29 May 2014
I recently attended the 2014 IOMA/WFE conference in Moscow. An interesting panel debate was on the role of innovation in the exchange universe. Some observations: • While not all innovation begins at the product level, exchanges tend to focus energies there consistently • Exchanges seek early feedback from customers on product needs, particularly any products that offer risk hedging • In some geographies innovation must involve a wide array of stakeholders including regulators • Exchanges also concentrate on innovation along the value chain; seeking and filling gaps In summary, the current state of innovation at exchanges appears to be fairly customer-centric when launching new products (e.g. index options or futures products). To get beyond product innovation at exchanges, one must consider technology innovation. Since only a few exchanges think of themselves as technology vendors, technology innovation is difficult, but some exchanges may focus on driving down latency, improving capacity or delivering technology to a community of users. Collaborative innovation may be on the rise, as exchanges look outside their walls for partnerships. For example, CBOE plans to invest in Tradelegs, a developer of advanced decision-support software.