The Future of Asian Exchanges

by Arin Ray, May 15, 2009
Operations/ Benchmarking


The current financial crisis has posed a host of challenges for the Asian stock exchanges. Growth in trading volume has suffered, resulting in falls in revenue and profit for the exchanges, and forcing them to look for alternative opportunities.

In a new report, The Future of Asian Exchanges, Celent analyses the strategies taken by the major Asian stock exchanges to remain competitive. In the short term, growth in trading volume is likely to slow down; lower margins due to greater competition are likely to hit revenue and profits. However, as a long-term strategy, the major exchanges in Asia are focusing on a number of business lines including listing, trading, products, market data, and systems.

The global recession, weakened markets, and liquidity problems have undermined valuations and companies’ ability to raise capital, both in Asia and worldwide. As a result, IPO capital raised by Asian exchanges, which grew at a rate of 35% compound annual rate from 2002 to 2007, have fallen in 2008. The larger stock exchanges are focusing on the regional markets, especially smaller and emerging markets. This provides the opportunity to increase listings by companies in the smaller countries at these exchanges. A host of initiatives, including development of alternative investment markets for fast-growing companies, cross border trading, developing Islamic financial products have been on the agenda. At the same time, the exchanges are continuously upgrading their trading systems and facilities to benefit investors by reducing latency and improving speed.

"As a result of the financial turmoil, implementation of some planned initiatives may be delayed in the near future. However, the fundamentals of the Asian economies are strong in the long term," says Arin Ray, analyst with Celent’s Securities & Investments group and author of the report. "Economic development in Asia’s emerging countries is expected to spur IPOs and trading activities in the long run, and the Asian stock exchanges are well-positioned to play a central role in these developments."

This report provides an overview of the sources of revenue and their composition for the Asian exchanges. It identifies the challenges ahead and provides insights regarding how the exchanges are positioned to evolve.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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