SIFMA Testimony at House Subcommittee Hearing Urges Exchange Reform

Washington, D.C., March 30, 2022 – In testimony delivered today, Ellen Greene, SIFMA managing director, equity and options market structure, outlined the ways in which existing federal securities laws advantage exchanges but harms investors, and outlined SIFMA’s suggested reforms to better protect investors.

The testimony was delivered before the U.S. House of Representatives Committee on Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets at a hearing entitled: “Oversight of America’s Stock Exchanges: Examining Their Role in Our Economy.”

The testimony notes: “Our equity markets exist to facilitate the capital formation that entrepreneurs, business owners, and companies need to create jobs, grow the economy, and serve their customers and communities. The central goal of the laws governing our equity markets is to protect the interests of the investing public. Most of our federal securities laws meet that standard today, but there are some features of our self-regulatory system that fall short and need to be updated.

“In particular, federal securities laws give special privileges to America’s exchanges that benefit the exchanges commercially but do not serve the hundreds of millions of Americans whose retirement, education, and personal savings are invested in the capital markets,” Greene noted.

SIFMA’s testimony focuses on five such privileges:

  1. The exchanges have historically been exempted by courts from private liability for damages they cause while performing their regulatory duties but have sought to expand this immunity to damages caused while acting as for-profit entities.
  2. The exchanges impose non-negotiable limitations on their private liability for damages they cause while acting as for-profit entities, and they set the limitations so low as to have no relation to the financial losses an exchange could cause.
  3. The exchanges have the unique right to sell – and monopolistic power to set the prices of – their proprietary data products and related infrastructure, which broker-dealers and other market participants are compelled to purchase for regulatory and competitive reasons.
  4. The exchanges exclude their competitors from fully participating in – but require them to comply with and help finance – major market initiatives developed as Regulation National Market System (NMS) plans, like the Consolidated Audit Trail (CAT).
  5. The exchanges have access to broker-dealers’ highly valuable intellectual property through the CAT as a result of their overlapping regulatory jurisdictions.

“To protect individual investors and promote the greatest benefits of fair competition,” Greene said, “we must modernize the self-regulatory system at the foundation of our equity market structure. This will require Congress to amend the Exchange Act.”

To that end, SIFMA believes the Committee should take up legislation that includes the following five reforms:

  1. Clarify the boundaries of the judicially created doctrine of regulatory immunity by providing that exchanges are not immune from liability for damages they cause while acting as for-profit entities.
  2. Prohibit exchanges from imposing limitations on their private liability for damages they cause while acting as for-profit entities.
  3. Require a public comment period and approval by the Securities and Exchange Commission (SEC) before any proposed new fees for proprietary market data, connectivity, and co-location services can become effective.
  4. Require that entities subject to and involved in financing major market initiatives pursuant to plans adopted under Regulation NMS, like broker-dealers and asset managers, have representation and meaningful voting participation in the initiatives’ development and management, with equal access to information as that of the exchanges.
  5. Limit each exchange’s regulatory jurisdiction to its own exchange in order to reduce regulatory duplication and mitigate the inherent conflict of interest between an exchange’s commercial business interests and its regulatory obligations.

The testimony concludes: “The commonsense reforms outlined above would benefit individual investors by encouraging fair and balanced competition among market participants. While not a solution for all issues, these reforms are a meaningful step in the right direction to modernize our outdated exchange self-regulatory system and ensure that our equity markets once again protect the interests of the investing public.”


SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development.

SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).