EVEN as the business of trading splinters across ever more platforms, the firms that run exchanges continue to consolidate. Last year NASDAQ agreed to buy Chi-X Canada, Intercontinental Exchange (ICE) purchased Interactive Data and Deutsche Börse snapped up 360T. The past decade of dealmaking in the industry has given rise to five powerhouses: the London Stock Exchange Group (LSE), Deutsche Börse, CME Group, ICE and HKEX. This week it emerged that, not for the first time, LSE and Deutsche Börse are talking about a merger.
Organisations like the LSE once made all their money by charging fees to those who traded or listed shares. But as regulators allowed rival trading platforms to encroach on the established exchanges’ turf, those fees came down, pushing them into other lines of business. LSE and others bought up derivatives exchanges, data providers, index compilers and clearing houses. The intention was to serve customers throughout the process of buying a security, from research to clearing and settlement. Only a tenth of LSE’s and Deutsche Börse’s revenues now come from the trading of equities. This strategy has worked well. LSE’s shares have outperformed the FTSE 100 by more than 200% over the past five years.
The groups have developed slightly different models, though. The German exchange adopted a “vertical silo”, in which customers...Continue reading
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