Growth in equity and option markets is stagnant and exchange groups are focusing on acquisitions to expand adjacent revenue streams, particularly in data products, Morningstar writes. Investments are expected in private market data sets and direct indexing capabilities, aiming to add value through synergies with existing operations.

Exchange groups operate marketplaces facilitating buying and selling of goods, contracts, and assets. They include primary markets (for launching new products), secondary markets (for trading existing assets), and services like clearing, settlement, and data products.

Key takeaways from the report include:

Competitive Advantages: Exchanges benefit from strong economic moats. Notably, their investments in index businesses create intangible asset advantages (e.g., benchmark indexes rarely replaced despite competition). Factors such as liquidity, integrated clearing, asset fungibility, and control of underlying assets determine their ability to maintain market dominance.

European Market Insights:

Stock Market: Developed but underperforming compared to the US in activity, issuers, and valuations.

ETF Market: Gaining traction with retail investors seeking low-cost, passive investing exposure.

Bond Markets: Corporate bonds are underdeveloped compared to the US, while sovereign bonds remain mature.

Equity trading volume in Europe faces structural growth challenges.

Regulatory and Competitive Landscape:

Competition in equity derivatives and index businesses is intensifying but is somewhat mitigated by structural protections.

Regulated markets have ceded share since 2022, but there remains a role for “lit-markets” with increasing competition.

Mergers and Acquisitions: Most M&A activity involves smaller bolt-on acquisitions, as exchange groups expand their offerings.

ESG Trends: ESG risks for exchanges are rated primarily as low or negligible, with product governance, human capital, data privacy, and cybersecurity identified as the most significant risks. Most have a Low rating (83 per cent) while Deutsche Boerse has a Negligible rating.

“Exchange groups remain pivotal in global markets, acting as facilitators for trading and offering essential services like clearing and data products,” says Niklas Kammer, Equity Analyst at Morningstar. “With stagnant growth in equity and option markets, we’re seeing a strategic pivot toward acquisitions—especially in the realm of data products. This focus on innovation and strategic expansion ensures exchange groups continue to maintain a competitive edge while adapting to evolving market demands.”

The overhaul of listing rules better aligns the UK’s regime with international market standards, the FCA writes. “It also ensures investors will have the information they need to make decisions about their money, while maintaining appropriate investor protections to hold the management of the companies they co-own to account. 

“The new rules remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. Shareholder approval for key events, like reverse takeovers and decisions to take the company’s shares off an exchange, is still required. “

The changes to listing rules follow extensive engagement across the market. The FCA says that it has been clear that the new rules involve allowing greater risk, but believes the changes set out will better reflect the risk appetite the economy needs to achieve growth.

The new rules will apply from 29 July 2024.

Sarah Pritchard, Executive Director, Markets and International, at the FCA says: “A thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors. That’s why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own. 

“Regulation is only part of the answer in helping the UK achieve sustainable growth. Other factors also play a significant role in influencing where a company decides to list. We’re committed to continually working together with all those who have a part to play in supporting a thriving UK capital market and thank everyone who has contributed to this work so far.’

Chancellor of the Exchequer Rachel Reeves says: “The financial services sector is central to the UK economy, and at the heart of this government’s growth mission.

“These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here.”

Nick Davis, Senior Partner at Memery Crystal, says: “This is the first step in the biggest shake-up of the UK listing regime for 30 years and, after a challenging couple of years for our markets, is a positive move towards making the UK a more appealing listing destination. In particular, the new International Secondary Listing category is a clear sign that London welcomes overseas companies already listed elsewhere to tap into the UK’s investor base without having to follow excessive additional disclosure obligations. We welcome the changes and are optimistic that the markets will reap the rewards.”

The federation writes that as the foundation of the financial system, regulated market infrastructure providers seek to engender the trust of all those who depend on neutral, responsible public markets. Each new year offers an opportunity to underscore this mandate and reaffirm this commitment, the federation says.

“In 2024, the WFE’s priorities will focus on fostering efficient market structures that are resilient, robust, fair, transparent and stable in the midst of both uncertainty and innovation.”

The priorities:

1.    Fostering better corporate governance in the entire financial ecosystem. At present, scrutiny focuses largely on those entities that are already regulated and within legal parameters.

2.    The CCPs’ reassurance promise. Fifteen years on from the biggest financial crisis in living memory, and four years after a global pandemic, central clearing remains the steadying influence in markets. The WFE’s focus in 2024 will be on procyclicality, recovery & resolution and transparency and proportionate capital rules. 

