The impact of electronic trading on regulatory surveillance

Abstract

This paper examines the impact of electronic trading on the regulation of the financial services industry and the improvements that are required to the current regulatory structure. Comments are addressed particularly to the wholesale markets, although many of them can certainly be applied to the sale of retail financial services by electronic means. The paper takes the widest definition of electronic trading, that is, the entire process from initiating the order to effecting settlement. In the latter part of this paper the opportunities for automated regulation are discussed. There already exists a certain amount of automated monitoring of trading. For example, the London Stock Exchange (LSE) and the Securities and Futures Authority (SFA) have both implemented transaction monitoring systems based on a transaction database fed by automated reports from authorised firms. At the settlements end of the process, CREST monitors settlement performance itself and publishes its statistics in the interests of an orderly market. While there will certainly be further developments to improve monitoring of market operations it is not the major issue with regard to electronic trading. What these developments do reflect, however, is that the regulators have an interest not only in the entire investment business in aspects such as market integrity and best execution, but also in settlement efficiency.

Citation

Sherwood, A. (1997), "The impact of electronic trading on regulatory surveillance", Journal of Financial Regulation and Compliance, Vol. 5 No. 4, pp. 299-305. https://doi.org/10.1108/eb024939