Stock taking at the stock exchanges

After a year of intense public scrutiny, Alastair Fairbrother gives his take on the communications challenges facing the exchanges community globally.

It hasn’t been easy being a stock exchange over the past few years. From Wall Street to Paternoster Square, home of the London Stock Exchange, the Occupy movement brought exchanges on both sides of the Atlantic face to face with an outpouring of anger against the financial services industry. As protestors pitched tents at their doors, the exchanges were already locked in a fight with the men in suits of their own, fighting a rearguard action against a slew of both global and local regulation, threatening to fundamentally change their business and that of their customers. And if that wasn’t enough, there’s been all manner of bickering, infighting and failed marriages among the exchanges themselves. 

Over the past year alone, we’ve seen the Australian Securities Exchange’s plans to merge with its counterpart in Singapore, London’s tie-up with Toronto and the blockbuster deal between the New York Stock Exchange and Deutsche Börse all scuppered. As in previous phases of exchange consolidation, each deal raised its own nationalistic and regulatory questions, from how many seats each exchange would get on the new boards right down to emotional outpourings over possible names for the combined entities. But of course what really defined this latest round of merger-mania was the lack of any significant exchanging of vows between bourses, even to match the scale of the London-Milan tie-up for example just a few years before.

Perhaps the financial crisis had sharpened how some politicians see their ‘local’ stock exchange, making them more inclined to protect it, to keep it firmly within their control, seeing it as a systemically important asset rather than something to be happily sold off to the highest bidder. Against a backdrop of collapsing megabanks it isn’t hard to see why on a very basic level parliaments and regulators, trying to understand a world around them in total flux, might have been more than a little nervous about seeing cross-border mega exchanges added into an already volatile financial mix. 

While our elected representatives were busy learning what the stock exchange actually does, sections of the media were on a learning curve too as reporters were drafted in to explain highly complex areas of the financial system to a broader audience than ever before. At the London Stock Exchange the press office phones rang off the hook with filming requests for the trading floor, which had closed decades earlier. The broadcast press needed traders and David Buik obliged. Readers and journalists alike emerged savvier and better informed than they had been before about previously entirely opaque or incomprehensible parts of the global economy.

So where does all this leave stock exchanges today? Slightly battered, bruised and out of pocket from a string of failed mergers, the near future seems unlikely to be peppered with large international bourse deals. Pursuing other strategic initiatives, including alliances and partnerships, particularly in the lucrative post-trade space, appears to be the order of the day for now, with the London Stock Exchange exploring ways to help the Bucharest Stock Exchange to build its own clearing operations for example. 

Exchanges are also clubbing together to increase their influence in the corridors of power. The World Federation of Exchanges is reportedly to appoint its first ‘chief executive’ in a bid to help transform itself from a loose association known for preparing statistics and research papers into an effective, active lobbying group for exchanges battling an unprecedented wave of new regulations and competition. 

With the eyes of the world on them and their business model evolving like never before, the communications challenge for the traditional exchanges in the mainstream media is to ensure that they continue to promote understanding of their role in the real economy, positioning themselves as part of the solution in difficult economic times rather than part of the problem. Stock exchanges provide billions and billions of pounds of capital per year to help companies grow and flourish, investment that it is particularly vital at the small and mid cap end of the market, where it might not readily be found elsewhere. Public markets support thousands of jobs, directly and indirectly and are home to many of our pensions and investments. 

So despite all the changes to them, their business and the world around them, stock exchanges continue to play an absolutely essential role in our financial system. Long after regulators finally close their files on the current tsunami of legislation, the exchanges will still be around. But exactly what the industry as a whole will look like in ten, twenty years time remains anybody’s guess. 

This article first appeared on Gorkana.