Stock exchanges have been at the heart of financial markets for centuries but a burst of innovation — in digital assets, sports bets and real estate trading — is giving them a chance to apply their technology to new markets.
Many transactions that used to take place physically have moved online. Cryptocurrencies and digital assets make use of exchange-like mechanisms while digital art and digital sports memorabilia, authenticated by so-called non-fungible tokens (NFTs), are also being exchanged electronically.
“From when I started 25 years ago in this space, there [are] way more asset classes now looking for some kind of marketplace, exchange or trading venue” says Hirander Misra, the founder of GMEX Group, a trading technology provider.
“In the past, it was equities, derivatives, you know, securities . . . now, all of a sudden in the past few months, we’ve been inundated with requests to provide our technology for NFTs.”
Nasdaq was one of the first exchanges to recognise that its knowhow had applications outside traditional finance. Since Adena Friedman became its chief executive in 2017, the New York group — which now has a market value of $27bn — has been expanded its technology business.
“Trends around digital assets are making things tradeable in a market format that has not typically been the case,” explains Scott Shechtman, head of new markets at Nasdaq. “That movement feels like it’s heading in our natural direction.”
As well as providing trading and surveillance technology to traditional financial institutions, Nasdaq has moved into markets including sports betting, cryptocurrencies and real estate trading. Its customers include the Hong Kong Jockey Club, which runs a government-granted gambling monopoly in the territory, the LEX and IPSX real estate exchanges and Bitstamp, one of several cryptocurrency exchanges.
On its website, Nasdaq draws a parallel between sports betting and financial markets, pointing to the rise of bets that are placed while sporting events play out — akin to how traders deal in shares in real time.
As US states legalise and regulate sports betting activities, more opportunities could arise to provide surveillance technology. However, Shechtman cautions that the state-by-state approach to sports betting — as opposed to a countrywide approach — creates challenges.
“The surveillance technology could be extremely useful in sports betting — and we’ve talked about it a lot — but what you need that’s critical is the operators in that space sharing betting data,” Shechtman says. “One thing you see in exchanges is [that] regulators are very much focused on making sure that all transactions are seen . . . our technology in surveillance works by looking at all of those transactions . . . across the wider market.”
There are also risks to working with start-ups in sectors that have less regulation than the financial markets.
In March, Football Index, a start-up betting operator in the UK and Jersey, collapsed — leaving customers nursing losses and unable to immediately access their remaining funds. The company had struck a deal to adopt Nasdaq’s technology to match bets but never completed the move. “We’ll continue to be thoughtful as we approach the space,” says Shechtman, pointing to the exchange’s vetting process for new clients.
Stéphane Boujnah, chief executive of Euronext, the European exchange group, accepts that rivals can see opportunities to sell their technology to new sectors.
However, Boujnah, who has overseen the acquisition of national exchanges in Italy, Ireland and Norway, says his mandate is “to do more of the same but bigger and to do better what we do well”. Once Euronext buys a rival, it sets about equipping it with its Optiq trading system. The exchange also sells technology to financial institutions.
Boujnah is more cautious about selling trading technology to non-financial marketplaces. “Our risk appetite for becoming a technology provider in areas where we are not experts is low,” he says.
Other technology providers are more open to the idea. Aquis Exchange, the listing and trading venue founded by Alasdair Haynes, a City of London veteran, is among those examining its role in the digital economy.
Near-term, however, he says Aquis must continue to focus on providing trading and surveillance technology to banks, brokers, investment firms and exchanges. He cautions that expanding into the digital economy is a medium-term goal being discussed by the board rather than an imminent opportunity.
Aquis, which has agreed to provide trading and surveillance to UK-based Archax, a digital-securities market that plans to launch this year, is also looking at the trading of digital items in video games, esports and competitive gaming, as well as other consumer growth areas.
“We’ve got to understand that the world is moving,” says Haynes, addressing the rise of esports and other marketplaces. “That gives us an enormous playing field to get out there and decide where are our strengths and where do we get involved in that.
“You pigeonhole something when we talk about exchange technology,” he says. “I don’t think it will be called exchange technology in the future.”
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June 01, 2021 at 10:00AM
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Exchange technology races into markets from betting to art - Financial Times
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