5 Reasons Why Financial Market Infrastructure Is in the Spotlight

5 Reasons Why Financial Market Infrastructure Is in the Spotlight

For a long time, financial market infrastructure providers (FMIs) such as SIX were considered within the financial industry as boring, something you needed to have, and never garnered much recognition. Recently, however, FMIs have been getting increasing attention within the industry. Some even say that things have changed for good. FMIs have become the new stars in the financial market industry. Here’s why.

Yawns from fellow panelists, blank, bored stares at receptions, and speaking slots at the end of conferences. FMI reps haven’t always had it easy when it comes to positioning their topics. Who would blame anyone? The words Financial Market Infrastructure provider don’t exactly roll off the tongue. How times change! Today, these same reps open conferences, are keynote speakers, and are welcome interview guests. And since the term FinTech came into existence, everyone has a rough idea of what a FMI is. So, why has interest in our industry suddenly gone up and migrated from the fringes? 

I see five reasons that have been driving FMIs, and will continue to do so:

1. The Industry Delivered

Financial market infrastructure includes all activities related to stock exchanges, such as listing, trading, and post-trading (clearing and settlement). In addition, it includes the increasingly important business of financial information, meaning all the data that results from this creation of value. All in all, FMI is a CHF 155bn industry globally. And it is growing. Since 2012 annual top line growth has been 5% globally, and 3% in Europe. The bottom line is also very attractive. FMI providers have been delivering 20% average shareholder returns since 2012. Banks, for example, cannot compete with these results. They have been oscillating around 0% over the same period.

2. Highly Scalable Business Model

FMI has always been a classic platform business. Thanks to digitalization and new technologies, these platforms can now finally run on all cylinders. The economies of scale are unique. Once the platform is established, new volumes come at very little additional cost. Read more about the business model in my last article.

3. FMIs Are the Lever for Growth

Growing companies need capital, reliable data, and a timely and reliable execution. This is where we come in. Efficient FMI providers are needed to make this growth possible. Where else would you get a fair evaluation of the price of a share, and therefore the value of a company? Where else can corporates efficiently finance their growth through raising additional or issuing new capital? And finally, who else ensures the delivery of trusted data? In other words: Without FMIs such as SIX, companies – and in that sense economies – would not have any opportunity to grow.  

4. Beneficial Regulations

For once, regulation is a good thing for our industry. I almost don’t dare say it out loud, but regulations such as MiFID and EMIR on the European level along with Fidleg and Finig in Switzerland gave a boost to our growth, since they are driving business to regulated platforms. Without regulation, there is no trust and consequently without trust, there is no use. 

5. Strong Resilience

The pandemic, highly volatile markets, and global value changes close to breakdown challenged all FMI operators in 2020. FMIs have demonstrated impressive resilience during this period-induced volatility. SIX has formidably proven that we are up to the challenge. Our exchanges in Switzerland and Spain handled record-high volumes in March/April 2020 without any capacity or system issues day in and day out. They have serviced not just the banks, but the whole economy, which depends on efficient and functioning markets.

In brief, Financial Market Infrastructure is an extremely exciting industry. And what excites me the most is that the best is yet to come. Technological leadership, digital assets, smart data, trust, and reliability – to name just a few - are becoming increasingly important. FMIs intend to occupy center stage for a while longer.