JEAN-JACQUES LOUIS
Vice President, Strategic Initiatives, NASDAQ OMX

UNTIL RECENTLY, most exchanges focused on their local markets and faced little or no competition from other exchanges. Globalization of capital markets, evolving domestic and international regulatory structures and advances in technology drastically changed this landscape. Today many marketplaces have established strategic relationships with other exchanges to better meet the changing needs of issuers, traders and investors. 

Strategic relationships enable two organizations to meet a specific need or requirement without having to be legally bound to each other. Compared to joint ventures, these business arrangements are less time consuming to set up and support, and they typically require a lower capital commitment.

Yet, creating a successful relationship is both an art and a science. The very attributes that make strategic relationships so attractive – low initial equity investment and less formal legal arrangements – can make them more vulnerable to market forces or even to a change of leadership at a partner organization.

TO SUCCEED, it is critical to have executive support. The partners must share a common vision and be able to define and agree upon tangible objectives, a timeframe for achieving them and measureable check points. Both partners must derive equal benefit and have equal accountability. Sufficient resources must be allocated, including identifying specific personnel responsible for fulfilling the commitment, monitoring and measuring progress and for resolving unexpected problems.

As a technology provider to marketplaces worldwide, NASDAQ OMX has a track record of building strong strategic relationships with our exchange and clearinghouse customers. Continuous systems improvements enable them to expand and enrich their product sets and grow their businesses. At the same time, NASDAQ OMX gains knowledge with each strategic customer relationship, and all customers benefit from this intellectual capital. It is a win-win arrangement.

In addition, more formal strategic alliances enable local exchanges to share resources and develop offerings on a regional level. Using the NOREX Alliance as a model, the exchanges of Costa Rica, Panamá and El Salvador are pooling their resources to develop common offerings. In Southeast Asia, the exchanges of Malaysia and Thailand have formed a relationship to establish a single electronic trading link to access their markets.

In another notable effort, the CMEGroup in the US and Brazil’s BM&F Bovespa have entered into a distribution agreement enabling their investors to directly access each other’s products through their home market. Other exchanges, such as SGX and the Stock Exchange of Thailand, are signing nonspecific cooperation agreements.

AS THE EXCHANGE INDUSTRY continues to adapt to the changing business landscape, more marketplaces will seek strategic relationships as a way to leverage each other’s assets to gain competitive advantage. Success will depend in part on structuring these relationships to be equally beneficial to all partners.