Global capital markets have become too
complex for the industry and regulators to understand, and should be
simplified, according to InterContinental Exchange (ICE) CEO Jeffrey Sprecher.
Speaking on a panel of exchange leaders at
the International Derivatives Expo (IDX) in London today, Sprecher said the
failure to get to grips with the underlying causes of the ‘flash crash’ of 6
May 2010 indicated a need to reduce the complexity of modern market structure.
“It really bothers me that, after four
years, we still don’t really know what caused the flash crash,” he told the IDX
audience. “If we’re unable to understand it then we need to simplify markets so
we can know how they work together.”
Last year, ICE acquired the venue where the
flash crash hit, the New York Stock Exchange, as part of its takeover of NYSE
While some market commentators have
highlighted the role of high-frequency traders (HFT) in causing the crash, the
panelists denied HFT was responsible for instability in markets.
Bob Greifeld, CEO of Nasdaq OMX, said the
equity market structure created by the US’s Regulation National Market
Structure was to blame because “it was devised by lawyers who didn’t seek any
input from operational or technical experts to help them fully understand the
real-life impact it would have.”
Regulatory complexity was seen by all
panelists as a major problem for the industry, particularly as markets have
become more global in nature.
Andreas Preuss, CEO of Frankfurt-based derivatives
exchange operator Eurex, said: “Europe’s 28 member states all want to have
their say and that is a source of many problems. With the financial transaction
tax (FTT) for instance, only 11 took forward the FTT and even among them, no
one can agree what the tax will look like and how it will be implemented.”
Sprecher agreed that regulatory complexity
was making the smooth running of markets more difficult for exchange operators.
“Regulations are very complicated,
especially in Europe and the US. We all run global businesses now but
regulations are being made locally which makes it very difficult for us to
navigate. Regulations in our home markets can pose problems when we look to
connect economies in, for example, the Asia Pacific to facilitate the global
movement of capital,” Sprecher said.
Regulations on derivatives markets and
mandatory clearing of OTC products have varied greately between Europe’s
European market infrastructure regulation and the US’s Dodd-Frank Act, both in
their rules and implementation timetable, creating headaches for market
participants and trading venues.
European and US regulators have recently
moved to try and mitigate these differences and come up with cross-border
equivalence regimes, but most have yet to significantly reduce the regulatory
burden the industry is facing.
Reacting to audience questions, panelists
said technology was central to their business models.
Greifeld said that Nasdaq OMX’s technology
business has become so significant that the company now sees itself as a
technology provider more than an exchange operator.
“Over half of our employees work in the
technology space and many of our customers know us as their software and
services provider rather than as an exchange,” he explained.
Phupinder Gill, CEO of CME Group, added
that many of his company’s customers were “looking to do more with less, and
technology is and important part of helping them to achieve this.”
Greifeld added that technology offered
great scalability for exchange groups, enabling them to take advantage of
growth opportunities without increasing costs and would become ever more
important to their expansion strategy.