From National Marketplaces to Global Providers of Financial Infrastructures: Exchanges, Infrastructures and Structural Power in Global Finance

Abstract

This paper analyses the role of (stock and derivative) exchanges as powerful actors in global finance. While most IPE accounts of exchanges analyse 'exchanges as marketplaces' and focus on equity market trading, they miss how exchanges have fundamentally transformed in the last 25 years. Through marketisation, internationalisation and digitisation, the business model of exchanges has fundamentally changed and led to the emergence of global exchange groups that dominate the exchange industry (CME, ICE, LSE, Cboe, Nasdaq and Deutsche Börse). Thereby, exchanges transformed from national marketplaces to global providers of financial infrastructures. They control the infrastructures that enable the functioning of capital markets: from market data, indices, financial products, trading platforms to post-trading activities such as clearing, exchanges create the rules according to which market transactions take place. This provision of financial infrastructures enables them to shape capital markets and represents a source of structural power, as exchanges potentially influence the actions of companies, investors and states entangled with these infrastructures. By shedding light on exchanges and their changed role and activities within capital markets, this paper makes a case for including exchanges as powerful actors into IPE analyses of global finance and for more closely analysing the structural power of (financial) infrastructure providers in the global economy. KEYWORDS Structural power; financial infrastructures; global finance; stock exchange; capital markets We are of course known as a US exchange but that's a very small part of our business, only about 10% of our revenue. […] The major part of our business is what we today call FinTech. […] So, we provide infrastructure to the world's capital markets. We have more than 100 marketplaces around the world that are using our technology for their day-today trading, clearing, settlement, risk management. […] We sell market data in different shapes and forms from markets in Europe and the US, we do index business, licensing our indices to asset managers that provide ETF products, […] we participate in the big derivative markets … […] Today, we are truly a global and technology-focused company. (Senior manager, global exchange (Hong Kong, 5 July 2017)).

Infrastructural power: discretion and the dynamics of infrastructure in action

“…While the cases analysed in this article are historical, the issues surrounding market infrastructure-particularly the politics of its construction, expansion, and alteration-are growing in their contemporary significance. Exchanges' role as infrastructure providers, examined here in its infancy, has exploded in recent years, becoming a core business feature and source of power (Petry 2020). The trading of new instruments (e.g.…”

“…Infrastructures, in addition to providing information, enable market activities such as price setting (Muniesa 2007), delivery (Pinzur 2016), settlement (Jeffs 2008, Krarup 2019, clearing (Millo 2005), order matching (Pardo-Guerra 2015), risk assessment (Poon 2009), and payment processing (Guseva and Rona-Tas 2014). Providing market infrastructures has become an increasingly important component of global exchanges' business practices (Petry 2020).…”

Same same, but different: Varieties of capital markets, Chinese state capitalism and the global financial order

“…Rather than investors who are active within markets, as infrastructure providers exchanges play a more architectural role for capital markets. By deciding the 'rules of the game' and acting as gatekeepers in capital markets, deciding who gets in, what is traded and how trading is conducted, exchanges are crucial in shaping capital markets (Petry, 2020b).…”

“…In the West, exchanges are publicly traded companies that have to make profitable business decisions to increase shareholder value; they are situated within an institutional setting informed by a neoliberal institutional logic. Importantly, six global exchange groups (GEGs) dominate global capital markets: accounting for 50% of exchange industry profits, futures trading volume and stock market capitalization globally (Burton-Taylor, 2018; FIA, 2018; WFE, 2018), running the largest markets, owning the most important products/licenses and technological know-how (Petry, 2020b). These GEGs are interlinked with and co-constitute processes of financialization and actively facilitate neoliberal ideas of how capital markets are supposed to work (Petry, 2020c).…”

Asset Manager Capitalism as a Corporate Governance Regime

“…Exchanges and index providers -key components of the infrastructure of asset management -display similar dynamics, and even higher concentration(Petry, Fichtner & Heemskerk 2019;Petry 2020). 12 The SEC recently changed the rules governing the share creation and redemption mechanism at the heart of ETFs in an explicit attempt to lower barriers to entry and enhance competition(SEC 2019: 197-98).…”