NO 244 – JUNE 2013

WFE Focus May 2013
Peter Clifford
Chief Operating Officer,

On the June issue of Focus, we are pleased to feature an article by Daniel Labovitz, Managing Director at MarketReg Advisors. While the responsibilities of self-regulatory organizations have changed much over the years, and differ widely between jurisdictions, implementing rule changes is a sometimes overlooked feature of the process.

With major pieces in regulation now being finalized in Europe and the US, and with technology changing the trading landscape in all markets, the implementation process is bound to come under scrutiny, and the impact of new rules will partly depend on how the markets understand and adapt to the implementation process.

In the highly automated environment of trading, ‘systems designers sometimes build logical exceptions into trading system-flows that are not covered in the rules and these come to light only after implementation, such as when an end-user is caught taking advantage of an exception’. The project management approach seems well suited to the purpose including summaries that lay out the spirit of the rule change.

As the article points out ‘a rule that cannot be surveilled or enforced is not a “rule” per se – it is merely a suggestion with no real consequences if it is violated’. One challenge facing regulators today is making sure that rules are enforced in OTC trading as much as they are on lit markets. The additional difficulty factor arises from the global nature and liquidity of financial markets so that international coordination will increasingly become crucial in designing a successful framework. The extra-territorial impact from new rules points to the need for better international coordination.

It is not unusual to hear exchange leaders point out the higher standard to which they are held when adopting rules changes. This is especially a concern in markets where unregulated trading venues find competitive advantages by implementing changes without the approval process. But given that this situation is unlikely to change anytime soon, it makes sense to use the rule-making process to enhance the exchange’s reputation for transparency and fairness.

Focus also continues to interview with some of the newer members of the Federation with Nader Azar, Acting CEO of the Amman Stock Exchange and Karim Hajji the CEO of the Casablanca Stock Exchange. Despite the serious political upheaval in neighboring countries, the exchanges are able to maintain the crucial infrastructure for the economy, with Amman in particular witnessing a active market for the first half of the year compared to 2012.