The outlook for global exchanges is sound, as long as they prepare for the tougher climate ahead by expanding their services and developing their capabilities, according to a new report from research firm Celent.
The study, 'The future of exchanges: challenges; opportunities; and strategic options', reported that although recent market turmoil has undermined valuations and the capital raising ambitions of companies - with IPOs and listings on exchanges around the world suffering a 50.5% drop in terms of capital raised over the last year - global exchange revenue has increased over 10% globally in the last five years and will continue to grow.
As we move into the New Year, the study expects the competitive exchange environment caused by liquidity fragmentation to heat up. New trading venues will innovate in areas such as derivatives and commodities, while established exchanges will create new pricing models, trading systems and value propositions. Leading exchanges will continue to diversify into new regions and product classes, either through internal initiatives, joint ventures, or outright acquisitions.
When the financial markets begin to stabilise however, the report predicts that exchanges will revert back to the basics of growing their coverage globally, citing the emergence of the Asian markets and the opportunities evolving in Europe under MiFID as key drivers.
"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," said Octavio Marenzi, head of Celent 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,” added David Easthope, senior analyst with Celent's securities and investments group and co-author of the report.