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Strategic Insights

Time To (Ex)change: The Evolution of Stock Exchanges from Trading Venues to Data Providers

This report explores in detail how stock exchanges in Asia can accelerate their growth and prepare for a digital future by selling their exhaust data, developing index services, and striking lucrative third-party partnerships.
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Over the past few decades, stock exchanges have undergone a fundamental evolution in their business models – from hand signals and verbal communications under the open outcry system, to the current stage of electronic trading. These changes have brought about a range of unique opportunities and challenges, and exchanges worldwide have been actively exploring ways in which to enhance their competitiveness, especially in light of the ongoing digital transformation efforts across the financial services industry. 

In more recent years, many exchanges, particularly those in North America and Europe, have made an aggressive push into the data industry, with several global incumbents pursuing inorganic growth strategies – including NASDAQ’s purchase of Quandl in 2017 and London Stock Exchange’s (“LSE”) pending bid for Refinitiv. Leveraging their core operations, these exchanges are monetising new data sets and proprietary transaction information, such as raw market data, value added data, and index services, to exchange members and end users, supporting market participants in their research, trading, investment activities, and in meeting their compliance and reporting obligations. 

With institutional investors and traders seeking to stay relevant and generate alpha in a world where traditional data and analysis tools have been largely democratised, growth in demand for information services has exploded. Indeed, revenue from information services now accounts for a significant proportion of total revenue for many western exchanges, including LSE (44%), TMX (37%), and ICE (27%). 

The story for Asian exchanges has been markedly different, with revenues from market and listing services growing steadily – albeit gradually – over the past decade, providing little incentive to adapt. Instead, most regional exchanges have prioritised enhancing customer experience and improving operational 

efficiency over commercialising their own data. In fact, information services only made up 10% and 6% of total revenue for exchanges in Developed Asia and Emerging Asia respectively in 2019, compared to 28% and 21% for exchanges operating in North America and EMEA. By not establishing an effective monetisation model for exchange data, we estimate up to USD 4.23 billion p.a. in incremental revenue from the provision of information services will be left on the table by Asian exchanges by 2025. 

For Asian exchanges, diversification into the data space remains hindered by a mix of internal and external factors, including conservative management mindsets, legacy infrastructure, the absence of competition, and lower customer sophistication, resulting in less urgency for change. However, with Asian markets now on the verge of several key megatrends, including rising ETF flows, growth in large-scale domestic listings, and increased data sophistication, the business case for expanding into information services can no longer be ignored. 

We see several avenues through which Asian exchanges can monetise the large volumes of data they have access to, including the sale of proprietary data / exhaust data, development of market indices, the sale of alternative data, securing third-party partnerships, and/or establishing a data marketplace. However, a clear strategy is needed to capitalise on the opportunities presented, including the development of tailored solutions that are well suited to local client demand. 

We believe it is imperative for Asian exchanges to look beyond their core trading and listing businesses into the data space if they are to remain competitive on the global stage. While a challenging journey, now is time to (ex)change. 

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