Stock Exchanges - do they still have a role to play in Corporate Governance?

Looking at the listings for several major stock exchanges on Allison Garrett's governance blog one has to ask whether stock exchanges do still have a role to play in creating and administering effective corporate governance safeguards. The big boys among them seem to have as their main aim in life the maximising of their profit (and the compensation of the select few at the top of the management pyramid). The rest is a motley collection of sleepy bureaucracies that are not even accountable to their shareholders, much less to the wider community of shareholders.
(18/02/2011) 

Are stock exchanges offering fair play?

A small order I placed in an ETF on the London Stock Exchange today showed that even for small orders the markets offer an uneven playing field for the unwary. The second my order had been entered there appeared an offer that was just placed 1 pence inside my limit order. Given that the spread in this 'liquid' ETF was a quite wide 1 per cent between bid and offer there was obviously room for the 'market maker' to offer an improved price compared to my order. While the behaviour of the dealer can certainly no be called front running it still leaves the question why he has not put the better price on the system in the first place. Having my order behind his offered price gives him the opportunity to cover any sale made at his new price by 'lifting' my offer. Given the proliferation of competing dealing platforms also makes it difficult - if not impossible - for the retail investor to be sure that no transaction takes place at the limit price (or above it) which should have included the limit order.
(08/02/2011)

Foreign Listings: A regulatory Black Hole

The avalanche companies from countries with were loose regulatory regimes that seek a listing in a prestigious stock market has become quite a torrent in recent years. The authorities confirm that money also talks when the design and implementation of financial regulation is concerned. In search of lucrative fees for brokers and fund managers concerns about the quality of the accounts, legal protection of shareholder rights and corporate governance are brushed aside and the motto is: 'Anything goes!'. We wonder if it would not be wiser to apply regulations with extra severity when foreign companies want to benefit from a financial tradition that has been built up over many years, centuries in some cases? The ability of the courts, investors and regulators to sanction any company in a far-away land that does not play by the rules is minimal. It should also be reviewed if fiduciary institutions (Mutual Funds, Pension Funds, Banks and Insurance Companies) should not be made subject to closer controls, possibly even prohibitions to invest in countries where fiduciary standards are not of a high-enough quality. Only large companies and only those who fulfill the extra level of safeguards that we would suggest should be allowed access to capital markets.

High-Frequencey or High-Priviledge Trading?

In the (distant?) past exchanges had clear-cut rules about how orders were treated. The New York Stock Exchange for example had clear rules defined with respect to priority and precedence that insured that orders large and small had a level-playing field. The present discussion (Wall St Journal, 13 Oct 09) about unfair advantages gained by giving priority access to so-called high-frequency traders makes it clear that these rules have to be adjusted in light of the technological advances we have seen in the past few decades. Now time intervals are measured in milli or nano seconds but technology also gives the tools the regulate high-speed trading orders. What is intolerable is the fact that certain market participants can claim faster access than is available to other market participants. It is high time that the arms race to ever-faster access speeds gets regulated by the authorities. The exchanges are no longer non-profit making institutions that have the interests of the wider investment public at heart and if necessary have to be told to put traffic humps in order to slow down order flow from certain market participants.