- 1 - Does the evolution of Financial Exchanges point the way for B2B? Andy Gueritz, March 2001 © 2001 Sixhills Consulting Ltd & Author Does the evolution of Financial Exchanges point the way for B2B? The analogy between the development of stock exchanges and B2B exchanges is not new and has been used to help describe the perceived role of B2B exchanges in facilitating trading between businesses. In a recent client study for a Financial Services client, marchFIRST moved thinking on this topic forward gaining some key insights that confirm our current hypotheses on the likely viable trading models in B2B E-Commerce, but also providing a valuable framework for thinking about trading engine functionality. Financial Trading Exchange Evolution Modern trading exchanges developed out of historic market communities and gathering places (such as the London Coffee houses). As technology has become available so it has been adopted to support trading. The type of technology used depends on the nature of trading. In the first generation of technology support, monolithic trading engines were created to automate the high volume trading of relatively simple instruments (e.g., equities) in existing open-outcry floor based exchanges. For lower volume and more complex instruments (e.g., bonds, securitised rock-star royalty portfolios, and so on), where finding the right product is the greater part of the task and there are no economies of scale, then the telephone is the main piece of technology used. The Internet is now creating a second generation of technological support. The global reach, common communication standards, lower cost and powerful search capabilities has allowed Internet solutions to both under-cut the monolithic price-matching engines and also supplant the telephone in 1:1 product search and negotiations. Despite their seeming importance due to their position as the hubs of world financial trading, the world’s Exchanges and Alternative Trading Systems actually make very little money in comparison to their members (e.g., investment banks). In our recent study we estimated that the global revenue generated was a modest $9.2bn, mostly from equity and bond trading. EquitiesBondsDerivatives - FinancialDerivatives - Non-financialRevenues from Exchanges and Alternative Trading Systems1999$ Million3,8303,977672675100% = $9.2 BnEquitiesBondsDerivatives - FinancialDerivatives - Non-financialRevenues from Exchanges and Alternative Trading Systems1999$ Million3,8303,977672675100% = $9.2 BnEvolution of Trading Exchange TechnologyCoffee HouseCoffee HouseFloor-basedFloor-basedAutomaticAutomaticInternetInternetTelephoneTelephoneInternetInternetHigh-volume relatively simple productsLower-volume more complex productsFirstSecondTechnology GenerationEvolution of Trading Exchange TechnologyCoffee HouseCoffee HouseFloor-basedFloor-basedAutomaticAutomaticInternetInternetTelephoneTelephoneInternetInternetHigh-volume relatively simple productsLower-volume more complex productsFirstSecondTechnology Generation
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