3.    How market infrastructures can lead on ESG issues such as standardisation, harmonisation and reporting frameworks, as has been the case with the creation of the WFE Green Equities principles. 

4.    WFE Education: As the WFE’s Market Infrastructure Certificate continues to gather momentum, entering its second year, we’ll focus on rolling out the educational qualifications that will be vital to the next generation of leaders. 

5.    New technologies, including the evolution of crypto market design, as these new markets begin to grow closer to regulated exchange markets, and the role of AI.   

Nandini Sukumar, CEO at the WFE, says: “The WFE Board has determined the key priorities and issues we will focus on this year. With the WFE’s unique position and global view of market structures, our access to data and information, reinforced by our own analysis & research, and the expertise we have built up through experience, we look forward to engaging with stakeholders in 2024 and championing the role of public markets and market-based finance.” 

In this proof-of-concept phase, Atlas is focusing on improving data collection methodology and platform development, the team writes.

“While plenty of data on the industry are currently available, the data are spread over many protocols, market actors and jurisdictions, and reporting is often not regulated or standardised.

“The project report details how the proof of concept uses transactions between crypto exchanges in the Bitcoin network, along with the location of those exchanges, as a proxy for cross-border capital flows. Attribution data links on-chain transactions to crypto exchanges, which are then mapped to their geographical location (where possible).

“The derived bilateral flows between countries are visualised on a globe that presents the data in a user-friendly and easily accessible manner. An initial analysis of preliminary data collected by the platform shows that cross-border flows are substantial economically and unevenly distributed across geographical regions.”

“Project Atlas is a great example of what the BIS Innovation Hub can achieve. Working in the intersection of economics, finance and computer engineering, we are developing a new and important public good for central banks globally,” says Cecilia Skingsley, Head of the BIS Innovation Hub. “The data on cross-border flows are relevant for areas like payments and macroeconomic analysis,” she adds.

Burkhard Balz, Member of the Executive Board of the Deutsche Bundesbank, says: “Atlas enables a variety of use cases. Researchers can structurally analyse the micro data while policymakers can access tailored dashboards for insights at a glance. I am excited about the potential and future developments of this project.”

The BIS Innovation Hub develops solutions that take the form of proofs of concepts, prototypes or minimum viable products. The first proof of concept of Atlas successfully showcases how to collect, clean and analyse data relevant to central banks’ mandates. Project Atlas hence provides a starting point for holistic analysis of existing data. For example, it can help identify inconsistencies across data sources, and provides data which can be used to analyse the macroeconomic relevance of crypto markets and potential financial stability implications.

 Olaf Sleijpen, Executive Board Member at De Nederlandsche Bank, adds: “Atlas leverages the diverse skills of an inter-disciplinary team including developers and economists. It is great to see what the team has accomplished. Project Atlas could be a valuable tool for the central banking community for years to come.”

The report, drawing on the collective experience of regulated market infrastructures as trusted guardians of public markets, makes six recommendations in light of issues that continue to affect the nascent crypto-currency industry which has suffered several high-profile controversies and collapses.

By applying regulatory principles that have been proven via established, trusted market infrastructures, governments and regulators can aid the crypto-trading sector to grow whilst protecting investors and ensuring orderly, fair and transparent markets.

The WFE’s analysis also found that whilst Decentralised Finance might bring innovation to financial products, crypto-trading platforms (CTPs) are frequently not as decentralised as they first appear, which presents some risks.

The WFE recommends that governments and regulators require CTPs to meet the high standards that all market participants expect and deserve. The recommendations are:

Segregate market infrastructure functions within a CTP where appropriate such as limiting CTPs trading their own book or in potential conflict with their customers;

Operate orderly markets by having in place systems and controls for broader risks, such as abusive trading, to protect integrity of price formation;

Hold sufficient financial resources to meet expected operational stress events;

Facilitate compliance with best execution requirements;

Increase robustness of listing standards;

Have appropriate governance and management requirements.

In the short term, the WFE recommends that CTPs disclose their regulatory status and do not describe themselves as exchanges until they are appropriately regulated and adhere to the standards listed above. All regulated market infrastructure providers adhere to the standards above.

