-Regulatory Financial Exchanges
Journal of Futures Markets, Forthcoming
42 Pages Posted: 1 Mar 2007 Last revised: 1 May 2010
There are 2 versions of this paper
Demutualization and Customer Protection at Self-Regulatory Financial Exchanges
Demutualization and Customer Protection at Self-Regulatory Financial Exchanges
Date Written: December 27, 2009
Abstract
In the past decade, many of the world's largest financial exchanges have converted from mutual, not-for-profit organizations to publicly-traded, for-profit firms. In most cases, these exchanges have substantial responsibilities with respect to enforcing various regulations that protect investors from dishonest agents. We examine how the incentives to enforce such regulations change as an exchange converts from mutual to for-profit status. In contrast to oft-stated concerns, we find that, in many circumstances, an exchange that maximizes shareholder (rather than member) income has a greater incentive to aggressively enforce these types of regulations.
Keywords: Demutualization, Ownership structure, SRO, Regulation of financial exchanges, Enforcement delegation, Customer protection
JEL Classification: G28, D02, K23, L20
Suggested Citation: Suggested Citation