Emerging Exchanges Capitalize on Volatility

Terry Flanagan

The third quarter was a boon for domestic as well as emerging international exchange operators as trading volumes surged amid market volatility.

Exchange operators such as TMX Group and the Chicago Board Options Exchange, as well as Hong Kong Exchanges and Clearing and Brazil’s BM&F Bovespa and Cetip were among the variety of platforms all around the world that benefitted from the increased trading volume seen during the third quarter.

“The third quarter was marked by crises in the U.S. and Europe. Amidst this backdrop, we stayed the course, improved our financials and focused on our long-term growth program whilst market volatility positively impacted trading volumes,” said a spokesperson from BM&F Bovespa in an emailed reply.

The Brazilian exchange had a 1% increase in operating revenue and about 3% in net income.

Volatile markets are ultimately good for exchanges, as it usually brings about higher trading volumes. The most recent surge in volatility came in the wake of the MF Global collapse as well as the ongoing uncertainty surrounding the European debt crisis. CBOE’s Volatility Index, or VIX, has been at elevated levels since early August. Although briefly trading at the mid-20s, it is currently at about 31.

During large single day spikes in volatility, equities trading volume also follows suit. The most recent case of this was on Nov. 9, when the VIX shot up 33% to 36 from 27 the day before, which coincided with a 21% increase in total U.S. trading volume.

CBOE saw revenue increase 35% year-over-year, which, combined with lower operating costs, equated to a 69% increase in net income. Brazil’s Cetip saw revenue and income increase 30% and 48%, respectively. TMX Group, while currently involved in a takeover offer from Maple Group, also had success in the quarter, with revenue up 15% and income up 21%.

“Clouded by worries about the European debt crisis, the global capital market experienced an extremely volatile period during July-September,” said HKEx’s Ronald Arculli. The exchange operator’s own volatility index increased from about 19 on June 30 to 43 on September 30.

HKEx had modest revenue and earnings increases of 6% and 1%, respectively. For the first three quarters of the year, however, the exchange is up 12% and 10% in the two metrics compared to the same timeframe last year.

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