How effective are the enforcement activities of derivatives exchanges in the digital age? A survey of enforcement notices through the lens of humans

Alexander Conrad Culley

Journal of Financial Regulation and Compliance, 2024, vol. 32, issue 3, 313-354

Abstract: Purpose - The purpose of this paper is to scrutinise the effectiveness of four derivative exchanges’ enforcement efforts since 2007. These exchanges include the Commodity Exchange Inc. and ICE Futures US from the United States and ICE Futures Europe and the London Metal Exchange from the UK. Design/methodology/approach - The paper examines 799 enforcement notices published by four exchanges through a behavioural science lens: HUMANS conceived by Hunt (2023) inHumanizing Rules: Bringing Behavioural Science to Ethics and Compliance. Findings - The paper finds the effectiveness of the exchanges’ enforcement efforts to be a mixed picture as financial markets transition from the digital to artificial intelligence era. Humans remain a key cog in the wheel of market participants’ trading operations, albeit their roles have changed. Despite this, some elements of exchanges’ enforcement regimes have not kept pace with the move from floor to remote trading. However, in other respects, their efforts are or should be, effective, at least in behavioural terms. Research limitations/implications - The paper’s findings are arguably limited to exchanges based in Anglophone jurisdictions. The information published by the exchanges is variable, making “like-for-like” comparisons difficult in some areas. Practical implications - The paper makes several recommendations that, if adopted, could help exchanges to increase the potency of their enforcement programmes. Originality/value - A key aim of the paper is to shift the lens through which the debate concerning the efficacy of exchange-level oversight is conducted. Hitherto, a legal lens has been used, whereas this paper uses a behavioural lens.

Keywords: Enforcement; Market abuse; Conduct risk; London Metal Exchange; COMEX; ICE futures (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-08-2023-0132

DOI: 10.1108/JFRC-08-2023-0132

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