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NYSE, exchanges prosper despite threats

Posted by: Ben Steverman on May 6, 2008

The amount of trading going on at stock and derivatives exchanges continues to skyrocket, thanks generally to the move toward rapid electronic trading. If I was an investor in an exchange — like NYSE Euronext (NYX), the Chicago Mercantile Exchange (CME), Nasdaq OMX (NDAQ) or the InterContinental Exchange (ICE) — I would be worried that this frenetic trading activity is about to peak.
A declining stock market or a financial crisis can actually help exchanges, because panicky investors often buy and sell like crazy. But as the turbulence ends, exchanges could be facing several challenges:
1. At what point is this shift toward electronic trading played out?
2. Do tough times force hedge funds out of business, dampening trading volume?
3. New regulations open up the industry to new players. Will upstart firms like BATS Trading (an interesting private firm, with more info here) hurt Nasdaq and NYSE?
4. Does an extended bear market scare investors away from the markets?
5. Commodity trading, especially energy, is hot now, but eventually it will cool down.
These are all significant stumbling blocks for exchanges. But so far they haven’t tripped.
Today NYSE Euronext reported strong earnings. Despite more competition, NYSE’s U.S. trading operations saw record average trading volume of 3.6 billion shares. NYX shares were up almost 7% on May 6.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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