Sector Overview – Financial Market Operators

CME Group Inc (CME)

CME Group Inc is the behemoth in the financial market industry with a big focus on the commodity markets, although the company operates other markets too. It owns and operates large derivatives and futures exchanges in Chicago and New York City, as well as online trading platforms. In 2014, it gained regulatory approval to open a derivatives exchange in London. It also owns the Dow Jones stock and financial indexes, and CME Clearing Services, which provides settlement and clearing of exchange trades. The exchange-traded derivative contracts include futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, rare and precious metals, weather, and real estate.

From Yahoo! Finance:

CME Group Inc., through its subsidiaries, operates contract markets for the trading of futures and options on futures contracts worldwide. The company offers a range of products across various asset classes, based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, and metals. Its products include exchange-traded; and privately negotiated futures and options contracts and swaps. It executes trade through its electronic trading platforms, open outcry, and privately negotiated transactions, as well as provides hosting, connectivity, and customer support for electronic trading through its co-location services. The company also provides clearing and settlement services for exchange-traded contracts, as well as for cleared swaps; and regulatory reporting solutions for market participants through its global repository services in the United States, the United Kingdom, Canada, and Australia. In addition, the company offers a range of market data services, including live quotes, delayed quotes, market reports, and historical data service, as well as index services. CME Group Inc. serves professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, governments, and central banks. The company was formerly known as Chicago Mercantile Exchange Holdings Inc. and changed its name to CME Group Inc. in July 2007. CME Group Inc. was founded in 1898 and is headquartered in Chicago, Illinois.

Intercontinental Exchange (ICE)

Intercontinental Exchange is the operator behind NYSE – the largest market in the world by market cap. But that is the one of the subsidiaries and ICE operators numerous other markets (23 in total), exchanges, clearing houses in a number of countries.

From Yahoo! Finance:

Intercontinental Exchange, Inc. operates regulated exchanges, clearing houses, and listings venues for financial and commodity markets in the United States, the United Kingdom, Continental Europe, Asia, Israel, and Canada. The company operates marketplaces for trading and clearing an array of derivatives and securities contracts across various asset classes, including energy and agricultural commodities, interest rates, equities, equity derivatives, credit derivatives, bonds, and currencies. It primarily provides trade execution, listing, price discovery and transparency, trade processing and repositories, clearing, benchmark administration, and market data services. The company operates exchanges and marketplaces, such as ICE Futures Europe, ICE Futures U.S., ICE Futures Canada, ICE Endex, NYSE Amex Options, NYSE Arca Options, and ICE Futures Singapore, as well as over-the-counter markets for physical energy and credit default swaps, and central counterparty clearing houses. It serves financial institutions, money managers, trading firms, commodity producers and consumers, institutional and individual investors, and other business entities. The company was founded in 2000 and is headquartered in Atlanta, Georgia.

Nasdaq Inc (NDAQ)

Nasdaq Inc is the operator of NASDAQ stock market – the second largest exchange in the world by market cap. In addition, the company operates eight European stock exchanges via its Nasdaq OMX subsidiary which includes – Armenian Stock Exchange, Copenhagen Stock Exchange, Helsinki Stock Exchange, Iceland Stock Exchange, Riga Stock Exchange, Stockholm Stock Exchange, Tallinn Stock Exchange, and NASDAQ OMX Vilnius.

From Yahoo! Finance:

