Owning the Market: The Business of Listed Stock Exchanges

From Regional Floors to Global Utilities

A generation ago the world’s stock exchanges were clubby, member‑owned pits where brokers shouted orders across creaking wooden floors. Their revenue came from seat sales, trading posts and the occasional rights issue to pay for a new coat of paint. Two forces—electronification and demutualisation—changed everything. What began in the late‑1990s, when Sweden’s OM pioneered screen‑based trading and Nasdaq broke the Big Board’s monopoly on U.S. listings, is now effectively complete: more than twenty exchanges—controlling the vast majority of global equity and derivatives flow—have floated their own shares.

They range from century‑old icons such as the New York Stock Exchange, now wrapped inside Intercontinental Exchange, and the London Stock Exchange, to Tokyo’s Japan Exchange Group and newcomers like the Saudi Tadawul Group and Dubai Financial Market, which listed themselves barely a decade after petrodollars turned their home economies into regional finance hubs.

Yet for all their cultural quirks, the venues share a single strategic ambition: to be the indispensable toll collector every time capital changes hands—whether that trade is a blue‑chip share in Frankfurt, an oil contract in Dubai or a tokenised Tesla stub on a server farm in Singapore. That ambition demands scale, technology and, increasingly, a regulatory seat at multiple tables. The result is a global patchwork of exchanges that look less like dusty marketplaces and more like vertically integrated, data‑hungry utilities—think of the power grid, except the electrons are cash and risk.

How the Money Flows—and Why It Sticks

An exchange earns its keep in three thick strokes, but the palette has become more nuanced with scale. First come transaction, market‑making and clearing fees—the explicit cents‑per‑share or pennies‑per‑contract that appear on every back‑office invoice. CME Group harvested more than US$5 billion last year from matching and guaranteeing trades ranging from corn and West Texas crude to Fed‑funds futures—an astonishing figure for a firm that owns no physical inventory.

Second is information: proprietary data, indices and connectivity. Nasdaq’s data segment throws off margins north of sixty per cent because buy‑side desks cannot risk stale quotes, while FTSE Russell, nested inside LSEG, underpins trillions in passive assets whose managers renew licence fees like gym memberships—automatically and with few questions asked.

The third stroke is listing and corporate services—the prestige game. Every founder choosing to float on Euronext Paris or Singapore Exchange pays for the privilege upfront and then again each year for compliance bells, whistles and ESG‑friendly disclosure portals.

Dig deeper and two more income veins appear. Post‑trade services—from collateral management at Euronext’s LCH to securities lending at Brazil’s B3 —lock clients in with operational glue. And technology outsourcing has become a silent profit engine: more than a dozen emerging‑market bourses now rent Nasdaq’s matching engine or ICE’s clearing tech, paying royalties that carry venture‑capital‑level margins.

If that sounds like a licence to print money, it often is. Operating margins at the largest venues routinely hover above forty per cent, and cash conversion is enviable: minimal capital sits in inventory, yet compliance costs deter would‑be entrants. Once a trading desk is wired into an exchange’s data and risk pipes, ripping them out is like rewiring an Airbus in mid‑flight—possible, but rarely worth the turbulence.

Regulation, often portrayed as a shackle, doubles as a moat. Licences are dear, capital buffers heavy and the rulebooks were drafted, line by line, in rooms where the incumbents held the pens. When Deutsche Börse tried to merge with NYSE Euronext back in 2012, antitrust watchdogs blocked the union rather than risk too much clearing power in one pair of hands. The unintended consequence: the survivors enjoy quasi‑oligopolies in their home markets. Meanwhile, trading algorithms are tuned down to the microsecond for each matching engine’s quirks; ask any quantitative desk how long it takes to migrate a strategy from Cboe EDGX to a new venue and you’ll hear muttering about six‑month certification cycles and re‑calibrated risk models.

Stress Fractures in the Fortress

The walls are tall, but fissures are widening. Alternative trading systems—dark pools in the U.S., systematic internalisers in Europe—now print roughly forty per cent of American equity volume and more than a quarter of trades in developed Europe. Every basis point that migrates trims the take for lit venues such as Cboe and Euronext. Policymakers are also circling the moat: Brussels and London are pushing consolidated tapes aimed at capping eye‑watering data fees, a threat to the cash cows that prop up LSEG, Euronext and Deutsche Börse’s Qontigo index unit.

Asia brings its own cocktail of opportunity and risk. HKEX sees deal flow ebb and flow with Beijing policy: clamp down on outbound investment quotas and turnover evaporates; whisper about new Stock‑Connect channels and volumes explode. Singapore Exchange must fight to retain Southeast‑Asian listings that could migrate to Nasdaq, while ASX battles to fix its decade‑long CHESS settlement overhaul without ceding market share to the upstart Cboe Australia platform.

Technology also eats at the edges. Crypto venues already trade tokenised Apple or Nvidia stock at any hour of the day; liquidity is thin and spreads wide, but the proof of concept is live. Cloud‑native start‑ups, backed by deep venture pockets, claim they can spin up a matching engine in months, not years—if, that is, regulators and Tier‑1 banks ever trust the code. Even within incumbent walls, the ground shifts: CME has embraced Bitcoin futures, while ICE quietly seeds a carbon‑credit marketplace, a bet on the monetisation of environmental policy.

Reading the Tape from an Investor’s Seat

So what exactly do you buy when you pick up a share in an exchange group? At its core, you are purchasing both utility‑style predictability and Silicon‑Valley‑flavoured operating leverage. Data contracts renew with library‑quiet regularity, clearing fees roll in whether the sun shines or not, and a spike in volatility can turn an average quarter into a record one for options‑centric names like Cboe. Shareholder payouts add icing: most venues target dividends of thirty‑to‑fifty per cent of earnings and run buy‑backs because capex needs are modest.

The bear case is equally clear. Regulators could cap data fees, a global shift to twenty‑four‑seven tokenised trading could sidestep legacy infrastructure, or a prolonged spell of market calm could crimp derivatives volumes. Execution risk also looms: ASX’s CHESS debacle delayed a critical blockchain‑settlement upgrade by years, inviting ridicule from brokers and scrutiny from Canberra. Finally, mergers rarely come cheap; LSEG needed two years to digest Refinitiv and soothe clients hit by pricing overhauls.

Yet habit, regulation and liquidity inertia stack the odds in incumbents’ favour. Most new market entrants are acquired, absorbed or licensed rather than allowed to displace. When ICE snapped up the NYSE for US$11 billion in 2013, sceptics predicted the end of the trading floor; instead, the deal became a cash engine that funded ICE’s expansion into fixed‑income data and environmental markets. Even crypto disruption can be co‑opted: CME lists Bitcoin futures, HKEX is working on digital‑asset custody rules and Deutsche Börse recently acquired Crypto Finance AG to capture tokenisation flow. New roads may be built, but history suggests the toll collectors will find a way to own at least part of the concession—or charge for the map. Find out below which of the names make it to our Global Quality Portfolio.