As the world’s financial exchanges continue to consolidate, they will have profound impact on the global securities and investments industry including execution prices, liquidity, market structure, and the vision of a single integrated global securities marketplace.
New TowerGroup research estimates that by 2012, major exchanges will have reinvented themselves and altered their value proposition transforming from simple utilities focused on matching buyers and sellers, to broad service providers to the securities industry.
The wave of exchange demutualization between 2005 and 2007 has had much to contribute to the changes underway in this dynamic sector. As a consequence of this ongoing transformation, TowerGroup estimates revenue from trade execution for NYSE and Nasdaq will decline from 48% and 69% respectively in 2007, to 30% and 38% respectively by 2011.
The new services that exchanges will offer include: trading software; new data products; a new market for trading private securities; technology outsourcing; and hosting. TowerGroup believes by 2012, leading exchanges around the globe will broadly define their value proposition as a focus on serving the investing and financial management needs of the retail and institutional investor.
Between now and 2012, TowerGroup expects the global exchange market to be dominated by five major players NYSE, Nasdaq/OMX, London Stock Exchange, Chicago Mercantile Exchange, and Eurex each with the ability to trade seamlessly around the world.
Additionally, in the next three years, regulatory bodies will work to harmonise securities laws and ensure that markets are connected adequately, so that a particular security trades at the same price across venues. This will further protect investors and eliminate arbitrage opportunities.