MICROSOFT, GOOGLE, AMAZON INK TIES WITH EXCHANGES

THE DEALS

Market Data Guru has been at the forefront of arguing that it was only a matter of time before Big Tech made a lightening strike on the world of market data and financial information, and three deals over the last year between Google, AWS, Microsoft, and the Chicago Mercantile Exchange, NASDAQ, and the London Stock Exchange respectively, represents small yet serious forays into the market with long term implications. The LSEG deal is especially ambitious.

First the Deals

  • Nov 2021 a 10-year strategic partnership to accelerate CME Group’s move to the cloud with Google backing the deal by buying a US$1 Billion stake in the CME
  • Nov 2021 NASDAQ teams up with AWS to migrate its North American markets core infrastructure to AWS with data services specifically, anti-financial crime, data and analytics, and market software solutions, and the first market Nasdaq MRX competed the move by 30/11/2022. But no equity stake.
  • Dec 2022 Microsoft buys 4% of London Stock Exchange Group for US$2 Billion with LSEG funnelling its data and analytics services into Microsoft’s Azure and applications. Also, there is a US$2.8 Billion guaranteed revenue generation component.

It is notable that these are the biggest global trading venues, offering multi-asset class markets, ranging from listed equities to fixed income, foreign exchange, and commodities, very attractive to data hungry businesses. Equally the fourth major player, ICE, has yet to make a move, IBM perhaps?

It also marks the true transition of the Cloud from a static based storage mechanism to a dynamic inter-relational environment interacting in real time.

Second, Motivations and Impacts

Strikingly Big Tech is skipping the market data aggregators like Bloomberg, Factset, and Morningstar, instead going direct to the data source owners of the world’s largest financial markets. Although LSEG itself owns one of the biggest vendors in Refinitiv.

These deals tie together Exchange’s content with Cloud Tech’s accessibility. Conventional distribution mechanisms cannot reach as many different entities in as simple a format as the Cloud.

These deals will open the doors to greater competition amongst the big exchanges, though at the likely expense of smaller trading venues.

A NEW TOMORROW

What does the market data world have to offer Big Tech?

  • Content, lots of high value proprietary content that is streaming in real time, thereby forcing those that need it to be constantly engaged, which is a very effective and continuous revenue generator (and doesn’t Big Tech love that)
  • Technology wise it is more advanced than most other sectors in distributing and managing vast datasets in real time to support capital markets trading on a global scale
  • An attractive business model based on data as services not sales, i.e. a recurring data model, note how Microsoft switched from once off licence sales to annual subscriptions (Guess where the idea originated)
  • The ‘Snicker’s Effect’, the same item of data is charged for usage, so each different purpose incurs a new fee
  • Strong Intellectual Property Rights to back up agreements
  • Money rich clients locked into long term contracts creating strong and sticky revenue streams

Most importantly financial products and services they can offer to their own Cloud clients, especially in the retail investors (big online users) and high net worth individual space. For the exchanges it expands their product offerings beyond the financial institutions into, guess what, the retail and high net worth individual space which their existing business models are currently not suited for.

This makes it a strong win-win for the Cloud Providers and the Big three Exchanges.

FUTURE OUTLOOK

When someone wins, there is going to be a loser, often more than one. What must be concerning for the smaller exchanges, even the larger players like ASX, CBOE, Deutsche Bourse, Euronext, and TMX, is that these deals give the CME, LSEG, and NASDAQ a global reach backed by better tech, with greater financial firepower that could well act as magnets to attract trading in their own markets using more advanced platforms linked to more financial institutions, with access to a greater range of data and analytics than they can provide or indeed afford.

The links are now being established between Big Tech and Big Exchanges, they are small, yet with the capacity in the future to create true global trading venues, albeit dominated by three powerful partnerships.

The people who should be worried are those third parties blind to the potential opportunities these partnerships will develop and take advantage of.

CONTACT

Keiren Harris 14 December 2022

www.marketdata.guru

www.datacompliancellc.com

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