The future holds in store several possible exchange landscapes. Still, gaining new volume is key to sustainable success in many scenarios and a matter that is supported by regulatory changes driving trading onto “lit markets”.
To date, it has been possible for leading exchanges that seek to grow in to a global trading platform, to combine this aspiration with servicing of an exchange’s home market. Going forward, exchanges with ambitions to become a global player will need to develop a clear profile in terms of strategic priority and price and service quality level as well as breadth of service offering. Generally speaking an exchange can opt for one of three strategic directions to build a profile: client intimacy, product leadership or operational excellence.
Choosing the right profile
The choice of profile is likely to be driven by the preference of stakeholders, detailed SWOT analysis and expectations around the likely end state of the sector. In each end state, players with each type of profile will exist. However, each end state favors one type of player over another. We expect several of the leading exchanges to facilitate a specific stakeholder group and to develop a profile that appeals to this group. By doing so the exchange will aim to create intimacy with its target client group. We expect a limited group of exchanges will choose to develop as a product specialist.
The selection of a particular end state strategy does not necessarily mean an exchange can forget about the other two strategies, as the most successful exchanges are likely to maintain a strong performance across the spectrum.
Data vendors and alternative platforms are already important competitors of leading exchanges and may continue to be so as they are generally more focused. Moreover, data vendors tend to be very close to specific investor groups, an intimacy they could use to their advantage to attract trading flows. Alternative platforms are generally relatively lean, scoring them potentially relatively high with regards to operational excellence.