Nasdaq, Inc. provides trading, clearing, exchange technology, regulatory, securities listing, information, and public company services worldwide. It operates in four segments: Market Services, Listing Services, Information Services, and Technology Solutions. The Market Services segment offers equity derivative trading and clearing; cash equity trading; fixed income, currency, and commodities trading and clearing; and access and broker services. This segment operates various exchanges and other marketplace facilities across various asset classes, including derivatives, commodities, cash equity, debt, structured products, and exchange traded products; and provides clearing, settlement, and central depository services, as well as offers transaction-based platforms. The Listing Services segment operates various listing platforms, which offer capital raising solutions for private and public companies. Its primary listing markets include The NASDAQ Stock Market, and the Nasdaq Nordic and Nasdaq Baltic exchanges. The Information Services segment sells and distributes historical and real-time quote and trade information to market participants and data distributors; and develops and licenses Nasdaq branded indexes, associated derivatives, and financial products, as well as provides custom calculation services for third-party clients. The Technology Solutions segment offers corporate solutions in investor relations, public relations, multimedia solutions, and governance. It also provides technology solutions for trading, clearing, settlement, surveillance, and information dissemination; facility management and systems integration, and advisory services; and broker services, as well as enterprise governance, risk management, and compliance software and services. The company was formerly known as The NASDAQ OMX Group, Inc. and changed its name to Nasdaq, Inc. in September 2015. Nasdaq, Inc. was founded in 1971 and is headquartered in New York, New York.

CBOE Holdings Inc (CBOE)

CBOE Holdings Inc is the operator of the largest US options exchange. CBOE offers options on over 2,200 companies, 22 stock indices, and 140 exchange-traded funds (ETFs).

From Yahoo! Finance:

CBOE Holdings, Inc., through its subsidiaries, operates as an options exchange and creator of listed options in the United States. It offers marketplaces for trading options on various market indexes; futures on the VIX Index; options on the stocks of individual corporations comprising equity options; and options on other exchange-traded products that include ETP options, such as exchange-traded funds and exchange-traded notes. The company owns and operates CBOE primary options market, which offers trading for listed options through a single system that integrates electronic trading and traditional open outcry trading on its trading floor in Chicago; CFE, an all-electronic futures exchange, which offers futures on the VIX Index, as well as on other products; and C2, an all-electronic exchange that also offers trading for listed options. Its exchanges operate on its proprietary technology platform, known as CBOE Command. The company has a strategic relationship with S&P OPCO LLC, Frank Russell Company, NASDAQ, Inc., MSCI, and S&P Dow Jones Indices. CBOE Holdings, Inc. was founded in 1973 and is based in Chicago, Illinois.

TMX Group Inc (TSE:X)

TMX Group Limited operated equities, fixed income, derivatives, and energy markets. TMX Group is the operator behind Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV). The company provides services encompassing listings, trading, clearing, settling and depository facilities, information services as well as technology services for the international financial community.

From The Globe And Mail:

TMX Group Limited is a Canada-based company, which operates in equities, fixed income, derivatives and energy markets. The Company provides services encompassing listings for its issuers, trading, clearing, settlement and depository facilities, information services, as well as technology services for the international financial community. Its products and services include issuer services; trading, clearing, depository and related services, which include cash trading, clearing and depository (consisting of equities trading, fixed income trading and equities and fixed income), derivatives trading and clearing and energy trading and clearing; information services, and technology services. The Company operates through Toronto Stock Exchange, TSX Venture Exchange, TMX Select Inc., Alpha, The Canadian Depository for Securities Limited, Shorcan Brokers Limited, CanDeal.ca Inc., Canadian Derivatives Clearing Corporation, TMX Technology Solutions and Montreal Exchange Inc., among others.

Summary

The Sector Overview series of articles provide a mile-high view of a sector, highlighting some of the major players in the space. This article takes a look at the financial market operators and focused on five major players in the North American market. Market operators are often overlooked by investors as an investment, even though they use the services and happily pay the service fee on a day-to-day basis. While some of these operators listed in this article may compete directly against each other, each market is in reality competing with every other market in the world. These market operators (in case of equity markets) want the next hot company going public listed on their exchange, so that investors trading these stocks pay the fee improving a company’s cash flow. Note that while retail investors may focus on stocks – other financial markets such as commodity markets are thriving and a market operator such as CME Group is much bigger than other stock market operators. Do you invest in any of the financial market operators listed? What are your thoughts on investing in them? Share your insight below in the comments section.

Further Reading: See my other Sector Overview articles here.

Full Disclosure: None. My full list of holdings is available here.

12 thoughts on “Sector Overview – Financial Market Operators

  1. Hey R2R,

    thx for making these high level sector overviews. I only discover them now. I will be reading more of them.

