Industry characterization by intense price competition

We face intense competition from other exchanges and markets for market portion of trading activity and listings. In add-on, our market informations, planetary index and market engineering concerns face important competition from other market participants. This competition includes both merchandise and monetary value competition and has continued to increase as a consequence of the creative activity of new executing and naming locales in the United States and Europe. ( NASDAQ OMX, p. 22 )

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The liberalisation and globalisation of universe markets has resulted in greater mobility of capital, greater international engagement in local markets and more competition. As a consequence, both in the U.S. and in other states, the competition among exchanges and other executing locales has become more intense. In the last several old ages, many market places in both Europe and the United States have demutualized to supply greater flexibleness for future growing. The securities industry besides has experienced consolidation, making a more intense competitory environment. ( NASDAQ OMX, p. 22 )

Regulatory alterations, such as MiFID, besides have facilitated the entry of new participants in the EU that compete with our European exchanges and MTF. The regulative environment, both in the U.S. and in Europe, is structured to keep this environment of intense competition. In add-on, a high proportion of concern in the securities markets is going progressively concentrated in a smaller figure of

establishments and our gross may therefore become concentrated from a smaller figure of clients. ( NASDAQ OMX, p. 22 )

We besides compete globally with other regulated exchanges and markets, ATSs, MTFs and other traditional and non-traditional executing locales. Some of these rivals besides are our clients. Our exchange rivals include NYSE Euronext, the London Stock Exchange, Deutsche Borse, the Tokyo Stock Exchange, and a figure of other exchanges in the U.S. and around the universe. Exchanges offer a scope of

services comparable to those offered by our exchanges and by and large vie with us in supplying trade executings, trade coverage, market informations, listings, ordinance, and index services. Public ATSs in the U.S. and MTFs in Europe are broker-dealer operated systems that offer tradeexecution services, typically at really low cost. Our rivals include Direct Edge ATS in the U.S. and Burgundy MTF in the Nordics. In London, Chi-X, Turquoise and BATS MTFs offer pan-European executing services in competition with both our Scandinavian exchanges and NASDAQ OMX Europe. Other viing executing locales include broker-dealer owned systems such as dark-pools and internalisation engines which may or may non be registered as ATSs or MTFs. Like ATSs and MTFs, these locales besides compete with us by offering low cost executings and differ from public ATSs and MTFs in the grade of transparence they offer and in limitations on who may entree these systems. ( NASDAQ OMX, p. 22 )

The derived functions, securities and fiscal services industries are extremely competitory. We expect that competition will go on to escalate. Our current and prospective rivals, both domestically and around the universe, are legion. They include securities and securities option exchanges, hereafters exchanges, nonprescription markets, uncluttering organisations, market informations and information sellers, electronic

communications webs, traversing systems and similar entities, pool of big clients, pool of some of our glade houses and electronic securities firm and covering installations. The planetary derived functions industry has grown progressively competitory. Exchanges, mediators, and even stop users are consolidating, and nonprescription and unregulated entities are invariably germinating. Additionally, in response to turning

competition, many market places in both Europe and the United States have demutualized to supply greater flexibleness for future growing ( CME, p. 35 ) .

Increased competition, tighter borders and farther commoditisation of equities merchandising makes runing in this environment disputing for all participants – LSE one-year p. 6

Under new European Union ordinance, three types of rivals were authorized for equity trading: regulated markets, alternate trading systems ( called MTFs ) and

“ systematic internalizers ” , big Bankss that could put to death their order flow internally with certain restraints. However, a 4th class of histrions – an OTC market that includes some dark pools, traversing webs and internal matching machines

– is able to cover off from, or trade through, all these markets. It had non been foreseen in the Legislation. ( WFE, p. 15 )

In recent old ages, the securities trading industry and, in peculiar, the securities markets have been capable to important regulative alterations. Furthermore, in the past two old ages, the securities markets have been the topic of increasing governmental and public examination in response to the planetary economic crisis ( NASDAQ OMX, p. 24 )

Our concern is capable to extended ordinance ( NASDAQ OMX, p. 25 )

Regulation is a cardinal challenge for exchanges, given that the fledglings had received better intervention from regulators who tend to see exchanges as impeding market development ( WFE, 2010, p. 37 )

Porter ‘s Five Forces analysis applied to fiscal exchanges

In this subdivision fiscal exchanges will be analysed with Porter ‘s Five Forces ( 2004 ) , as it is seen as really of import to understand the assorted influences and groups of participants that affect the industry of traditional exchanges.

Supplier Power

Exchanges give companies, authoritiess and other groups a platform to sell securities to the puting populace. Some exchanges are more stiff than others, but basic demands for stock exchanges include regular fiscal studies and audited net incomes studies.

