Companies in this industry operate physical or electronic marketplaces to facilitate the buying and selling of stocks, stock options, bonds, or commodity contracts. Major companies include the New York Stock Exchange (owned by Intercontinental Exchange), Nasdaq OMX Group, and CBOE-owned BATS Global Markets (all based in the US), as well as Japan Exchange Group (formed by the merger of the Tokyo Stock Exchange and Osaka Securities Exchange), London Stock Exchange, and Euronext (Netherlands). Regardless of their location, major securities exchanges are global in scope.
Global equity market capitalization, which represents the value of publicly traded companies and indicates demand for stock exchanges, totaled $73 trillion in 2017, compared with $69 trillion in 2015, according to the Money Project. Of the 60 major stock exchanges in the world, the New York Stock Exchange (NYSE) accounted for $19.2 trillion in market capitalization, or about 26% of the total market for global equities in 2017. On a regional basis, the Americas accounted for about 38% of global market capitalization, followed by Asia/Pacific (33%), and Europe/Middle East/Africa (23%).
The securities and commodity exchanges industry in the US includes about 34 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $9.7 billion.
Demand is driven by investor confidence and companies seeking access to public capital. The profitability of individual exchanges depends on maximizing transaction and clearing fees while keeping transaction-based expenses low. Large companies have advantages in volume of shares traded, their ability to attract large company listings, and access to public capital in foreign markets. Smaller exchanges can compete effectively by specializing in smaller companies, sectors, such as technology stocks, regions, or specialty financial instruments. Most companies ultimately chose to list on their domestic stock exchanges. The industry in the US is highly concentrated: the four largest firms account for about 85% of revenue.
Competition among exchanges is based on providing market participants with greater functionality, trading system stability, customer service, efficient pricing, and speed of execution. Exchanges compete aggressively for new listings, including those undergoing IPOs and companies looking to switch from other exchanges. The New York Stock Exchange (NYSE) is the leading equity exchange for initial public offerings, or IPOs, globally. Rival exchange NASDAQ, a pioneer in electronic trading, has been a popular choice for technology company offerings, although it has lost ground to NYSE due in part to NYSE's expanded services and an intense marketing campaign in Silicon Valley. Competition for IPOs is global, as seen by the Chinese internet company Alibaba's choice to list on the NYSE rather than in Hong Kong.
Electronic trading and the emergence of alternative trading platforms have set off a global wave of consolidation throughout the exchange industry, as companies seek cost synergies amid increasing downward pressure on fees. The London Stock Exchange became the target of a takeover by its German competitor Deutsche Borse in 2016, but the deal was struck down by European regulators following Britain's vote to leave the European Union.
Products, Operations & Technology
Major services are trade execution, clearing, and settlement services for securities and commodity contracts (about two-thirds of industry revenue), listing
Sales & Marketing
Finance & Regulation
Regional & International Issues
Also includes the following chapters:
Quarterly Industry Update
Trends and Opportunities
Call Preparation Questions
Glossary of Acronyms