    It helps to understand a sector and the major players. For me, it is a solid basis to start my own research for sector ETFs or undevalued players in the sector.

    I jump onto the railroads now

    • Im glad you enjoy the mile-high overviews…Like you gather, its meant to be an introductory post showing who the major players are and learning something about the space. If the sector interests you, you can then drill down into each company or use sector ETFs – if you wish (although I doubt there is a sector ETF specifically for this sector or railroads).

      Let me know what you think of the railroad post. Also, be sure to check out the other side of the argurment – teh Sector Challenges. I just have one post in that series — on railroads. Heres the link: http://roadmap2retire.com/2015/11/sector-challenges-railroads/

      cheers
      R2R

  2. Hey R2R,

    Very interesting analysis R2R, I was only aware of 3 of those (ICE, NASDAQ and TSE). I find it very interesting how the exchanges gain their earnings, for me it’s quite difficult to gauge where future growth will come from..I’m sure there will be growth but I can’t make the connection.

    You mentioned the ASX, which is one player in the game. It nearly merged with the Singapore one, not too long ago. At the moment is a domestic player only, it will need to travel to other countries if it’s ever going to become something bigger – Australia isn’t a big enough market.

    Tristan

    • Hi Tristan,
      Thanks for commenting and sharing — providing us with some input from Down Under. I didnt know ASX tried to merge with the Singapore exchange…that would be a good way to grow the company I suppose. You are geographically close to Asia – where theres so much growth, im sure the agile companies will find a way to grow the earnings.
      ICE, NASDAQ and TSE get all the media coverage, but like the charts show, the commodity and options markets are also huge. Before I wrote this article, I didnt know CME was bigger than ICE and has such a huge market cap, better dividend growth story etc. Definitely worth a closer look – as the “markets” themselves arent going anywhere — we will always need them. They are the consumer staples of the capitalistic corporate society 🙂

      R2R

      • Hey R2R,

        By growth I meant for the Australian Stock Exchange company (ASX:ASX). There a number of Aussie companies that have expanded overseas (and into Asia) with varying degrees of success. Most of the ASX’s activity comes from Australian based companies.

        There are a handful of American small tech companies that listed in Australia simply because they could raise more here than in the USA – because Australia is a much smaller market in terms of number of companies, but has a lot more money to throw at new ideas.

        There are also a growing number of Asian, particularly Chinese, companies that seek to gain a certain ‘status / acceptance’ because they’re list on a respectable exchange like the ASX and the investors love the growing-Asia story. Buyer-beware though, nearly all of these Asian-ASX-listed companies have been terrible investments, their finances are opaque and they are at the whim of the Chinese Government to shut them down / steal investors’ money.

        24M people isn’t a lot to sustain the size of the Australian share market.

        Tristan

        • Thanks for sharing your thoughts. And for the reminder that the Asian companies are something to be careful about — true that it depends on the whim of the Chinese government. Its one of the reasons Ive avoided even large caps like Alibaba.

          R2R

  3. Between Simply Safe Dividends’ write up of McGraw Hill and now this, I’ve been humbled recently on how little about finance I actually know. But once you come to the realization that a private company owns the exchanges, it makes sense. Just as a private company owns a shopping mall and the Macy’s, Sear’s, and Old Navy are its tenants that pay to be there, the same holds true for the stock exchanges.

    Perhaps I missed it in your article, but how do the exchanges’ parent companies make money? Per trade, per listing, or a monthly/annual “rent”?

    Sincerely,
    ARB–Angry Retail Banker

    • Hi ARB,
      Theres always something to learn, isnt there? It is interesting that most investors do not focus on these companies…I just posted the article on SeekingAlpha too and barely got any pageviews (lowest record ever in all my writing so far) — which just goes to show that no one really follows these stocks.
      I am not familiar with the details of their business models. My guess is that they charge a transaction fee per-trade, but I could be wrong. I will have to dig deeper and find out how their rev & earnings are generated.

      R2R

Leave a Reply

Your email address will not be published. Required fields are marked *