This is certainly an exciting time in the world of financial exchanges. As long as each exchange enjoyed a monopoly in its own jurisdiction, they remained a necessary but rather dull element of infrastructure. But as such monopolies were eroded, and competition for the same business between different jurisdictions increased, financial exchanges have been forced to reconsider their function, strategy and often their continued existence.
The London Stock Exchange has been the subject of possible and potential offers for months, but for all the talk and speculation, there has not been a firm offer. However, that moment may be fast approaching, as the UK Competition Commission prepares its verdict on merger remedies.
That sense of fundamental movement being on the way extends to the bond market. The dominance of the London and Luxembourg exchanges as Eurobond listing centres has been threatened since the chaotic implementation of the EU Prospectus Directive encouraged some issuers to look elsewhere. Delays on documentation are slowly improving, but there are complaints about how the process has been handled, particularly in Luxembourg.
While its independence is under threat at home, the London Stock Exchange has been aggressively marketing its services overseas. In China the LSE is trying to poach business from the standard venues for offshore PRC equity issuance – the SEHK, NYSE and Nasdaq. There is certainly interest from issuers, but so far the LSE has only managed to reel in a few small companies.
Staying with Asia, we take a look at the fortunes of attempts to establish Asian-incorporated electronic trading platforms. Two of the three that were created have long ceased trading, and a third, Debtdomain, faces serious financial difficulties.
In Europe there are several competing debt trading platforms, and senior executives at three of them – Market Axess, MTS and TradeWeb – discuss the challenges they face and the strategies they aim to pursue.
While the established exchanges have often been forced onto the defensive, new exchanges are trying to act as a catalyst for expanded capital markets activity. Historically, much of the Middle East has been effectively closed to international investors, who were prohibited from owning stock or faced a cap on their shareholdings in companies. But the formation of the Dubai International Financial Exchange is expected to change that, and at the same time give a real boost to standards of corporate governance.
Meanwhile, business is booming for the world’s derivatives exchanges, particularly those in Chicago, which now have a critical mass in electronic trading. However, with new for-profit business models proliferating, the search for growth must continue.
Overall, this is a look behind the daily activity of capital markets at the infrastructure that underpins them, and which is itself increasingly centre stage.
