The U.S. securities industry is calling on regulators to carry out a review of the market’s self-regulatory structure, particularly the role of exchanges as self-regulatory organizations (SROs).

In a letter to the U.S. Securities and Exchange Commission (SEC), the Securities Industry and Financial Markets Association (SIFMA) is requesting a review of the regulatory structure of broker-dealers, exchanges, and the self-regulatory model.

“SIFMA supports a holistic review of U.S. equity market structure to ensure safe, sound and efficient markets that investors can have confidence in,” said Randy Snook, executive vice president of the trade group. “A part of that review should focus on SRO structure, because the markets have changed to the point that the current structure of the self-regulatory model is widely viewed to be outdated and in need of reform.”

The association questions the continued status of exchanges as SROs. It notes that exchanges and broker-dealer trading venues essentially perform identical functions, and yet the exchanges still have a self regulatory function, even as they have evolved from member-owned utilities to for-profit businesses. It says that eliminating their SRO status “would streamline regulatory processes and make self-regulation more efficient by centralizing regulation.”

Moreover, it says that exchanges enjoy a number of competitive benefits due to their SRO status, including limitations on liability, market data revenue, and ability to design market structure developments. Additionally, they are not subject to some of the significant regulatory requirements applicable to broker-dealers, such as best execution, supervisory controls, and financial responsibility, it says.

At the same time, SIFMA says it recognizes that exchanges are subject to unique regulatory requirements, including the requirement to submit rule changes for their business practices for SEC approval, fair access requirements, and ownership restrictions. It calls for a discussion of these issues from both perspectives.

It also questions the cost and funding structure of self-regulation. “For many exchanges, regulatory fees are intended to offset the exchanges’ cost of outsourcing regulation to other SROs — such as FINRA — effectively duplicating costs on member firms,” it says. “Currently, there is no way to assess the reasonableness the regulatory funding model without greater transparency into SROs’ existing regulatory fees as well as their actual regulatory expenses.”