Where do electronic markets come from? Regulation and the transformation of financial exchanges

The practices of high-frequency trading (HFT) are dependent on automated financial markets, especially those produced by securities exchanges electronically interconnected with competing exchanges. How did this infrastructural and organizational state of affairs come to be? Employing the conceptual distinction between fixed-role and switch-role markets, we analyse the discourse surrounding the design and eventual approval of the Securities and Exchange Commission’s Regulation of Exchanges and Alternative Trading Systems (Reg ATS). We find that the disruption of the exchange industry at the hands of automated markets was produced through an interweaving of both technological and political change. This processual redefinition of the ‘exchange’, in addition, may provide a suggestive precedent for understanding contemporary regulatory crises generated by other digital marketplace platforms

Virtual Shareholder Meetings

Electronic communication impacts how widely-held corporations conduct shareholder meetings. For example, technology has facilitated such options as electronic proxy voting, remote electronic voting, and virtual meetings. This iBrief examines the idea of virtual meetings and argues that they should not entirely replace physical meetings unless an electronic solution can be devised which replicates the face-to-face accountability of management to retail shareholders

Capital markets and e-fraud: policy note and concept paper for future study

The technological dependency of securities exchanges on internet-based (IP) platforms has dramatically increased the industry's exposure to reputation, market, and operational risks. In addition, the convergence of several innovations in the market are adding stress to these systems. These innovations affect everything from software to system design and architecture. These include the use of XML (extensible markup language) as the industry IP language, STP or straight through processing of data, pervasive or diffuse computing and grid computing, as well as the increased use of Internet and wireless. The fraud is not new, rather, the magnitude and speed by which fraud can be committed has grown exponentially due to the convergence of once private networks on-line. It is imperative that senior management of securities markets and brokerage houses be properly informed of the negative externalities associated with e-brokerage and the possible critical points of failure that exist in today's digitized financial sector as they grow into tomorrow's exchanges. The overwhelming issue regarding e-finance is to determine the true level of understanding that senior management has about on-line platforms, including the inherent risks and the depth of the need to use it wisely. Kellermann and McNevin attempt to highlight the various risks that have been magnified by the increasing digitalization of processes within the brokerage arena and explain the need for concerted research and analysis of these as well as the profound consequences that may entail without proper planning. An effective legal, regulatory, and enforcement framework is essential for creating the right incentive structure for market participants. The legal and regulatory framework should focus on the improvement of internal monitoring of risks and vulnerabilities, greater information sharing about these risks and vulnerabilities, education and training on the care and use of these technologies, and better reporting of risks and responses. Public/private partnerships and collaborations also are needed to create an electronic commerce (e-commerce) environment that is safe and sound.Environmental Economics&Policies,Insurance&Risk Mitigation,Financial Intermediation,ICT Policy and Strategies,Banks&Banking Reform

Panel Presentation: Securities Regulation and Corporate Responsibility

What I want to do is talk about the big picture, as John suggested, and consider the likely spillover effects of Sarbanes-Oxley. I want to do this in a discretely administrative law-oriented way, taking two themes that were very visible and driving forces behind the legislation. The first, as Mary suggested in her opening remarks, is a question about federalism. It has been common for the last twenty years, at least, to trot out - as John just did - a distinction between federal and state spheres of competency. The SEC is on the disclosure side, while the substance of corporate law (e.g., the mechanics of how decisions are made) is left to the states. I don\u27t think you can read either the text or the music of Sarbanes-Oxley and think that this is much of a viable distinction anymore. If Congress really believed in the importance of that distinction as a matter of policy, Sarbanes-Oxley would be a very, very different statute

International Financial Standards and the Explanatory Force of Lex Mercatoria

The global financial crisis has cast a strong light on some hitherto obscure corners of the financial world, provoking an outpouring of calls for concerted international action. “Hard law” having disappointed, can “soft law”, in the form of international financial standards, substitute for traditional national legislation. This article examines some of the difficulties associated with the “international standards as soft law” discourse. First of all, conceptual problems in the “soft law” discourse itself reveal profoundly different patterns of legal thought cutting across national boundaries, resulting in different understandings of international financial standards. Secondly, recent experience, over the past decade, with some “soft law” international financial standards as both diagnostic and prophylactic tools, has been decidedly mixed, in fact, largely unsatisfactory. Thirdly, the “soft law” discourse in international finance appears strangely remote from the daily grind of international commercial practice, where the discourse is largely unknown. But perhaps in this disconnect between theory and practice lies clues to important normative forces at work in international finance, and in particular the international capital markets. The more one considers the world of international finance, the more obvious become the outlines of centuries old transnational merchant law, the contentious lex mercatoria. The proposition put forward here is that the formal regulation of financial markets is supported by a body of strong and persistent customary law, a lex mercatoria, a rarely acknowledged but powerful undercurrent in finance, especially in its international iteration. The continued prevalence of oral contracting and the stubborn persistence of self-regulatory principles are examples. There are several intriguing implications to this proposition. Is it possible that the global financial crisis represented not only a failure of formal, state-led regulation, as it surely did, but also a breakdown of a lex mercatoria of finance? If that is the case, international standard setters and national regulators, both, ignore this lex mercatoria (the customs and practices of international finance) at their peril. To do so, would be to miss a true, powerful, source of normativity operating in international financial markets

Changing technology and the payment system

On September 11, 2000, Jamie B. Stewart, Jr., First Vice President and Chief Operating Officer of the Federal Reserve Bank of New York, delivered the following remarks at Sibos 2000, the international banking operations seminar sponsored by the payment network SWIFT (Society for Worldwide Interbank Financial Telecommunications).Payment systems ; Technology ; Banks and banking - Customer services ; Bank competition ; Electronic funds transfers