The Important Legal and Regulatory Influences in the Operation of Contemporary, Sophisticated and Organized Exchanges

Abstract

In most legal systems since the very early years, traders had already seen the benefits of a market by which potential buyers and sellers could be brought together through possible intermediaries for transactions. This paper reflects on the landscapes of the modern organized markets where exchanges are the major operators, their features, the interplay of law and markets, and the legal and regulatory challenges. While there is no universally agreed boundary for stock exchange law, the three major areas subject to regulatory and legal influences include (a) its main objectives; (b) the exchange organization; and (c) the process of trading. Among others, an important source of legal and regulatory challenge in the wake of the global financial crisis is the changing financial market infrastructures (FMIs) that organized exchanges are shifting attention from merely setting trade rules and clearing members’ trades to becoming central counterparties (CCPs) as required by the regulatory authorities. Apart from implanting the new governance culture for organized exchanges acting as system risk managers, a rising focus of legal and regulatory changes would be on the recovery of any distressed exchanges for system resilience.