Capital markets

Market infrastructure players seek to transform

Vineet Wilson

Vineet Wilson

Principal, Advisory, Strategy, KPMG US

+1 312-665-1542

Asaf Buchner

Asaf Buchner

Director Advisory, Strategy, KPMG US

+1 212-997-0500

Financial market infrastructure players (exchanges and other transaction platforms) have been expanding beyond their traditional roles and at the same time building scale. M&A has played an important part in these transformative efforts, with technology adoption a key deal focus. We see this playing out in three ways:

Electronification of fragmented markets

Exchanges seek to use technology to create modern markets for a growing range of assets. Mortgages are a case in point. Intercontinental Exchange (ICE), for example, has positioned itself to lead the digitization of end-to-end workflows in the mortgage market. To that end, ICE has made several acquisitions, the most notable of which has been the acquisition of Ellie Mae, a mortgage-software firm, for $11 billion in September 2020.

Nasdaq, meanwhile, is getting into both mortgages and commercial real estate. It has made a strategic investment in Dealpath, a cloud-based real estate deal management platform, which accelerates the transformation of paper-based transactions into digital workflows.

Private markets are also being electronified. In Q3’21, Nasdaq announced that it is spinning off its Nasdaq Private Market (NPM) to form a joint venture between Nasdaq and SVB Financial Group, Citi, Goldman Sachs, and Morgan Stanley. NPM’s trading technology facilitates liquidity for private companies.

The venture is designed to connect issuers, brokers, shareholders, and investors, bringing transparency and efficiency to the supply and demand sides of the marketplace.

Contributing value-added insights

Infrastructure providers are also continuing to position themselves as data and analytics powerhouses. For example, the London Stock Exchange Group acquired U.S.-based Refinitiv—among the most prominent providers of financial data—for $27 billion.

Additionally, exchanges are adding alternative data sources. ICE has partnered with several data providers to bring alternative data points into the refence data ICE sells. In Q3’21, ICE announced a partnership with ADP for a data service that might help investors assess creditworthiness in the U.S. municipal bond market. The service links anonymized human resources and compensation data with ICE’s reference data for more than one million municipal bonds. ICE also launched a new data service in collaboration with risQ—a startup that provides economic, geospatial climate, and demographic data. Users can apply the data to understand and score an investment’s potential social impact.

Still building scale

We expect industry players to continue building scale, too. Consolidation has been a prevalent trend for some time now. ICE’s $8.2 billion acquisition of NYSE Euronext, for example, gave it access to new markets and the ability to offer innovative products and services on a global platform. The combined entity operates 16 global exchanges and five central clearinghouses. ICE is relying on cost synergies to unlock deal value. Cboe acquired BATS and two alternative trading systems: MATCHNow, the largest equity alternative trading system in Canada, and BIDS Trading, the largest U.S. block-trading ATS.