Exchanges 2.0: The Evolution of Exchange Technology in Cash Markets

by David Easthope,  Muralidhar Dasar, August 17, 2011
Industry Trends
EMEA, North America

Abstract

Technology is no longer solely an enabler, but rather a core function of leading exchanges. Celent believes that, through 2015, more and more technology infrastructure will be considered strategic for exchange operators.

In a new report, Exchanges 2.0: The Evolution of Exchange Technology in Cash Markets, Celent examines the new platforms and advanced technology services offered by leading exchange groups. The report also discusses what exchange operators should do to optimize the return on their trading infrastructure.

Exchange groups have become some of the largest financial technology distributors in the world, with several exchange groups creating separate divisions to commercialize their trading infrastructure. Moreover, exchanges are expanding to support a wider operational footprint, driving continued IT development and investment across the trade process value chain.

Technology is a big business.  At the largest exchange operators, 2011 revenues from IT were US$1.8 billion, or 20% of major US and European exchange groups’ revenue. Furthermore, these revenues are projected by Celent to grow at a 20% CAGR from both organic and inorganic sources to reach US$3.8 billion or 33% of exchange revenues by 2015.

“For exchange operators, what will ultimately separate the winners from losers is being able to build and leverage technology to appeal to high frequency trading institutions, while balancing the needs of other market participants,” says David Easthope, Research Director with Celent’s Capital Markets Group and coauthor of the report.

“To win this business, exchanges must continue to evolve their trading platforms and offer advanced technology services,” adds Muralidhar Dasar, Celent Analyst and coauthor of the report.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

The Appeal of Targeting HFT Institutions

7

 

Why This Customer Segment Is Important

7

 

Meeting the Needs of HFT Institutions

7

 

The End Goal

8

The Maturation of Exchange Technology in Cash Markets

9

Commoditization Leads to Commercialization

9

 

Growth of IT as a Share of Revenues

10

Exchanges Adopt Evolutionary New Structures and Platforms

12

 

Competition Forces Change

12

 

New Structures: The Case for Cross-Border Mergers

12

 

New Platforms: The Case for Multiasset and Multigeography

13

 

Exchanges Build Global Platforms

15

Collaboration Among Exchange Operators

16

Exchanges Offer Advanced Technology Services

18

 

Advanced Technology Services Are Critical

18

 

Expansion of Exchanges Across the Trading Infrastructure Value Chain

20

 

The Rise of Data Center Communities

22

 

Reducing TCO Through Cloud Services

24

 

Risk Management Emerging as a Key Opportunity Area

25

IT Becomes Strategic: Recommendations for Exchange Operators

26

 

Market Scenarios

26

 

Recommendations for Exchange Operators

27

 

Opportunities for Capital Markets IT Players

28

Conclusions

29

Leveraging Celent’s Expertise

30

 

Support for Financial Institutions

30

 

Support for Vendors

30

Related Celent Research

31

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