By Claire Williamson of the Bank’s Market Infrastructure Division.
The structure of exchange-traded markets continues to change. Three distinctive—and linked—trends are: mergers between equity and derivative exchanges within countries, new types of links between exchanges in different countries, and demutualisation. Links between exchanges are not new, and exchanges have been undertaking cross-listing links for a number of years. For example, the Chicago Mercantile Exchange (CME) and the Singapore International Financial Futures Exchange (SIMEX) have linked to cross-list the CME’s eurodollar contract since 1984.(1) What makes the current trends particularly significant is the nature of the economic forces driving change, particularly those arising from technological development, and the implications for market-users, other types of infrastructure and the authorities. The Bank’s interest in this arises from its purpose of maintaining the stability of the financial system, and the effectiveness of UK financial services.
The current changes in market structure are comparable in scope to the changes that have happened to regional equity markets within countries. These regional markets gradually consolidated as communications improved, leaving most business being done in one national exchange in most countries. For example, the UK regional stock exchanges consolidated as long ago as 1973. This article describes three of the more recent trends in market structure and analyses the key factors driving these changes. It focuses on supply-side factors, though demand-side factors, such as changes in the demand for instruments resulting from EMU, are clearly also important.