PIFS - International Review of Equity Market Structure Regulation

1 Comparative Analysis of Equity Market Structure Regulation
The research staff of the Program on International Financial Systems (“PIFS”) has reviewed and
summarized the regulation of equity market structure in the People’s Republic of China (including
both the Mainland market and the Hong Kong Special Administrative Region),1 the European Union,
Japan and the United States. The purpose of our study is to inform the public as to key similarities
and differences among the regulatory regimes in these five jurisdictions that collectively
represent approximately 90% of global stock trading.2 A review of our key findings as to the following
regulatory issues is below: 1. Regulation of Trading Venues; 2. Lit vs. Dark Trading; 3. Regulation
of Broker Dealers; 4. Regulation of Exchange Fees; 5. Tick-Size Regimes; 6. High-Frequency
Trading; and 7. Volatility Controls. Chapters two through six go into further detail on these topics
for each jurisdiction.

a. Regulation of trading venues
There are three types of trading venues for stocks.3 First, there are stock exchanges that match
buyers and sellers of stock and are self-regulatory organizations that are the primary listing venue
for public companies. Second, there are multilateral trading venues that also match buyers and
sellers but are not self-regulatory organizations and cannot be the primary listing venue for public
companies. And third, there are broker-dealer internalizers that do not match buyers and sellers,
but instead act as principals and execute customer orders against a broker-dealer’s own inventory
of stocks. Each is subject to its own regulatory requirements.
In Mainland China, exchanges are the only type of trading venue for publicly-listed stocks, as offexchange
trading in these stocks is prohibited.4 Publicly-listed stocks can only trade on the primary
listing exchange, so there is no competition among stock exchanges for trading volume.5
The Shanghai Stock Exchange (“SSE”) and the Shenzhen Stock Exchange (“SZSE”) are the only
national stock exchanges approved by the China Securities Regulatory Commission (“CSRC”).6

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