Build or Buy? Exchanges Continue to Branch Out For Revenues Through Acquisition

Jim Kharouf

Jim Kharouf

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Exchanges are continuing to look at two areas for revenue growth – consolidation and acquisition of non-exchange service firms, according to a new report from Burton Taylor.

The report, presented at the World Federation of Exchange’s General Assembly and Annual Meeting in Athens and authored by Andy Nybo, shows that ICE topped exchanges in revenue in 2017 with $4.6 billion, followed by CME with $3.6 million, Deutsche Boerse with $2.7 billion, LSE Group with $2.5 billion and Nasdaq with $2.4 billion. Global revenues from the 15 top exchanges totaled $30.7 billion last year, up 8.1 percent from 2016.

The sector showing the most revenue growth for exchanges was information services, which rose 9.1 percent last year to $5.9 billion and represented 19.4 percent of all exchange revenues. Trading, clearing and settlement remained the largest revenue generator, rising 6.4 percent to $19.2 billion last year, and was 62.7 percent of overall exchange revenues. Exchange margins remained strong, according to the report, with an average of 53.6 percent EBIT margin last year. The Australian Securities Exchange posted the highest ratio with 71 percent and Hong Kong Exchanges and Clearing was second with 65.5 percent.

Other notable items from the report included the greatest revenue growth over the period (2013 – 2017), which was led by ICE, due largely to its 2015 acquisition of Interactive Data Corp. in December 2015 from Silver Lake and Warburg Pincus for $5.2 billion. ICE’s five-year compound annual growth rate was 26 percent. B3 and Cboe Global Markets were the two largest year-over-year revenue growth winners due to acquisitions.

What the report shows generally is that exchanges are still growing through acquisitions and expanding into areas beyond just trading and clearing as overall trading volumes have flattened and volatility as stagnated. The reach for growth, especially for exchanges like ICE and Nasdaq, is in the information, listing and data services space.

“The consolidation and acquisitions have been largely national in nature, the LSE Group – Deutsche Boerse deals are not on table anymore,” Nybo said. “The big names are simply off limits due to political, regulatory and populist pressure.”

So exchanges continue to branch out into services.

“Look at Nasdaq,” Nybo said. “They are seeing tremendous growth in their technology services. Nasdaq bought eVestments, not just as a data provider, but an information provider.”

The general takeaway, Nybo said, is that exchanges “are the nexus of the listed financial markets. That puts them in the perfect spot to provide services.”

**2018 half year results are expected to be addressed by Nybo on Thursday.

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