Nandini Sukumar, Chief Executive Officer at the WFE, says: “The exchange industry continues to believe in the promise of crypto trading and digital assets and is working with all stakeholders to evolve market structure and standards to the level necessary to facilitate growth and trust in these markets. These six key principles should be a checklist for any CTPs that are serious about meeting the standards expected of a credible operator of markets. Observing the standards will not only safeguard markets, it will enable the sector to grow.”

Richard Metcalfe, Head of Regulatory Affairs at the WFE, says: “Governments and regulators helped to shape the ethos of the current market infrastructure so that it operates in the trusted manner it currently does. The same logic must apply to CTPs, whether centralised or not, to prevent the significant risks and realities we have seen that can, and do, harm investor trust.”

The WFE notes that market-based finance and credit channels play distinct and complementary roles in supporting economic growth, acting as twin engines, and that regulatory and other policy could do more to respect that distinction, as present policy shows signs of confusing the two. 

A key part of the paper’s purpose is to look at the nature of short-run risk, contrasting it with concerns about systemic stability that can arise in the credit world. WFE writes: “We challenge the idea of applying prudential rules to markets that are only appropriate to credit and banking channels. In credit channels, risks can easily become systemic in nature and require measures such as capital rules. In market-based finance, this is the rare and manageable exception, and in all other cases the wrong type of rules are not just unnecessary but damaging.

“False equivalence between the two very different forms of finance has already led to perverse outcomes, including the LDI crisis of 2022. It threatens the operation of the collective investment schemes through which most people have access to long-term returns. 

“Share markets have performed well over time and through recent turmoil, such as the pandemic. In 2020, these markets were resilient in both new issuance and the ability to continue to buy and sell stakes in companies as the economy continued to evolve. 

“Market-based finance includes bonds – which bring a further dimension to investor possibilities while avoiding some of the opacity of credit markets – and derivatives, which bring the flexibility to fine-tune risk profiles over horizons chosen by investors, whether individuals or collective asset managers. But shares remain the key to financing the future.”

Nandini Sukumar, CEO at the WFE, says: “Both credit markets and share markets have a place in the financial system and are needed for different financing requirements. To enable share markets to deliver their potential in funding future growth opportunities (including net zero transition), the appropriate policy support is required.” 

Richard Metcalfe, Head of Regulatory Affairs at the WFE, says: “The WFE believes that a clear and coherent risk-reward analysis should lie at the heart of public policy towards all forms of finance. It is wrong and counterproductive to take the risk-reward characteristics of one part of the financial system and apply it to another part, whose different profile makes the system safer and sounder.”

The WFE Green Equity Principles are based on five pillars:

The amount of a company’s revenues/ investments that must be derived from ‘green’ activities.  

Use of a specified taxonomy.

Governance (i.e. existing listing requirements). 

Annual assessment by approved reviewers.

Disclosure around the processes and reviews related to the green classification.

The Guidance Note sets out practical considerations for exchanges who wish to establish offerings that align to the WFE Green Equity Classification and covers the principles themselves, as well as operational matters such as:

Designation of responsibility within the exchange for overseeing the classification

Establishing relevant processes including criteria for revoking classification

Development of the classification mark and provision of public information

Criteria for assessing the appropriateness of reviewers. 

Nandini Sukumar, Chief Executive Officer of the WFE says: “The WFE Green Equity Principles are a significant milestone achieved by the global exchange industry. The Guidance Note, published today, equips aspiring exchanges with the tools to play their part in increasing transparency in sustainable finance and countering greenwashing risks as we move towards a more sustainable global economy”.

The shareholders of the new company write that they have a clear commitment to implement this significant European capital markets project and are dedicated to the long-term success and prosperity of retail investors and market participants. 

“As operators of regulated markets, EuroCTP´s shareholders are the cornerstone of the European capital market, committed not only to maintaining, but to further strengthening its ecosystem.”

Jorge Yzaguirre Scharfhausen, the newly elected chair of EuroCTP’s supervisory board said: “The initiative that has led to the creation of EuroCTP is a true representation of European capital markets and shows a broader range of interests than any other consolidated tape proposal, its aim is to strengthen the EU Capital Market Union. We are confident that we will be able to present the CEO of EuroCTP soon.

“We are proud to be the first European consolidated tape initiative for equities and ETFs to have established a company. We are now working on the best solution for the provision of a consolidated tape in the European Union.”

The organisation writes that it aims to foster transparency and access to market data for all investors by providing a fully consolidated view of the European equity market. Among its goals are:

Create a CT offering a comprehensive, standardised and consistent picture of the entire EU trading landscape for the benefit of all market participants,

Make available a well-governed, robust, and resilient CT in a cost-effective way, and in compliance with applicable laws and regulations.

