The Future of Exchanges: Opportunities, Challenges, and Strategic Options

December 23, 2008

Abstract

New York, NY, USA December 23, 2008

The Future of Exchanges: Challenges, Opportunities, and Strategic Options

In this era of renewed market volatility and changing markets, exchanges have a significant role to play. In 2009, exchanges will be a key piece of an environment where new regulations are expected and new systemwide risk and clearing initiatives are put in place.

In a new report, The Future of Exchanges: Challenges, Opportunities, and Strategic Options, Celent examines how exchanges will evolve beyond demutualizations, mergers and acquisitions, and geographic expansion to include opportunities across all business lines: listing, cash trading, derivatives trading and product development, post-trade services, and technology systems.

Going forward, newly established or licensed exchanges and some close exchange competitors (ATSs/MTFs/IDBs) will continue to innovate in areas such as derivatives and commodities, while established exchanges will create new and enhanced pricing models, trading systems, clearing platforms, and overall value propositions. Leading exchanges will continue to diversify into new regions and product classes, either through internal initiatives, partnerships and joint ventures, or outright acquisitions. Already globalized exchange leaders will attempt to fend off competitors with enhanced systems, new product offerings, and improved pricing and tariff structures.

"Despite these varying initiatives and approaches, a common evolutionary path exists for established exchanges to become global market leaders," says

David Easthope, senior analyst with Celent's Securities & Investments group and co-author of the report. "To become market leaders with diverse revenue streams, some exchanges will continue to engage in regional consolidation and horizontal integration while others will expand through international consolidation and vertical integration."

There are also short-term opportunities. "For established exchanges, short-term strategies and opportunities include listing cooperation with other exchanges, streamlined trading tariffs for high frequency traders, derivatives product development, and OTC derivatives clearing," says

Octavio Marenzi, head of Celent and co-author of the report.

Long-term strategic options for exchanges are also manifold and are highlighted in the report by business line. For example, exchanges can develop advanced execution and market aggregation platforms, offer enhanced pre-trade and post-trade analytics, and become purveyors of exchanges systems in developing markets.

Overall, Celent believes the outlook for long-term exchange business models and fundamentals is sound. "Most exchanges are currently operating from a position of strength, but we expect to see a tougher climate ahead. Preparing for a more challenging future is the current imperative for exchanges," says

Chermaine Lee, analyst with Celent's Securities & Investments group and co-author of the report.

This 44-page update report contains 23 figures and two tables. A

table of contents is available online. of Celent's Capital Markets research service can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.

 

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 part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

New York, NY, USA December 23, 2008

The Future of Exchanges: Challenges, Opportunities, and Strategic Options

 

Executive Summary 3
Introduction 5
Exchange Industry Landscape 7
Exchange Characteristics 8
Exchange Evolution 18
Short-Term Challenges, Opportunities, and Strategic Options 21
Long-Term Challenges, Opportunities, and Strategic Options 28
Conclusions 49

 

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