Morningstar’s latest report reveals that Exchange Groups have been acquisitive, and the firm writes that it expects this to remain true.
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.”
