Can One Broker Own an Exchange? Not Likely
October 26, 2012
Credit Suisse is not likely to be able to register its Light Pool trading system as a national exchange and retain sole or even majority ownership in it.
Larry Tabb, namesake founder of the Tabb Group consultancy, said Friday he is “not sure you can do that from a regulatory perspective as a single entity. They may have to sell it off, spin it out.’’
The Wall Street Journal Thursday evening reported that the Credit Suisse Group “is quietly pushing to turn one of its trading venues into an exchange, an unusual bid that, if successful, would create the only U.S. stock exchange owned outright by a Wall Street bank.’’
The financial news organization said Daniel Mathisson, Credit Suisse's U.S. stock-trading chief, confirmed that “preliminary talks” had been held with federal securities regulators about the idea. Mathisson, who is traveling, could not be reached for comment Friday.
The Securities and Exchange Commission in the past decade has at least twice indicated that it would not approve the registration of a national exchange in which a single broker such as Credit Suisse owned more than 20 percent.
When national exchanges such as the New York Stock Exchange and the Nasdaq Stock Market started to convert themselves to for-profit entities, the SEC in a policy statement on “self-regulatory organizations” (another name for national stock exchanges, reflecting their responsibilities to surveil the trading conducted on their markets):
“The Commission preliminarily believes that a member ownership and voting limit of 20% is an appropriate threshold because it precludes situations where a member would have a realistic probability of being able to exert undue influence over its SRO, yet refrains from interfering in an SRO’s organizational processes or the desire by members to acquire equity interests in their markets. In some Commission rules, a 10% ownership threshold is used to determine “control.”
And, in 2006, when it approved the registration of the Nasdaq Stock Market, in its for-profit form,the SEC said: