The Restocking of Global Stock Exchanges

Exchanges floundered even as stock prices soared.



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Lou Eccleston had never worked for a stock exchange when he became the CEO of one in 2014, but he didn’t need any specific experience to know the business had problems.

For four straight years, organic revenues and profitability had fallen at TMX, Eccleston’s new perch and the holding company for the Toronto Stock Exchange and several other Canadian exchanges. Traders and investors alike, long forced to buy and sell securities through public exchanges, had been leaving in droves over the years because alternative marketplaces were now available. Eccleston knew TMX needed a new strategy—and a new attitude. “The company viewed itself as the place you had to do business, not a place you wanted to do business,” he says.

It’s ironic that, as stock prices soared after the Great Recession, stock exchanges saw their business models implode. But just as traditional telephone companies stumbled when cell phones and e-mail came around, exchanges lost their dominant grip on traders as new trading networks opened. At the New York Stock Exchange alone, the exchange’s market share of U.S. stocks plunged from 70 percent in the 1990s to about 20 percent now, forcing the NYSE into two mergers between 2007 and 2013.

Such mergers, of course, were one way to deal with the issue, but in general, stock exchanges like TMX needed to revamp their business models—and their talent pipelines—to stay in the game. “They’re trying to look at the assets they have and find new ways to get money out of them,” says Steve Grob, director of group strategy at Fidessa Group PLC, a trading infrastructure company in London. Such redesigns, he says, were the culmination of a trend that started in the ’90s, when stock exchanges ceased to be clubs run by members—who were themselves floor traders—and instead became modern companies with corporate structures that turned into huge publicly traded firms.


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And the bigger the exchanges got, the more adept innovators became at finding alternatives for people who didn’t want to deal with mega-exchanges. Banks and brokerages set up their own alternative trading systems and exchanges so that larger clients could trade big blocks of securities without the trades moving stock prices immediately. Plus, these private exchanges provided more privacy for institutions that didn’t want their investing strategies scrutinized.

To compete, legacy exchanges began to adopt new strategies, such as selling market data, licensing their trading software and more merging. They also started retraining or bringing in new recruits to reinvent themselves. At the London Stock Exchange, the percent of managers with experience in information systems shot up to more than 40 percent between 2002 and 2007, compared to just 3 percent between 1996 and 2000, according to a study in the Journal of Applied Business Research. Managers in product development with international experience went from 3 percent to 53 percent. “When you change strategies that much you have to then align the leadership with the new strategy and in some cases change your talent across the board,” says Alan Guarino, vice chairman in Korn Ferry’s CEO and Board Services practice.

Eccleston first spent time asking customers about their own pressing problems. Then he built out a new strategy for TMX, expanding market data and analytics offerings, and redesigning the organization to better line up with customers and services, rather than relying solely on ways to expand the exchange’s trading offerings. The firm took on 13 senior hires, prioritizing people who could build businesses over those with experience operating exchanges. He also gave senior roles to 20 existing staffers, many of whom were talented but were in smaller roles lower in the organization, he says. Eccleston wanted customers and employees to view TMX not as a stock exchange, but as a technology company that ran markets. While many people did leave, TMX’s business has improved significantly. Since Eccleston started in November 2015, TMX’s stock is up 30 percent.

Still, the exchange and others like it may continue to find change necessary. Grob believes that as the world of raising capital and floating initial public offerings adjust, so will exchanges—all the more reason to keep an eye on the right people in the right positions.

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