Traditional markets face trust issues with the disenfranchised
A leading official in the Financial Industry Regulatory Authority has warned that global markets today face issues of trust among those who have long felt disenfranchised.
He told delegates to the World Federation of Exchanges conference at the Hamilton Princess & Beach Club that markets will have to work to build trust in the constituency of people who are sceptical of them.
Eric Noll is the CEO of Stone Ridge Capital Partners, and is beginning his second term as chairman of the board of governors of Finra, the self-regulatory organisation that regulates broker/dealers in the United States.
Mr Noll, who stressed that he was speaking in his personal capacity, said: “At Finra, one of the things that we’ve learnt over the last couple of years is that young people, people of colour, people who feel disenfranchised, do not trust established markets.
“They are the ones who are trading in crypto markets, and they are trading in decentralised, disestablished marketplaces.
“I would view that as an opportunity for us to educate them, and to bring them into our marketplace, but the reality is there’s a fear in that investor group of what I’ll call the establishment. ‘This is for insiders, this is for the elite, it’s not for me’.
“I think that represents a cultural challenge for our industry, not just in the United States, I think it’s a global one.”
Mr Noll was following up on remarks by Tom Skinner, founder and managing director of pTools Software, who said there is an arc of development around technology’s impact on capital markets.
He said: “There was a time when only certain people could ever trade on an exchange, and you needed to know people who knew people to actually buy a share.
“The arc of technology is to make that more and more available to ordinary people — and one of the drivers for the success of crypto, whether it’s credible or legitimate or otherwise, is that people who would be fearful of engaging with an exchange, or with a broker, felt more than interested and excited about putting their few dollars into crypto.”
He added: “Organisations like WFE and regulators need to buy into the fact that that’s now a new reality, that those people are part of their constituency.
“AI is part of that arc, and I think AI is going to accelerate the capacity for ordinary people to think that they’re talking to a credible source about investment in the capital markets and regulators need to figure out how that is managed by the central players.”
Paul Leder, of counsel, at Miller & Chevalier Chartered, is a former director of the US Securities and Exchange Commission’s Office of International Affairs.
He said: “AI has incredible risk because, just like there are efforts under way to undermine people believing in government institutions and elections, and things along those lines, it could have the same effect on the markets.”
Mr Leder stressed the importance of financial literacy across the ecosystem, and said a role could be played by exchanges.
He said: “I think they are critical players and in many markets, they do have credibility, and so could be part of that educational effort.”
Mr Noll began the panel discussion by saying that no market has integrity unless it follows four principles — transparency, disclosure, education and effective regulation.
Later, he added: “In order to have sustained trust in capital markets, there has to be the ability for people to rely on that they’re going to be treated fairly, honestly. It goes back to transparency and disclosure, education and effective regulation.”
Mr Skinner, Mr Leder and Mr Noll were speaking on the panel How to Ensure Markets have Integrity — An Ecosystem Approach.
The panel was chaired by Greg Wojciechowski, president and chief executive of the Bermuda Stock Exchange.
The 62nd annual meeting of WFE, which was hosted by the BSX for the first time, attracted 250 registered delegates from 50 countries.
The 2024 event will be held in Kuala Lumpur, Malaysia.