7. Smaller to Larger: Through Organic Growth and M&A
Executive Summary
Exchanges have gotten larger. The driver is a hugely compelling need to move down the steeply declining average cost curve that now exists for exchanges because of the shift to screens. Only by continuing to reduce the average cost of a trade can exchanges remain competitive. Exchanges can grow in two ways: (1) organically, by attracting more trading in existing products and developing attractive new products, or (2) acquiring or merging with other exchanges. Even before electronic exchanges, there were mergers, usually cases of healthy exchanges taking over struggling exchanges, sometimes with the participation of the government. But the pace of M&A has accelerated as exchanges ...

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