From the London Stock Exchange (LSE) on-off deal with the Canadian TMX Group, to the will-they/won’t-they merger of NYSE Euronext and Deutsche Bourse, the exchange market has delivered many headlines in recent times. All this takeover talk is a far cry from the days of exchanges acting as public utilities. Today, competition is fiercer than ever. The recent arrival of the new European derivatives exchanges from the CME and Coe is a prime example, having triggered both price and takeover wars across Europe. If this increasingly competitive landscape wasn’t enough for exchanges to contemplate, there is the consolidation of trading platforms caused by mergers and acquisition activities, coupled with the interoperability between clearing and settlement systems driven by MiFIR.
While on the whole competition is a good thing, there is only so much merger activity that can take place before regulators step in, as we have seen with the recent Australian ASX and Singapore Exchange deal. The question for the larger exchanges is, where do they turn for growth if M&A is no longer a viable option? As a result of these failed merger bids, exchanges are under pressure to diversify their business models. In the year to date, Dealogic estimates the total value of European IPOs at around $4 billion from 50 launches, the lowest since 2009. With the volume of activity so low, any failure to diversify into new markets puts a real strain on the business.