Elevating the Exchange

In brief

• Exchanges have been facing shrinking operating margins in their traditional, fee-based business for years.
  
  
• In response, they need to look for new sources of revenues such as revenues from selling data or from the rise of digital assets.
  
  
• Given the nature of the exchange business, this requires a strong digital core with a fully integrated and modernized technology architecture.

Bringing digital capital markets to the next level

Exchanges are now entering a second industry-wide technology revolution across their primary and secondary markets. Driven by a multitude of competitive forces, they face today three key technology challenges – designing new technology architectures, turning them into reality via cloud, and creating operational efficiencies using generative AI.

But crucially, exchanges need also to find new revenue sources to make up for shrinking margins in traditional fee-based business lines. New revenue streams could be found around data services (e.g., services for ESG data) or in the digital asset space and by further building on other already existing non-traditional businesses or creating new ones.

Generative AI and Distributed Ledger Technology

Gen AI has use cases across the entire value chain of an exchange; in the front-office, it can help exchanges to use their data to personalize services for customers in real-time. In the middle-office, gen AI could analyze system performance data and predict latency slowdowns before they actually occur. And in the back-office, it can help to streamline complex activities around large datasets, such as synthesizing back-testing data or corporate action sets.

Distributed ledger technology (DLT) could enhance trade lifecycle services of the traditional exchange business and the post-trade services, both of which rely on large amounts of data being handled and cleared.

New revenue streams

Many exchanges already offer some mix of non-traditional services, such as data and analytics, technology-solution provisioning (risk, surveillance and clearing solutions) or post-trade services (reporting and corporate-actions information).

But in the future, exchanges will need to find even more new revenue streams given shrinking margins in their traditional businesses, e.g., through exploring further the monetizing of data they posses. But opportunities are not limited to data services only: sustainable finance instrument issuance, such as green bonds, is on the rise and this could offer exchanges also an opportunity to create innovative new products or build secondary markets.

The human touch

But tech-focused steps alone are not enough. To succeed at reinvention, dedicated change-management is crucial. Everyone must be educated on the enterprise’s new capabilities, operating models and the key roles each individual will play. Developing, upskilling and retaining the right talent will be crucial in fostering an agile, diverse and engaged culture.