(Bloomberg) — The U.S. Securities and Exchange Commission has moved too far toward treating exchanges like any other investment company by punishing them for technology glitches and mishandling market-data duties, Commissioner Daniel M. Gallagher said late last week.
Under federal law, exchanges perform some of the functions of a regulator by policing trading on their marketplaces. Some brokers that run competing trading venues have asked Congress and the commission to remove the exchanges’ special status, saying it’s an advantage that shields them from legal liability against private claims.
Exchanges’ self-regulatory duties actually are a “burden” for them, Gallagher said, because SEC enforcement actions show the SEC no longer treats them as though they have any special status. The commission should conduct a wholesale review of equity market-structure rules, including the self-regulatory nature of exchanges, Gallagher added.
“What I worry about at the commission now is this trend toward treating these exchanges as investment banks,” Gallagher told the Security Traders Association market-structure conference in Washington last week. “There has been this notion over the last four years that these are for-profit entities, just profit- seeking entities that totally disregard their self-regulatory obligations. I personally don’t believe that’s true.”
Over the past two years, the SEC has levied fines against exchange operators NYSE Euronext, Nasdaq OMX Group Inc., Direct Edge Holdings LLC and CBOE Holdings Inc. Nasdaq agreed in May to pay $10 million to settle SEC claims that its mishandling of Facebook Inc.’s initial public offering last year was a violation of securities laws.
