Exchange groups seeking to grow and diversify their businesses shouldn’t view asset class diversification as their only option, with cross-listings and services to smaller issuers potentially providing longer-term growth.
“Those exchanges that rely mainly on equities in the current economic climate will face a difficult future,” said Sergio Gullo, managing director of Brazilian exchange group BM&F Bovespa, speaking in London today at the Mondo Visione exchange conference.
Rainer Riess, managing director at Deutsche Börse, emphasised it was important not to discount the value of the local equity market for small- and medium-sized companies, which he considered to be in danger of disappearing as exchanges look beyond their national borders to pursue growth opportunities.
“There is a lot of value in the national stock exchange, especially in the SME market where local companies value relationships and may consider major exchanges to be too costly and cumbersome for their needs,” he said, adding that exchanges should consider SMEs to be the “pipeline for the future” in terms of product development.
Deutsche Börse is currently awaiting a decision from the European Commission’s competition unit on whether it would be allowed to merge with NYSE Euronext, creating an exchange group with a market capitalisation in excess of US$9 billion. Both exchanges have jointly addressed the Commission’s concerns over the dominance the combined entity would wield in European derivatives trading, by offering to divest parts of their equity options businesses and open access to Eurex, Deutsche Börse’s clearing house.
Charlotte Crosswell, president of Nasdaq OMX’s pan-European business, added that functional diversification of services can help fuel revenue and provide a better level of service to issuers, citing her exchange group’s recent purchase of market surveillance company SMARTS and ancillary offerings, such as corporate and director services.
With the London Stock Exchange’s International Order Book celebrating its ten year anniversary today, Nicolas Bertrand, head of equities and derivatives markets at the UK bourse, said cross-listings could act as a driver of liquidity for all markets involved.
“The liquidity generated on our IOB has helped to generate some positive investment trends,” he said.
Gullo at BM&F Bovespa added that against a backdrop of numerous exchange mergers that have largely failed, looking to establish alliances could be a more cost effective method of establishing partnerships that yield longer term benefits.
If successful, the combination of Deutsche Börse and NYSE Euronext would create an entity that would control over 95% of the European exchange-traded derivatives market. Meantime, the LSE is pursuing its strategy with the launch of derivatives trading on its Turquoise multilateral trading facility, while Nasdaq OMX is reportedly preparing its own foray into pan-European derivatives trading. In Brazil, BM&F Bovespa is consolidating the asset classes it trades onto a single system developed in conjunction with the CME Group. The exchange says the new system will offer its members greater margining efficiencies.