The Economy

SEC Commissioner Wants to Rein In Exchanges

Robert Jackson says the SEC has stood on the sidelines while enormous market power has become concentrated in just a few players.
William SprouseSeptember 21, 2018
SEC Commissioner Wants to Rein In Exchanges

A Securities and Exchange Commission member said for-profit stock exchanges have grown too powerful and should be reined in by regulators.

Commissioner Robert Jackson Jr. said the exchanges have consolidated and developed practices that are not like the competitive marketplaces investors deserve.

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“The SEC has stood on the sidelines while enormous market power has become concentrated in just a few players,” Jackson said earlier this week at a conference sponsored by the Healthy Markets Association and George Mason University.

Jackson said the exchanges have transformed into monopolies, with monopoly profits, since they went for-profit a decade ago, and the SEC has treated their consolidation with kid gloves.

exchangesThree corporations — the New York Stock Exchange, Nasdaq, and Cboe — own 12 of the 13 stock exchanges.

Since it went public in 2006, the NYSE’s parent, the Intercontinental Exchange (ICE), has had total annual returns of 24.1%.

Jackson singled out a two-tiered system for price information, limits on legal liability, rebates for brokers, and a flawed structure as four problems that should be addressed.

“When a broker places an order on behalf of a customer, we expect the broker to send the order to the exchange that is likely to get the best price for their customers. But to nobody’s surprise, research shows that brokers very often send their orders to the exchange that gives the broker the biggest rebate,” he said.

Jackson suggested an SEC transaction-fee pilot to study the effects of maker-taker rebates on equity trade execution.

Kenneth Bentsen, president and CEO of the Securities Industry and Financial Markets Association, said his organization has urged regulators to act “for years,” and supports the call for a closer look at market data and the role of exchanges as self-regulatory organizations.

Said Jackson: “Ordinarily for-profit businesses in America can be sued when they are found responsible for causing harm. Yet when they are sued, stock exchanges assert that they are immune from liability on the theory that they are acting as regulators rather than profit-makers,” he said.

He also said exchanges continue to raise prices for electronic connectivity, even as costs are “constantly falling.”