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Regulating Exchanges and Alternative Trading Systems: A Law and Economics Perspective

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  • Macey, Jonathan R
  • O'Hara, Maureen

Abstract

New trading technologies are transforming securities markets, and with their rise have come important questions regarding the regulation of new and traditional trading mechanisms. This article provides a law and economics perspective on the regulation of alternative trading systems. We argue that alternative trading systems play a distinct role in the market and in particular solve the conflict-of-interest problem that exists between brokers and dealers. We propose a general strategy for their regulation that incorporates this economic role. We suggest a regulatory framework that permits providers of services to opt into particular regulatory frameworks as a way of fostering innovation and competition. The functional approach we outline is consistent with the Securities and Exchange Commission's regulatory objectives of fairness, efficiency, and transparency of market transactions. Copyright 1999 by the University of Chicago.

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  • Macey, Jonathan R & O'Hara, Maureen, 1999. "Regulating Exchanges and Alternative Trading Systems: A Law and Economics Perspective," The Journal of Legal Studies, University of Chicago Press, vol. 28(1), pages 17-54, January.
    • Handle: RePEc:ucp:jlstud:v:28:y:1999:i:1:p:17-54
    DOI: 10.1086/468045
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    Cited by:

    1. Jack Clark & Gillian K. Hadfield, 2019. "Regulatory Markets for AI Safety," Papers 2001.00078, arXiv.org.
    2. O'Hara, Maureen & Ye, Mao, 2011. "Is market fragmentation harming market quality?," Journal of Financial Economics, Elsevier, vol. 100(3), pages 459-474, June.
    3. Jingyun Ma & Fengming Song & Zhishu Yang, 2010. "The dual role of the government: securities market regulation in China 1980‐2007," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 18(2), pages 158-177, May.
    4. Edward Stringham, 2002. "The Emergence of the London Stock Exchange as a Self-Policing Club," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 17(Spring 20), pages 1-19.
    5. Macey, Jonathan R. & O'Hara, Maureen, 2002. "The Economics of Stock Exchange Listing Fees and Listing Requirements," Journal of Financial Intermediation, Elsevier, vol. 11(3), pages 297-319, July.
    6. Nguyen, Vanthuan & Phengpis, Chanwit, 2009. "An analysis of the opening mechanisms of Exchange Traded Fund markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 562-577, May.
    7. Easley, David & Hendershott, Terrence & Ramadorai, Tarun, 2014. "Leveling the trading field," Journal of Financial Markets, Elsevier, vol. 17(C), pages 65-93.
    8. William O. Brown, Jr. & J. Harold Mulherin & Marc D. Weidenmier, 2006. "Competing With the NYSE," NBER Working Papers 12343, National Bureau of Economic Research, Inc.
    9. Stringham, Edward, 2003. "The extralegal development of securities trading in seventeenth-century Amsterdam," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 321-344.

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