Exchanges: What next?

Over the last few years we have seen a considerable amount of proposed and actual mergers and acquisitions in the exchange world.

A select few include:

• NYSE Euronext acquired by ICE
• Tokyo and Osaka merge
• BATS and Chi-X Europe

There are many more than this small list and also an extensive list of failed deals that were not executed.

We've recently seen a very interesting acquisition - BATS acquired the HotspotFX business from KCG (the successor to Getco and Knight Capital).  We have also seen the CME launch more FX futures.

So the exchanges are moving into new asset classes and positioning themselves as liquidity sources for a range of transactions.

Why not go the whole way and look to bring the buy-side into the co-location facilities of the exchange?  What I mean is - build a decent buy-side order and execution management system, host it within the exchange datacentre and implement cross-connects to the brokers within the exchange.  For a global asset manager there will clearly have to be a global FIX enabled network but (here and here) that's easily done. 

A simple analogy is the "ladies' night" where  some bars allow women to get free drinks on the basis that this will increase the number of men who will attend the bar. If an exchange can offer a true SaaS, data centre hosted OMS/EMS with analytics and compliance then they will gain sticky revenue and allow a true cross-asset class liquidity hub to form.

And here's a picture of a stock exchange data centre...