On 4 April 2024, the International Organisation for Securities Commissions (IOSCO) published a Consultation Report titled Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices.

The Consultation Report analyses the structural and organisational changes within exchanges. It primarily focuses on business models and ownership structures. Importantly, it also highlights a shift towards more competitive, cross border and diversified operations as exchanges integrate into larger corporate groups.

Additionally, the Consultation Report discusses regulatory considerations, including the organisation of individual exchanges, Exchange Groups and the supervision of Multinational Exchange Groups. It addresses the potential conflicts of interest arising from matrix structures, as well as the incumbent challenges of overseeing individual exchanges within Exchange Groups.

Further, the Consultation Report sets out six good practices for regulators to consider in the supervision of exchanges, particularly when providing multiple services, and/or where they are part of an Exchange Group. As such, the six good practices are grouped into three specific areas. These are:

  1. Organisation of exchanges and Exchange Groups. The recommended practices are:
  • Assessing the organizational structure of the exchanges under regulators’ supervision to ensure that decision-making autonomy and independence regarding the discharge of exchanges’ regulatory obligations including ensuring market integrity practices and controls are maintained at the level of the individual exchange, subject to domestic legal and regulatory requirements and regulatory discretion, even if the exchange is part of an Exchange Group.
  • Assessing whether exchanges under regulators’ supervision have put in place arrangements and policies to ensure that the exchanges operate in compliance with their respective regulatory obligations. In particular, assessing whether individual exchanges, which are part of an Exchange Group, have sufficient expertise and knowledge on their own, to remain in control of any decision-making related to regulatory compliance.
  • Assessing whether there are any potential conflicts of interest that may arise due to exchanges being part of an Exchange Group and in managing its commercial interest and regulatory obligations.
  1. Supervision of exchanges and other trading venues within Exchange Groups. The recommended practice is:
  • Assessing whether exchanges under their supervision establish effective arrangements for market operations, including conflicts of interest management, corporate and operational governance, and promoting transparency of trading. Regardless of the nature, size, or complexity of the trading venue, it is important that regulators consider monitoring whether supervised exchanges have in place processes to deal with the evolution of their corporate structure and the potential conflicts of interest arising from it.
  1. Supervision of Multinational Exchange Groups. The recommended practices are:
  • Having regard to domestic legal and regulatory requirements, making use of mechanisms such as ad-hoc cooperation, memoranda of understanding, supervisory colleges, and regulatory networks as considered under previous IOSCO reports, to facilitate and support supervision and supervisory cooperation.
  • Monitoring developments in the structure and ownership of the exchanges and Multinational Exchange Groups to ensure that they continue to have the ability to supervise exchanges adequately and trading venues that operate in their jurisdictions.

The good practices are accompanied by a non-exclusive list of supervisory tools used by IOSCO jurisdictions to address the issues under discussion, in the form of ‘toolkits’. While the Consultation Report focuses on equities listing trading venues, the findings are also relevant to other trading venues, including non-listing trading venues and derivatives trading venues.

Isadora Tarola, Chair of the IOSCO Committee on Regulation of Secondary Markets, said “In today’s rapidly evolving financial landscape, this Consultation Report sheds light on the shifts occurring within exchanges worldwide and offers six good practices as well as supervisory toolkits which aim to address the challenges and ensure effective oversight in this evolving environment.”