FIA Boca-V: Global Exchange Leaders on Markets: Access and Regulatory Issues

FIA Boca - Regulatory issues
John Lothian

John Lothian

Executive Chairman and CEO

The global leaders panel of FIA Boca-V has been broken into three parts this week: trends, access and regulatory issues and geopolitics. The access and regulatory issues discussed on Tuesday focused on growth opportunities and questions about retail traders using social media sites like Reddit to compete against institutions.

Loh Boon Chye, chief executive officer of Singapore Exchange, focused his comments on opportunities in sustainability and digital assets, stating that SGX is the most international multi-asset exchange in Asia.

He noted that ESG is not just about trading opportunities, but also about creating a framework for meeting sustainability goals. 

Adena Friedman, president and CEO of Nasdaq, talked about cloud technology and it’s moving closer to mainstream matching technology. She said Nasdaq has moved services in trading, clearing and surveillance into more cloud-native environments. Friedman noted that some markets are launching in the cloud with trading, clearing and settlement.

Friedman also spoke about the impact of artificial intelligence, or machine learning, used for active detection of fraud and anti-money laundering activities. Lastly, she mentioned the new products Nasdaq has recently launched — the Nasdaq-100 Volatility Index (VOLQ) and water futures. 

Michael Peters, CEO of Eurex, focused his comments on investment schemes and technology. He mentioned the “futurization” of products like total return futures and building out the MSCI product space. Moving total returns products from over-the-counter to a central counterparty clearing environment has opened new opportunities for traders and the exchange, he said. New rules that call for products to move to a CCP environment are expected to be helpful for their growth, he said.

Peters said Eures expects to launch three new total return futures in the first quarter of 2021. He also noted Eurex launched its first ESG products two years ago, and said their future growth looks good. Lastly, Peters noted Eurex’s acquisition of a majority interest in Quantitative Brokers, a provider of execution algorithms and data-driven analytics.

Jeff Sprecher, chairman and CEO of Intercontinental Exchange, went a different direction and talked about ICE’s efforts to digitize the mortgage markets, essentially creating an exchange for mortgages, as ICE has in energy and other commodity products. He said the idea is to simply try to match buyers and sellers and settle the mortgages. He called it an “intellectually intriguing project” as the market moves from analog to digital.

Sprecher also talked about Bakkt, a digital assets custody service created by and affiliated with ICE. He noted that Bakkt is going public through a SPAC on NYSE, adding it has been rewarding to help develop a new SPAC structure for companies going public and then use it for his own shareholders. 

David Schwimmer, CEO of London Stock Exchange Group, talked about the desire of traders for access across products, currencies and regions. He said LSEG’s addition of Refinitiv, a financial markets data and infrastructure company, is creating new growth opportunities for the exchange.

On the subject of Reddit and social media, Sprecher said he foresees the democratization of markets as trading is done by mobile phone or mouse click. However, he also said that the regulatory structure is flawed, that it creates competition between brokers versus exchanges, not buyers versus sellers. “GameStop pointed out inherent flaws of equity markets,” Sprecher said.

Cboe Global Markets Chairman and CEO Ed Tilly, ever the diplomat and market nerd, said “any debate on market structure and its participants is a great one,” and partnering with regulators and making sure exchanges are working in the best interest of customers is key. As an exchange operator, he said questions about off-exchange venues and how they operate are “very timely.” 

He said education must be a part of the debate and well as suitability. Talk about short-selling, payment for order flow and exchange rebates is perfectly timed, he said. But in the end, Tilly said, the question is how to arm and prepare retail traders who have information at their fingertips how to access the markets. He noted today’s retail traders have different needs than institutional traders and retail traders of the past.

Friedman said she is encouraged by the level of market participation, and the greater the participation the better. She said the role of the markets is to “maximize access and minimize friction.” She also talked about an increase in capital-raising activity — how there are multiple ways to go public, including SPACs as well as listing via traditional initial public offerings.

She also spoke of the importance of education, market fairness and transparency and the opportunity for order interaction.  She also talked about transparency of trading strategies like short-selling. Creating healthy competition among market participants and market operators was important, she said.

Friedman said it was important to modernize market oversight and anti-financial crime capabilities. She talked about improving post-trade technology and said that the Depository Trust & Clearing Corporation’s (DTCC) roadmap to move to T+1 (transitioning to a settlement cycle for U.S. equities of one business day after a trade is executed) is important.

Loh Boon also noted SGX is seeing greater participation from all sectors, including retail.

CME Group CEO Terry Duffy questioned whether market regulators are prepared for the concentration of participants wanting to acquire a certain stock or product. He said the ease of access and the millions of people on social media creates a question about the definition of market manipulation. “If you tell everyone what you are going to do, and everyone is fully aware of it, is it deemed market manipulation?” Duffy asked.

Duffy noted people “want to be in charge of their own destiny,” noting the changes in laws around gambling and marijuana in many U.S. states, and that people “don’t want to be protected from themselves.”

“You have to give them what they want,” Duffy said.


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