The World Federation of Exchanges (WFE), the global industry association for exchanges and central counterparties (CCPs), today called for greater attention to the role of exchanges in investor protection as trading becomes increasingly fragmented across very different types of trade execution.
In two new papers, To Serve and Protect and When is Liquidity?, the WFE sets out why investor protection depends on good market design, which makes it possible to enforce the crucial rules that apply to financial intermediaries.
The papers look particularly at the effect of trading moving away from multilateral markets towards bilateral execution and the implications for liquidity and price formation.
The WFE says policymakers need to look beyond headline trading volumes and consider how much liquidity is genuinely available to investors and whether this fragmentation is affecting the robust price formation that is essential for public confidence.
The When is Liquidity? paper shows how headline volumes can give a misleading picture of the liquidity available at any given point in the trading day. Multilateral exchanges bring participants together, reduce the cost of finding a counterparty and support transparent price discovery.
Fragmentation can make it harder for market makers to manage the risks of providing liquidity. They may be undermined by non-public, bilateral trading and phantom liquidity when providing prices on-exchange – a process which can ultimately reduce the liquidity available to investors and weaken price formation.
This matters for best execution. If it is difficult to establish where liquidity is genuinely available, it becomes harder to determine what the best possible execution price is. The WFE says policymakers should therefore consider how market design can serve investors, focusing on market depth on multilateral markets at any given point in time rather total trading volume.
The papers also consider newer types of markets and assets, including crypto, prediction markets and carbon credits. The WFE says markets offering new ways of trading or new types of assets should be able to demonstrate how they support investor protection and meet the standards expected of regulated exchanges.
Richard Metcalfe, Head of Regulatory Affairs at the WFE, said: “Investor protection starts with good market design. Exchanges provide the structure in which prices are formed, trading is governed by clear rules and market activity can be monitored.
“As more trading moves into bilateral markets, we need to be clear about what that means for liquidity and price formation. If liquidity is not genuinely available, it becomes harder to know what the best execution price really is. That is a market structure issue, not simply a question of where an individual trade takes place.”
Nandini Sukumar, Chief Executive Officer of the WFE, said: “Exchanges provide an important public reference point for financial markets. They help investors understand where prices are being formed and give companies a trusted market in which to raise capital.
“Innovation has an important place in financial markets, but new forms of trading should not mean lower standards for investors. If a market is providing a different route to trading, it should be able to demonstrate that it provides the same level of investor protection and market integrity.”
FTSE Mondo Visione Exchanges Index:
Without Exchanges, Can Best Execution Survive? WFE Warns That Too Much Bilateral Trading Weakens Price Formation And Investor Protection
Date 05/11/2026
