Welcome to a new iteration in the Sector Overview series of articles. In this article, I present an overview of a small subset of companies that is often overlooked by investors – although investors use their services on a day-to-day basis: financial market operators. These can include companies that operate stock markets, derivatives markets, bond markets, commodity markets, currency markets etc.
Whether the overall economy or “market” is up or down – investors always flock to trade their assets on these markets. Suffice it to say, these markets provide one of the most essential service in a capitalistic society. Whether its the need to trade commodities on a daily basis, or a startup company going public, these marketplaces play a crucial role in the corporate world. As mentioned – even though investors may use the services from these companies on a day-to-day or even hour-to-hour or minute-to-minute basis, the same investors overlook these companies as an investment choice. I want to highlight some of the major players in this space and some thoughts on investing options.
Sector Overview – Financial Market Operators
The major players amongst the North American markets are: CME Group Inc (CME), Intercontinental Exchange Inc (ICE), Nasdaq Inc (NDAQ), CBOE Holdings Inc (CBOE), TMX Group Ltd (TSE:X).
These are of course, not the only major players in the space – almost every stock market operator in the world is run by a company that is often tradable. For e.g., The Australian Stock Exchange — ASX Ltd (ASX:ASX) trades on ASX. Similarly, the London Stock Exchange Group plc (LON:LSE) trades on London stock exchange — and is in the midst of considering a merger with Deutsche Boerse AG (ETR: DB1) (Update: The two companies have agreed to merge in a $30B deal). There have been plenty of other mergers (including in N.America) over the years and the industry continues the path towards consolidation. But for the sake of brevity (listing and covering every financial market operator in the world is not possible in this article), I will only cover the N.American markets in this article.
The five listed market operators may not directly compete against one another – although ICE, NDAQ and TSE:X compete for the same (or similar) equity market listings. The direct competitors for each of these companies can other international markets where they compete for public companies to be listed. For e.g., when Alibaba Group Holdings Ltd (NYSE:BABA) went public in 2014, markets across the world were competing and it eventually came down to NYSE, NASDAQ or Shanghai market listing (Alibaba eventually decided to list on NYSE). So, keep in mind, that even though the companies listed are financial market operators – these may be apples-to-oranges comparisons, so to speak.
In order to put the relative size of the companies into perspective, the following charts are provided.