12 December 2013, By Steve Engdahl
Just as with humans, evolution is essential to exchanges and depositories.
Competition in the exchange space has increased over the last few years, in part due to MiFID. Some exchanges (like NYSE and ICE) have reacted to change by joining forces. In order to stay independent and profitable, exchanges must find other revenue streams.
In emerging markets the problem is more acute.
As well as the global problems of falling transaction revenue and trading volumes there can be reticence from investors to engage in markets which lack transparency. Emerging markets often lack technology and processes to promote sufficient transparency. For these markets to thrive it’s imperative that these perceptions are changed. As this is a regional problem there is scope for exchanges and issuers of securities to collaborate cross-border. If they can work together, a central repository or hub for reference data can be established. This can provide one complete, cleansed and validated set of reference data, thus proving transparency of that particular region.
A strong reference data layer running through the hub provides the fluid for exchanges to thrive.
It will create a complete, consolidated operational data store forming the basis for a new reference data feed. Through the implementation of a regional hub, emerging markets can compete with large national exchanges, and remain independent.
Exchanges are faced with difficult options as they plot the next step in their evolution.
It is not possible to remain profitable without changing and adjusting to the new climate. Exchanges that understand the gains that can be made from monetising their data and widening their revenue stream will reap the benefits. With the potential for smaller exchanges to create a regional hub, perhaps emerging markets will gain a competitive edge.
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