Potential market-altering rules in focus as exchange execs meet at Piper conference

Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), listens during a Financial Stability Oversight Council (FSOC) meeting at the U.S. Treasury in Washington, D.C., U.S., on Monday, Dec. 9, 2013.

Andrew Harrer | Bloomberg | Getty Images

We are live on Wednesday at Piper Sandler’s Global Exchange Conference, where the heads of major exchanges, trading desks, fintech and crypto firms will be gathered (both physically and remotely).

Speakers include Interactive Brokers CEO Thomas Peterffy, Robinhood CEO Vlad Tenev, Virtu CEO Doug Cifu, Charles Schwab CEO Walt Bettinger, CME Chair Terry Duffy, Intercontinental Exchange Chair Jeffrey Sprecher, and Nasdaq CEO Adena Friedman.

Crypto providers like Galaxy Digital Holdings CEO Michael Novogratz are also speaking and increasingly seeking more influence with exchanges.

Securities and Exchange Commission Chair Gary Gensler will give the keynote address and is expected to float new proposals to address payment for order flow.

But there is a bigger issue on the minds of the heads of the exchanges:Are tough times ahead for the trading business?

Will titanic trading volumes last?

Exchanges are driven by trading volumes, and business has been outstanding. Since Covid, daily equity volumes have roughly doubled, from about 7 billion shares a day to roughly 14 billion shares.

Why?First, $0 commissions have been a boon to trading.Second, higher volatility typically begets higher trading volume, which we saw in abundance during 2020 and 2021. Third, much of the trading surge was initially due to a surge in retail trading activity. That has slowed during the market downturn in 2022, however, institutional orders have taken up much of the slack. Trading in equity options and futures is also higher.

Will it last? Stock prices for the major exchanges have been down this year on concerns that the macro environment will deteriorate later this year and retail trading interest will diminish even more.A slowdown in the economy, and particularly a recession, would not be good for trading volume.

It doesn’t help that the competition is only getting tougher.Two new exchanges were launched in 2020, the Members Exchange and the MIAX Pearl Equities Exchange.

That’s led to intense price competition. In response, exchanges are turning to other sources of revenue, such as charging fees for data, which are now a significant part of the revenue stream for both ICE (NYSE) and the Nasdaq.

Gensler wants changes

High volatility begets more electronic trading

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