Sunday, May 9, 2010
Demutualization and Customer Protection at Self-Regulatory Financial Exchanges, by David Reiffen, U.S. Commodity Futures Trading Commission (CFTC), and Michel A. Robe, American University - Kogod School of Business, was recently posted on SSRN. Here is the abstract:
In the past decade, many of the world’s largest financial exchanges have demutualized, i.e., converted from mutual, not-for-profit organizations to publicly-traded, for-profit firms. In most cases, these exchanges have substantial responsibilities with respect to enforcing various "trade practice" regulations that protect investors from dishonest agents. We examine how the incentives to enforce such rules change as an exchange demutualizes. In contrast to oft-stated concerns, we find that, in many circumstances, an exchange that maximizes shareholder (rather than member) income has a greater incentive to aggressively enforce these types of regulations.