Response
The World Federation of Exchanges (WFE) welcomes the opportunity to comment on the discussion paper published by the Prudential Authority of the South African Reserve Bank (SARB) in April 2025 on the designation of market infrastructures (MIs),exchanges, and payment systems as systemically important. We appreciate the SARB’s commitment to transparency and consultation in developing its financial stability framework.
General Comments
The WFE agrees that financial stability is a paramount objective for central banks and supervisors. We support proportionate frameworks for identifying entities whose failure could pose a threat to the financial system. However, we caution against conflating operational criticality with systemic financial risk - a distinction that is fundamental to sound regulation.
While market infrastructures including exchanges are nationally significant, not all critical institutions transmit systemic risk, which is a concept grounded in a collapse of the credit system, such as what happened in 2008 after the demise of Lehman Brothers. The designation of an exchange as a systemically important financial institution (SIFI) must therefore be grounded in the nature of its risk profile, not simply its size or centrality.
Scope of Application
We respectfully submit that exchanges do not interact with the flow of credit in the financial system in the same manner as CCPs or, in a mechanical way, payment systems. Unlike in the banking sector, we are not aware of an instance in global economic history where an exchange alone has been the root cause of a series of other defaults among financial market participants. As outlined in the WFE’s 2023 position paper “Financing the Future” “Banking regulation rightly attempts to address run risk”, but “what is misguided and therefore damaging is to assume that exactly the same type of risk is present in equity capital markets, requiring the same type of rules”. Exchanges do not mutualise counterparty exposures, guarantee transactions, or act as principal in settlement. Consequently:
- The failure of an exchange would constitute an operational disruption, not a transmission channel for credit or liquidity contagion.
- Such events can and have been managed through existing operational resilience, business continuity, and recovery arrangements, without the need for formal resolution or extraordinary intervention.
With this in mind, we strongly advocate against the designation of an exchange as “systemic” based on its national significance or lack of substitutability. We note that there has been no global precedent for SIFI designation of an exchange or trade repository (TR). The US Financial Stability Oversight Council (FSOC), for example, has never designated a trading venue as systemically important, despite having the power to do so. Nor has the UK, Australia, the EU, or any other jurisdictions that are of a similar size and market structure of South Africa, where the exchange plays an important, central role, but not a “systemic” one.
Concerns with the Proposed Framework
The inclusion of exchanges in a systemic designation regime raises several concerns:
The quantitative indicators (e.g. market cap, volume, number of listings) can create perverse incentives for an exchange not to grow, and risk overstating systemic relevance if not contextualised within the institution’s actual risk transmission role.
- The proposed weighting to size may disproportionately affect exchanges relative to their systemic impact.
- Applying SIFI-related capital or resolution planning requirements to exchanges could create significant compliance burdens without corresponding financial stability benefits.
