Ruben Lee has published a magisterial work on the governance of financial market infrastructures – a key question that has never been explored so thoroughly.
While his report concentrates on how governance arrangements affect the efficiency and stability of markets, it prompted me to ask another question: are their governance arrangements a factor in the competitive positioning of infrastructure organisations? In other words, in a competitive market, are users more likely to use a particular infrastructure because they favour its governance structure?
One might expect the answer to be “Yes”, given the statements from market players about how they favour one form of governance (usually user governance) over other forms of governance. To be consistent, they should direct their business to the organisations that follow their preferred structure. But casual observation suggests they don’t. My guess is that, when making the hard commercial decision where to place business, the usual factors – price, quality etc – take precedence over governance arrangements.
As an example, take three firms in a market that has competing infrastructures operating with a variety of governance structures – European equity trading platforms:
– the London Stock Exchange, a publicly quoted company, entirely driven by shareholder value;
– Chi-X, privately owned, but with arrangements to reward liquidity providers with (small) shares in ownership; and
– Turquoise (before the deal with the LSE), owned by users (but only a sub-set of potential users).
I would say that it is not obvious that the governance arrangements per se determined these firms’ success or failure, although their governance structures may well have affected their ability to make the decisions necessary to ensure their success.
If this is right, it seems that market forces will not ensure the success of the governance structures that the market favours. Rather, success will come to the governance structures that deliver the results that the market likes.