All Markets Rise: Maximising Exchange Profit by Modernising Across All Sectors

Written By: Guy Melamed, CEO at Exberry

April 21, 2024

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Imagine a scenario in which a large, successful financial exchange is making profits across all its markets alike, from equities, fixed income and derivatives, to commodities and FX. Yet, sadly, this vision is far from reality. Oftentimes smaller and less liquid markets, such as for fixed income and derivatives, find it difficult to obtain the modernisation of infrastructure they need, even when it is just a simple feature request.

This asymmetry means that markets get stuck in a vicious circle: never claiming priority for innovation because they are not making enough money, yet never reaching their fullest potential because it takes too long to implement the technology upgrades necessary to function in today’s market environment. This makes for a poignant question to exchange operators: How are these smaller markets ever supposed to evolve under these conditions?

 

Strategic dilemmas

Exchanges are essentially caught in a quandary. Technology is moving so fast, meaning that sticking with legacy technology risks leaving exchanges out of the game. In addition, organisations have now woken up to the fact that waterfall and big bang development processes yield unresponsive outcomes. On top of this, exchanges exist in a tightly regulated world which can naturally lead to risk-aversion, making it challenging to maintain up-to-date markets. 

Because product roadmaps are typically prioritised by those markets that have higher revenue generation, this means that the other markets comprising an exchange organisation are given lower priority when it comes to innovating their infrastructure. 

But can exchanges afford to define strategies across every single one of their markets by measuring upgrades in terms of years?

 

SaaS-powered solutions

By having less-profitable markets embrace faster, more agile SaaS-based delivery methodologies, exchanges can not only streamline costs, but potentially start generating strategic revenues due to the substantial reductions in delivery costs. This high-velocity delivery methodology means that delivery and deployment timescales start to look completely different. If a market wants to make changes to a system or introduce new features, this can be achieved in a matter of days and months rather than years. 

Not only does SaaS-based delivery mean an exchange will be well-prepared for the next decade of trading (whether deployed via the cloud or on prem), it also allows for a significant culture-shift that is focused on delivery, as well as being accompanied by shorter cycles and lower cost of ownership. 

This shift will ultimately allow an exchange to sustain a greater number of markets, enabling each to fully evolve and reach its maximum potential.

 

SaaS Efficiency: Accelerating Market Profitability

By ushering in new SaaS-delivery methodologies, the resulting new processes for development, deployment and operation processes represent substantial savings on operational costs. This efficiency will support profitable growth across all markets. Now that’s a vision for the future.

Next-Gen Consultancy for Financial Markets

Ambitious financial exchanges need to keep growing. Yet in the world of capital markets this is not always a straightforward task. Each jurisdiction has its own national characteristics and different way of doing things. If an exchange decides to build its own trading or clearing infrastructure, unless it is happy paying an exorbitant cost, it will typically have to wait a number of years for delivery. So, what are the alternatives for exchanges?

Exchanges pivotal for EU’s Capital Markets Union

The EU’s Capital Markets Union (CMU) is receiving strong backing, with widespread enthusiasm evident among stakeholders who are optimistic about its successful rollout. A significant concern has been the persistent lack of on-screen liquidity in European markets, dominated as they are by over-the-counter (OTC) trading. This contrasts sharply with the US where, according to the European Central Bank (ECB), 75% of corporate financing is conducted through capital markets, compared to Europe’s reliance on traditional bank loans.

Regulated Exchanges and AI: What’s Behind the Hype

The topic of AI has been the subject of a number of panels at recent industry events attended by Exberry. We thought it would be helpful to provide a snapshot of some of the leading thinking on AI, particularly how it is predicted to affect regulated exchanges.

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