Brussels just authorized the London Stock Exchange's acquisition of the data provider Refinitiv on Wednesday; at the end of 2020, Deutsche Börse acquired the American voting consulting agency ISS. A diversification that may surprise. In reality, competition between the various exchange platforms is now based on market data.

stock market operators fallen on their heads? At the end of 2020, Deutsche Börse, the German stock exchange, purchased ISS (Institutional Shareholder Services), the American specialist in shareholder advice. A year earlier, the London Stock Exchange acquired Refinitiv, a provider of financial data and analysis, for 23 billion euros. On Wednesday, it obtained final agreement from Brussels to be able to finalize its acquisition, which places it in direct competition with the Bloomberg terminal. These two operations have one thing in common: the two stock exchanges did not hesitate to spend a lot of money to take over a company whose activity is very far from their core business. Until now, the German stock market had rather played the derivatives card, by investing in Eurex, or in compensation, via Clearstream. So why such a turnaround

Over the last ten years, stock trading has become a mature business. Volumes are stable or even falling. The fault of the European directive on markets in financial instruments, nicknamed “MiFID I”, which came into force in 2007 and caused a real earthquake on the financial markets. This legislative text broke stock market monopolies and gave birth to multilateral trading platforms (BATS Chi-X and Turquoise, for example). And then, companies no longer dare to go public. The numbers are relentless: between 2000 and 2020, the number of listed companies in Europe fell by 30%, from 2,100

Alternative strategies

To survive, therefore, historical exchanges have no choice but to find alternative strategies. Although initially, the cross-border merger between two exchange platforms appeared to be the appropriate solution to make savings, it proved difficult to implement. For political reasons, many major marriage plans have failed. In the absence of approval from Canadian shareholders, the London Stock Exchange (LSE) and TMX, the operator of the Toronto Stock Exchange, abandoned their proposed $3.5 billion merger in 2011. Twice, in 2011 and again in 2016, Deutsche Börse tried to merge, first with Nyse Euronext (in 2011), then with the LSE (2016). Each time, Brussels vetoed it. The market power of this new company would have been anti-competitive

“One of the lessons we have learned is that market consolidation for stock market operators seems to be a bit difficult and not supported politically. And that's why we need to think about sectors in which we could grow and where we could do mergers and acquisitions,” Gregor Pottmeyer, the CFO of Deutsche Börse, told an audience of financial analysts in 2017

Euronext has succeeded in aggregating the Paris, Amsterdam, Brussels, Lisbon, and more recently Dublin, Oslo and, in 2020, Milan stock exchanges. But it is an exception. And it didn't have the critical size until then. The latest acquisition of the Italian Stock Exchange transformed it, by providing it with a central depository and a clearing house, into key players in securing financial transactions that Euronext did not own. Just as the takeovers of the Scandinavian stock exchanges had in the past allowed it to diversify its product offering by equipping it with an Energy and Salmon Exchange

its part, the LSE found its new position in 2011, by turning to stock market data and indices. That year, well before the acquisition of Refinitiv, he took control of the FTSE indices before taking over those of Russell in 2014. More recently, the enthusiasm for ESG investment prompted the LSE to acquire the specialist Beyond Ratings in early June

Data content

The logic is this: customers want sophisticated data content and analytics delivered on flexible, open platforms. Revenues from sales and market data analysis are, for their part, recurring and less dependent on volumes. They are not only an important growth driver, but also generate a higher operating margin than other activities.

American operators are also convinced that this strategy is the right one. ICE, the operator of the New York Stock Exchange, followed in the data in 2015 with the acquisition of Interactive Data. Nasdaq did not escape the movement by buying eVestment in 2017