FIA EPTA members agree with the analysis IOSCO provided and the trends identified in Chapter 2 for the most part. The trend towards the de-mutualization of exchanges that began in the early 2000s has resulted in the most significant European exchanges being for-profit organisations. There has also been substantial consolidation amongst exchanges in Europe arising from acquisitions by other exchanges. Furthermore, there have been acquisitions by exchanges of entities not involved or only peripherally involved in exchange-type activities resulting in a significant dilution of the importance of revenues arising from execution fees to the overall revenues of the groups operating these exchanges.
In IOSCO’s 2006 paper “Regulatory Issues Arising from Exchange Evolution- Final Report”. IOSCO correctly highlights the importance of the public interest role of exchanges noting in particular that “the fair and efficient functioning of the secondary market is of significant benefit to the public.” We are open in principle to either mutual or for-profit ownership structures for exchanges. However, we note that the requirement to maximise profits for shareholders may impact the exchanges’ incentive to act in public interest. For example, it is generally accepted that retail participation in financial markets is a critical component for a well-functioning liquid marketplace as well as being of benefit to the wider economy by channelling investors savings into helping businesses raise money. We believe, however, that many exchanges in Europe consider the current lack of retail participation in the European markets (particularly in the listed derivatives markets) to be a given and do not make material investments in the marketing and education work that is needed to develop this segment of the market. This may be driven by the fact that such an effort would result in an increase in costs for the exchanges in the short term in return for an uncertain long-term return and indeed a return that may not be entirely internalised but would nonetheless result in a positive externality for the operation of the public markets as a whole.