Despite the increasing integrating of capital markets, geographics has non yet become irrelevant to finance. Between 1986 and 1997, European populace companies have progressively listed abroad, particularly in the U.S. European companies appear more likely to cross-list in more liquid and larger markets, and in markets where several companies from their industry are already cross-listed. They are besides more likely to cross-list in states with better investor protection, and more efficient tribunals and bureaucratism, but non with more rigorous accounting criterions ( Pagano et al, 2001 ) .

European exchanges, alternatively, appear unable to capture as many new listings from abroad, particularly from non-European states. From 1986 to 1997, the figure of U.S. companies listed in Europe decreased by one tierce. Over the same interval, the figure of listings in Europe by non-U.S. and non-European companies rose by a modest 5 % , while the corresponding addition on U.S. exchanges was 131 % ( Pagano et al, 2001 ) .

The European companies that cross-list in the U.S. and in Europe are qualitatively different. Those that cross-list in the U.S. are comparatively high-growth, hi-tech, R & A ; D-intensive and strongly export oriented. European exchanges have alternatively been chosen more frequently by companies with a stronger record of past profitableness, though this may reflect the tighter listing demands ( sing a path record of accounting net incomes ) compared to NASDAQ. The public presentation of the two groups of companies after the cross-listing is besides rather different. European companies that cross-list in the U.S. experience a lasting addition in entire assets, while those that cross-list within Europe end up with a lasting decrease of entire assets relative to the control sample ( Pagano et al, 2001 ) . In 2008 the image already looked a spot different, at least with regard to the LSE. 43 % of the international stock trading was executed in London, go forthing the NYSE at the 2nd topographic point with 31 % ( Spiegel, 2008 ) .

As for Russian derived functions, EDX has 90 % …

Buyer Power

Globalization inclinations led to less home-biased investors every bit good as issuers of stocks. Companies decide to be listed at stock exchanges abroad every bit good as in their place state and investors want to further diversify their portfolio by besides including portions from foreign endeavors. Consequently competition increased between national exchanges for order-flow and listings. Exchanges have a immense figure of clients but investors and fiscal mediators, peculiarly large investing Bankss, which direct the majority of capital flows around the universe, became more sophisticated. Investment bank ‘s borders are worsening, coercing cost-cutting. Traditional exchanges should be encouraged to take down fees and increase velocity of minutess to go more attractive, which could do for leaner markets and larger trading volumes.

Particularly the new regulations of MiFID squeezed the fee income which accounts for about half of the grosss of the large European exchanges. They besides reduced the money exchanges can do from garnering and selling informations on trades to traders and agents.

The ability to replace between alternate trading systems and traditional exchanges is rather easy to put to death and exchanging costs are comparatively low, accordingly their bargaining power increased as electronic trading systems made it possible to purchase and sell at different trading topographic points without incurring major cost. Shane Finemore ( WFE, 2007 ) , the Head of US Fundamental Investment Group at UBS Investment Bank, reviewed several tendencies underlying the current of import alterations in the industry. The chief clients of exchanges are the sell side of investing Bankss and issuers. They are both seting more force per unit area on exchanges, taking to more competition, as there are more and more options in footings of executing locales and deep major fiscal Centres to raise capital. This ability to replace locales reduces the importance of the supply side.

dark pools? ? ? ?

Menace of replacement services

In its June 2009 study, the SEC estimated that ECNs ( Electronic Communications Network ) were accounting for about 30 % of the entire portion volume and 40 % of the dollar volume traded in NASDAQ securities, but merely approximately 3 % of the entire portion and dollar volume in the NYSE-listed securities ( SEC, 2009 ) . By contrast, in 1993, ECNs accounted for merely 13 % of the portion volume in NASDAQ securities and merely 1.4 % of the NYSE-listed portion volume ( Aggarwal, 2006 ) . The new regulations in the industry besides encouraged nouveau-riche rivals such as Project Turquoise, a trading platform created by seven big investing Bankss which trades under MiFID in competition with established Bourses like the LSE and Deutsche Borse. The Goldman Sachs and J.P. Morgan investing groups, Deutsche Bank and Dresdner Bank cooperated in the debut of an alternate system called Tradepoint, which went into operation in July 2000 running 230 of the biggest European stocks. Another investing group, Morgan Stanley Dean Witter, and the Swedish OM Group, which runs the Stockholm stock exchange, introduced their Jiway system ( Richter, 2000 )

Thankss to rapid progresss in trading engineerings, such electronic fledglings are seeking to entice concern off from more established operators in both Europe and America. The alterations have already encouraged more engineering investing and more coaction by the large exchanges. The exchanges are besides being pushed to offer greater velocity and the capacity to manage inundations of orders from computer-generated “ algorithmic trading ” plans, which are popular with hedge financess. Some large exchanges reckon that at least one-third of their trading volume comes from these plans ( Economist, 2007 ) .

