Whither Exchanges

Before the craze of demutualization, which pumped a lot of capital into exchanges for needed infrastructure improvements, everyone agreed that they were industry utilities. Now with the leading exchange operators growing their technology and service arms, it looks like they have become the agency brokers with some of the largest open crossing networks around.

Of course, regulators will make sure that banks act as banks and exchanges act like exchanges, but the line appears to be blurring. It seems to be more the case under the Markets in Financial Instruments Directive (Mifid) in Europe than under Regulation NMS in the U.S. With the introduction of MTFs and systematic internalizers, the role of exchanges is changing as they've lost their monopolistic control of trading displayed liquidity.

The leading global exchanges are morphing their businesses into technology providers first and exchanges second. It's not surprising since competition is pushing down exchange and market data fees. Like the banks, they need to find alternative revenue lines. The best example is NYSE Euronext's Advanced Trading Solutions group. In just a short time, the exchange operator has been able to integrate several acquisitions into a software and service arm stronger than most third-party vendors.

Speaking of change, this week we kick off a new offering for our DWT subscribers. For those who prefer reading us online, we've added a new feature to our Web site, www.dealingwithtechnology.com, which lets you electronically flip through the pages of DWT using the ActiveMagazine platform from Olive Software. Now subscribers don't have to wait for the mailroom to deliver the latest issue or worry whether someone's swiped it off your desk. The ActiveMagazine platform let's you print out your own copy of current or back issues as well as save them to disk for offline reading.

We hope you enjoy the new offering.

Rob Daly, Editor