Exchanges will have to spend more, share more and collaborate more in the coming years, according to a published report from the World Federation of Exchanges (WFE) and Oliver Wyman.
The report, issued on Thursday at the 35th IOMA: The WFE’s Clearing & Derivatives Conference in Chicago focused on the recent trends for the exchange, CCP and market infrastructure providers since the 2008 financial crisis. It points out that five key themes will emerge in the coming decade: higher standards for market integrity; surveillance and supervision as both a regulatory function and customer service; broad industry cooperation and collaboration; near real-time surveillance; and a more principles-based approach.
This trend toward more collaboration across many key aspects of the exchange sector will be costly, however. The report estimates that the industry will need to spend up to $3 billion to $4 billion over the next five years, with about 40 percent of the cost taken on by market infrastructure participants.
“We believe incumbent exchanges will require a proactive approach to be able to tackle this,” said Daniela Peterhoff, partner, global head of market infrastructure at Oliver Wyman. “We do think there will be significant investments by market infrastructure providers into artificial intelligence and pattern recognition.”
Hosted by OCC (Options Clearing Corporation), the two-day conference focuses on post-trade issues with global exchanges and clearinghouses, among others. The report may serve as a guide for how exchanges will continue to evolve in the coming years.
Several speakers at the event emphasized the need to ensure integrity in the markets, and for exchanges with cleared structures to deliver on that pledge.
Sandy Frucher, vice chairman of Nasdaq, said exchanges must do a better job of explaining what they do and the job they serve in society.
“I don’t think the public recognizes what exchanges do,” Frucher said. “We must rebrand exchanges. The exchange is really the forum that really tests investment, and guarantees fair and equal access to the markets.”
The WFE report concludes with several recommendations including: finding balance on regulation, establishing new standards of governance for issuers and participants on exchanges, and creating more partnerships among participants to streamline costs.