Profit Pressures, New Regulations Are Reshaping the Global Exchange Landscape, Accenture Research Finds

Over-the-counter debt and derivatives volume seen as key avenue for expansion for exchanges

FRANKFURT and NEW YORK; Dec. 5, 2006 – The increased growth and profit pressures that come from going public combined with sweeping new regulations are rapidly transforming the world’s financial exchanges, according to a research report by Accenture (NYSE: ACN).

The report is based on in-depth interviews with more than 50 senior executives at leading stock and derivatives exchanges, clearing and settlement institutions, and buy- and sell-side firms in Europe, North America and Asia.

According to the report, the percentage of the world’s stock market capitalization residing on publicly-held exchanges has grown by nearly a factor of eight in the past six years, from 8 percent in 2000 to 63 percent in 2006. The related transition of exchanges to public ownership with accountability to shareholders is forcing the industry to rapidly pursue new revenues and greater profitability.

At the same time, Regulation National Market System (“Reg NMS”) in the United States and the Markets in Financial Instruments Directive (MiFID) in the European Union, which aim to improve investor protections and increase the efficiency and transparency of markets, are expected to level the playing field for competition among trading venues, including exchanges, alternative trading systems and investment firms that match trades internally.

“Competitive pressures on exchanges brought by demands for increasing shareholder value and by new regulations that clear a path for new market entrants are driving both consolidation and fragmentation of the markets, as well as geographic expansion and product diversification,” said Susanne Kloess, author of the study and a managing director in Accenture’s Capital Markets practice. “In the face of these new trends, exchanges will need to devise aggressive new product and service strategies, leveraging advanced technologies in order to retain customers and compete.”

Among the study’s key findings and predictions:

o With more than 96 percent of U.S. debt and 83 percent of global derivatives currently trading over-the-counter, competitive pressures will rapidly motivate exchanges to pursue growth within untapped debt and derivatives markets.

o The capital markets industry faces a risk of fragmentation, where the consolidation of large exchanges could be offset by large numbers of new competitors capable of shifting trading volume to disparate venues.

o China and India will become the most important growth hubs for the securities business, and India will see a consolidation of its 20-plus exchanges to just two or three central trading hubs in the medium term.

o The U.S. equity trading structure will be significantly altered by Reg NMS, which poses a significant threat to the competitiveness of traditional, open-outcry markets.

o U.S. exchanges will increasingly move toward a multi-asset class model, where exchanges are able to offer side-by-side trading of cash, derivatives and fixed-income instruments under one roof, as many European exchanges currently do.

o The European clearing and settlement infrastructure will consolidate or become interoperable under a pan-European system that supports financial instruments across exchanges and geographies.

“For both retail and institutional investors, these changes will mean faster trade executions, tighter spreads and more choices of trading venues,” said Bill Cline, global managing director of Accenture’s Capital Markets practice. “But while the prospective benefits for investors are clear, the best way forward for traditional exchanges will be elusive and require differentiated strategies and new approaches to business growth.”

The study cites five strategic imperatives for exchanges in response to current trends:

o Exchanges must make existing services more attractive through product customization, higher efficiency and competitive pricing; add new products and services in derivative and structured, cross-asset class instruments; and improve access to their systems while reducing transaction costs.

o Large exchanges must ready themselves through international marketing and strategic alliances to share in the growth potential of China and India, which will become the two most important growth hubs for securities trading.

o Large exchanges undertaking mergers must match their business models with their IT and execute cultural integration activities throughout the pre- and post-merger periods.

o Smaller national exchanges must create value from local knowledge of the market and design attractive new vehicles – perhaps through platform sharing alliances with other exchanges – to enable small and medium-sized businesses to access capital.

o As the implementation of Reg NMS and MiFID yields a three-fold increase in the volume of algorithmic and other forms of electronic trading, exchanges must to move to higher-margin, value-added data products to generate added revenues from the significant increase in data volumes.

About Accenture

Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills and technologies to help clients improve their performance. With approximately 140,000 people in 48 countries, the company generated revenues of US$16.65 billion for the fiscal year ended Aug. 31, 2006. Its homepage is

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