This announcement builds on the Joint Venture announced on the 16th of February this year by 14 European exchanges in response to the European Commission’s proposal for an equities tape to contribute to the development of the Capital Markets Union. More recently, in June, a decision from the European institutions provided clarity on the legislative framework for a consolidated tape that aims to benefit all market participants.

The shareholders have been working on the initial initiative for more than a year and have already made significant investments and write that they are committed to full financing for the development and implementation of the consolidated tape. The organisation writes that they are recognised specialists in supplying reliable and high-quality market data, combining decades of experience and expertise in operating critical market infrastructure. “The company will act with full autonomy to participate in the future selection process for the provision of a consolidated tape for equities and ETFs in the European Union.”

The group writes that the Paper’s objective is to improve understanding of the benefits and risks of crypto market infrastructures and how they function.

The WFE Research paper analyses exchange interaction with the evolution of crypto-trading platforms across various jurisdictions and the opportunities or challenges that these new technologies bring. It studies how demand for crypto-related products and services is changing, and how regulated exchanges are responding to the opportunities and challenges posed by these technologies, including with the creation of regulated crypto-trading exchanges or the provision of crypto-related services.

Crypto-trading platforms have operated without the standards required from established public financial markets and with very little regulatory oversight. The WFE Research paper, titled, ‘A review of crypto-trading infrastructure’, studies how this offers a greater opportunity for illegal financial activities and the consequences for market integrity, and for investor protection.

The paper finds that the risks that unregulated crypto-trading platforms bring are compounded by the fact that they frequently carry out further activities that would not be permitted, or would be closely regulated, in mainstream public markets.

The Research studies the implications that the differences in model design between decentralised platforms (DEX) and centralised platforms (CEX) have on liquidity provision, price discovery and the custody of assets. It also analyses what these differences imply for fundamental aspects of financial markets regulation: anti-money laundering, prudential regulation, investor protection, and may imply for financial stability.

Dr Pedro Gurrola-Perez, Head of Research at the WFE, says: “There is a growing demand for crypto products and services. Crypto-related innovations are seen as an opportunity to advance technology development and increase investor choice, however, the lack of minimum governance and investor protection standards of unregulated crypto platforms, as well as the high volatility observed in these markets, and the risk of cybersecurity threats, is a concerning mix.”

Nandini Sukumar, CEO of the WFE, says: “Crypto is at the forefront of all of our members’ minds and we are in constant dialogue with them about how to capitalise on the new opportunities in the area. As this industry and market matures, coming in to the mainstream of financial markets, the exchange-traded model which places investor trust, transparency, accountability and investor protection at the heart of platform, will gain further momentum.”

“This is an exciting day for TSXV, as we share our commitments and plans to address near-term stakeholder challenges and build Canada’s vibrant and vital public venture market stronger for the future,” says Loui Anastasopoulos, CEO, Toronto Stock Exchange and Global Head, Capital Formation, TMX Group. “Venture Forward is a key component of our ongoing strategy to push the evolution of our unique and powerful capital formation ecosystem, serve the needs of modern stakeholders, and sharpen our competitive edge in an increasingly borderless capital market landscape.”  

Tim Babcock, Vice President and Head of TSX Venture Exchange, says: “I want to thank the hundreds of respondents from across the community for their candid input and invaluable support throughout the Venture Forward consultation process, and for their immense contribution to shaping this report. We are encouraged by the progress we have made to date in some of the key areas of focus and look forward to the collaborative work ahead in pursuit of positive change, and enduring success.” 

The report highlights four key TSXV commitments: 

• Introducing an innovative TSXV Passport Listing Process to significantly accelerate the listing and capital-raising timeline for qualified TSXV new listing applicants, 
• Accelerating the Exchange’s ongoing Digital Transformation by providing issuers with increased access to digital products, services, and resources, 
• Launching TSXV Sandbox, an initiative to encourage innovation and provide support for listing unique businesses or transaction structures, and 
• Evaluating the need and appetite for a New, Highly Differentiated Exchange to complement TSXV, with the goal of providing new categories of early-stage companies, alternative asset classes, and investors with access to public markets. 

The report contains six additional commitments designed, the exchange writes, to enhance TSXV’s position as the global leader in supporting the success of small and medium-size public companies.