Nasqaq’s Foreign Exchange

According to the exchanges, the combined Nasdaq OMX will deliver $100 million in annual cost synergies from rationalization of IT systems and data centers, as well as by consolidating on OMX’s Genium platform—though after combining the Nasdaq Market Center with its Brut and Inet ECNs, Nasdaq will retain the Inet equities trading platform.

A key part of OMX’s business is providing exchange technology to exchanges such as the International Securities Exchange, the Singapore Exchange, as well as its own Nordic and Baltic marketplaces. To this end, OMX recently inked a deal with Cicada to provide the backbone for its upcoming Genium Market Info feed. While a statement from the exchanges says that the combined group will “leverage the strength of each organization’s distribution capabilities,” Genium looks set to become the data distribution platform for the merged group.

However, Nasdaq’s history of overseas partnerships is not a happy one: The exchange pulled out of its Nasdaq Japan venture with the Osaka Stock Exchange in 2002, and closed its Nasdaq Europe and Nasdaq Deutschland operations less than a year later, soon after Greifeld joined the exchange. One wonders why he is so keen to dive back into international waters.

The answer lies in two key trends affecting the exchange industry as a combined force—globalization and consolidation. Together, these are driving exchanges to strike out into new markets by forging alliances and mergers with rivals.

Consolidation also puts exchanges on the offensive against other competitive trends such as eroding market share and the EU’s Markets in Financial Instruments Directive, which is set to fragment trading between exchanges and new MiFID-inspired venues such as Instinet’s Chi-X, Equiduct and bank consortia such as Project Turquoise.

Also, Nasdaq is striving to keep up with NYSE Euronext’s mega-merger.

With the spotlight firmly on exchanges, this week’s stories also highlight other challenges facing the industry—low-latency feeds for algorithmic trading, consolidation of venues, and addressing rising bandwidth and data volumes.

Like Nasdaq and OMX, the Intercontinental Exchange and recent acquisition the New York Board of Trade are playing the integration game. In this case, ICE has taken the dominant role, migrating Nybot’s products onto ICE’s platforms—though the exchange also plans a new, joint datafeed.

Meanwhile, the London Stock Exchange has set a date next month for the introduction of a low-latency feed offering, dubbed Performance Channels, which will provide faster delivery of data during times of peak trading activity, coinciding with the launch of the LSE’s new trading platform, TradeElect, which is expected to generate increased trading volumes as a result of higher capacity and faster matching. Performance Channels will be key to delivering this increased data at the lowest possible latency over dedicated, high-bandwidth channels, without forcing bandwidth upgrades on all consumers of LSE data.

This is also likely to be an issue for Nasdaq OMX, which will become the largest exchange globally by number of listed companies, and OMX’s expertise in providing technology platforms may have been a contributing factor for the deal. Though OMX doesn’t have the size and cache of Nasdaq’s first love, the London Stock Exchange, Nasdaq’s “rebound” may yet have other advantages.

Max Bowiemax.bowie@incisivemedia.com