James Moore: Regulators love to give exchanges new toys

Outlook Exchanges are in vogue right now. The European Union's competition people love them. Last week they brandished a big stick at a group of 13 City banks after exchanges complained that they had been shut out of the lucrative credit derivative market.

Financial regulators love them too. It's not just credit derivatives they want to see moved on to exchanges. They'd like the latter to handle all sorts of previously opaque financial instruments in the hope that this will help them to get a better handle on what's going on.

Now it seems that the Libor people love them. The British Bankers' Association yesterday handed the job of overseeing that once rather obscure little interest rate, which has caused all sorts of problems, to an exchange in the form of NYSE Euronext, owner of the New York Stock Exchange (among others). It beat the London Stock Exchange for the position.

There's a certain sense in handing the job to the Americans. US regulators kicked up the biggest fuss over the attempts by traders at mainly European banks to fix Libor, and levied the biggest fines. With NYSE running the show, however, they'll find it tougher to blame the problem on venal Europeans and their somnolent watchdogs if things go wrong again.

Whether giving exchanges so many new toys will result in better outcomes in future, however, remains an open question. Many of them are, after all, run by bankers, or ex-bankers. And it isn't just banks that can find themselves prone to cultural problems. If regulators want to be smart, they'll keep a careful eye out for side-effects if they're bent on using exchanges as a drug to help treat the financial world's ills.

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