Global markets will only become more concentrated in future even as innovation will likely lead to more alternative marketplaces, says Howard Wetston, chairman and CEO of the Ontario Securities Commission (OSC).
“What’s happening in Canada, what’s happening globally, will be greater concentration,” said Wetston at the “Canadian Equity Market: Structural Challenges Amidst Rapid Change” conference hosted by the OSC and the Investment Industry Regulatory Organization of Canada (IIROC) in Toronto on Thursday.
“Traditional exchanges will be looking for scale, looking for different areas of activity to integrate.”
Wetston pointed to low barriers to entry in the markets through alternative trading spaces (ATS) and technology as two of the primary drivers for the ongoing trend in exchange concentration.
Furthermore, this competition is unlikely to lessen any time soon. “Because of innovation [there will always be] a lot of alternative markets,” he said, “and they will look different, they’re not going to be the traditional exchanges.”
The biggest challenge for regulators in this evolving environment will be oversight of different exchange models in order to avoid inappropriate, discriminatory activity that could affect markets.
“We need to have the resources and capabilities to oversee different entities in the market,” said Wetston, “whether it be a concentrated entity like the TMX Group or whether it be an ATS.”
Wetston pointed to IIROC’s Surveillance Technology Enhancement Platform (STEP) system, which allows regulators to view the entire Canadian market, and the numerous conditions on exchanges set by the OSC to reduce conflicts of interest, as examples of how regulators are trying to maintain that broad level of oversight.