Demutualization and Customer Protection at Self-Regulatory Financial Exchanges

Journal of Futures Markets, Vol. 31, No. 2, pp. 126-164, February 2011.

Posted: 4 May 2010 Last revised: 19 Jan 2011

David Reiffen

U.S. Commodity Futures Trading Commission (CFTC)

Michel A. Robe

American University - Kogod School of Business

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Date Written: March 30, 2010

Abstract

In the past decade, many of the world’s largest financial exchanges have demutualized, i.e., 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 "trade practice" regulations that protect investors from dishonest agents. We examine how the incentives to enforce such rules change as an exchange demutualizes. 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, Regulation of financial exchanges, Enforcement delegation, Trade practice Rules, Broker heterogeneity

JEL Classification: G28, D02, K23

Suggested Citation

Reiffen, David and Robe, Michel A., Demutualization and Customer Protection at Self-Regulatory Financial Exchanges (March 30, 2010). Journal of Futures Markets, Vol. 31, No. 2, pp. 126-164, February 2011.. Available at SSRN: https://ssrn.com/abstract=1598340

David Reiffen

U.S. Commodity Futures Trading Commission (CFTC) ( email )

Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
United States

Michel A. Robe (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1880 (Phone)
202-885-1946 (Fax)

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