The cost of electronic trading systems is well lower than on traditional exchanges. Additionally it yields considerable cost nest eggs. By abandoning bargainers for electronic systems the Sydney Future Exchange saved 40 % of its costs ( Economist, 1999 ) . Furthermore, technological inventions have aggressively reduced the cost of supplying informations on quotation marks and trades, thereby decreasing the importance of this beginning of gross ( Aggarwal, 2002 ) . The electronic trading systems have separated the physical location of trading from the act of put to deathing a trade. This has had a profound impact on little regional exchanges, which have become progressively marginalized as the liquidness and trading have gravitated towards the largest exchanges ( Aggarwal, 2006 ) .

Potential entryway

The menace of possible new entryway in the industry of exchanges is comparatively low. There has to be mentioned that until late, the figure of old-style fiscal exchanges had really been increasing. Stock markets or derived functions exchanges sprang up in the most improbable emerging markets. That tendency is now in contrary ( Economist, 1999 ) . As puting up a fiscal exchange concern comes with reasonably high upfront costs and economic systems of graduated table can merely be achieved with really big trading volumes the tendency that can be seen in the industry nowadays is one of amalgamations and acquisitions every bit good as confederations between bing stock exchanges.

Rivalry among bing exchanges

There are different sides of the competition among stock exchanges. With regard to houses, exchanges may vie in seeking to name them entirely or, at least, to double list them. The original listing fees are gained in any instance by the exchange even if the one-year listing fees, if based on the trading volumes, could be lower in instance of double listing, given that the trading is spread over more than one exchange. With regard to mediators, competition is similar even if the construction of the fees is reversed ( the original fees are lower than the mean sum of trading fees for each mediator ) ( Di Noia, 1998 ) .

Until late, the chief beginnings of gross for exchanges have been dealing fees, naming fees, rank fees, and gross revenues of information services such as market informations. But, as competition among exchanges intensifies and more corporations have the option of naming on abroad exchanges, exchanges are being forced to cut down their listing fees. What is likely to bring forth gross, nevertheless, is merchandising committees. And the key to an exchange ‘s success in bring forthing committees is likely to be its ability to bring forth trading volume. As the industry continues to consolidate to accomplish graduated table economic systems, the eventual victors in the procedure will be the exchanges that attract order flow and so provide liquidness to investors ( Aggarwal, 2002 ) .

The exchange is therefore interested in maximising the sum of trading volumes ; the exclusivity of the connexion of each mediator may act upon the figure of trades conveyed to the exchange ( Di Noia, 1998 ) . As the trading volumes have grown, the exchanges have invested important capital in deploying cutting border engineering in their trading platforms, both to run into the demands of sophisticated institutional investors ( e.g. fudge financess ) and to react to menaces of liquidness migration to ECNs. Thus, the fiscal exchange concern theoretical account is marked by reasonably high upfront costs. However, one time the trading platform is deployed, the fringy cost of adding more trades is close to zero, which provides strong inducements for different exchanges to unify and so unite their trading systems ( Aggarwal, 2006 ) .

The production of liquidness services is frequently regarded as the cardinal map of a stock exchange. Greater liquidness can interpret into a lower cost of capital for the company concerned, in so far as it is valued by investors and factored into market monetary values ( Amihud & A ; Mendelson, 1986 ) . Companies may besides be attracted by larger stock markets, in so far as they provide entree to a larger pool of possible investors. Furthermore, being listed on a big stock market may confabulate greater visibleness and repute upon a company. Cross-listing behavior may be affected by informational Cascadess: if a company ‘s directors observe many companies naming on a peculiar stock exchange, they may deduce that there is much to be gained from copying them. If the companies already listed on that exchange besides belong to the same industry, there may be an added ground to copy them. Failing to make so might set the company at a competitory disadvantage in the industry ( Pagano et al, 2001 ) . Overall, the degree of competition among the bing exchanges suggests that the current procedure of consolidation is likely to go on.

Beginnings of information:


Committee of European Securities Regulators

Financial Services Authority

International Organisation of Securities Commissions

???°????Nˆ?µ??N??»??NˆN??µ??N‹?µ Institutions:

World Federation of Exchanges

International Financial Services London

Futures Industry Association

Stock exchanges:

EDX London ( London Stock Exchange Group )

EUREX ( Deutsche Borse Group )

Vienna Stock Exchange ( CEE Stock Exchange Group – new trade name )

NYSE Liffe ( NYSE Euronext )


Chicago Mercantile Exchange ( CME Group )


Journal & A ; Articles:

Futures and Options Magazine

Global Financial Centres ( ranking )


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