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But in recent months, both Nasdaq and NYSE Euronext have acquired the leading technology suppliers to exchanges of matching engines and operations platforms. Nasdaq bought OMX, the Swedish market operator and the world's largest supplier of technology to exchanges, while NYSE Euronext paid about $408 million to in-source the IT joint venture Atos Euronext Market Solutions (AEMS) and gain control of the NSC and Liffe Connect trading platforms.
The question is: Will other exchanges, which view NYSE Euronext or Nasdaq OMX as competitors, want to run on exchange-aligned platforms, or are the potential conflicts of interest too much for the customers of the tech platforms?
Already, the winds of change are ruffling some feathers. In January, the International Securities Exchange (ISE), one of OMX's largest clients in North America, voiced its intent to move off the OMX trading platform, known as Click XT. ISE said it was building a new options trading platform as part of its merger with Eurex, the Swiss and German derivatives arm of Deutsche Borse.
When Nasdaq announced the acquisition of OMX back in May 2007, ISE was adamant about staying with the OMX platform, saying that it would upgrade to Genium, OMX's new low-latency trading platform. But a month after ISE's $2.8 million merger with Eurex was finalized, ISE revealed plans to replace OMX in early 2011.
"It's an opportunity for us to capture strategy and cost synergies that have become available as a result of the merger," says Gary Katz, ISE's CEO. "Being able to build the platform internally and use our own resources and not have to pay a third-party vendor is clearly a cost saver." Katz praises ISE's relationship with OMX and maintains that Nasdaq's merger with OMX had no effect on ISE's decision.
But the ISE is not the only exchange to migrate off a competitor's platform -- CME moved the CBOT off of the NYSE Euronext's Liffe Connect platform and onto Globex in January. Observers say that no exchange wants to pay software revenues to its competitors.
"You don't want to reward your competitor," says David Easthope, senior analyst at Celent, an Oliver Wyman company. "Even if it's a good relationship, if you're biggest vendor is acquired by a new competitor, you have to think about the future. ... At the end of the day, you want to own the technology that your system is running on."
On the other hand, OMX has been signing up many emerging markets and alternative marketplaces, including stock exchanges in Bombay, Colombia and Indonesia. In January, Agora-X, a new ECN for trading OTC commodities, picked OMX as its software, hardware and hosting service (see related article, page 13). "OMX has been in the business for a long time, and the trust has built up to deal with exchanges that compete with each other and sometimes with us," notes Markus Gerdien, Nasdaq OMX's president of market technology.
Still, some of the alternative marketplaces are picking more independent tech suppliers. Despite rumors that Turquoise had been considering OMX, last year, the Pan European multilateral trading facility selected a more neutral provider, Stockholm-based Cinnober Financial Technology, as its matching engine and Progress Apama/Detica for surveillance. "If a technology vendor is effectively controlled by a competitor of yours, or a potential competitor, that inevitably introduces issues," says Turquoise's Lederman.
The exchange operators, however, insist that selling data and connectivity are commodity services. "Exchanges compete on execution and liquidity," says Sam Johnson, EVP and CEO of NYSE TransactTools, the technology arm of NYSE Euronext. "What they do inside their walls is what differentiates them. As far as getting connected to the world, that's commodity stuff."
