- 3 - Does the evolution of Financial Exchanges point the way for B2B? Andy Gueritz, March 2001 © 2001 Sixhills Consulting Ltd & Author ATS’ providing Bond auctions. Bilateral and auctions systems between them comprise 25% of ‘exchange’ revenues. - Coordinated selling and demand aggregation (buying groups), the two remaining generic trading models, are not often seen.  Product. The product/instrument traded drives the data content to be held in the trading engine, ranging in generally greater levels of complexity from Spot (for non-financial commodities), through the underlying instruments (Equities and Bonds) to derivative instruments (themselves ranging in complexity through Forwards, Futures, Options, and Flexible Options). The product dimension also typically drives the clearing/settlement model used. Over time, the trading venues are moving to support trading of a greater variety of instruments (across the underlying instruments and derivatives). This composite nature means that to meet customer needs the trading engines must be able to support a diverse set of product data content. We observed that the Bid/Ask model comprised 56% of ‘exchange’ revenues, with the bilateral and auction systems together comprising a further 25%. Also, nearly 50% of revenue is generated by trading venues that are owned privately or in a mutual structure benefiting their members, with a further 32% being subsidiaries of other organisations (e.g., investments banks or other institutions). Only 17% of ‘exchange’ revenues are generated by public listed trading venues. The proportion of the total ‘exchange’ revenue in relation to the value of instruments traded is between one and four basis points3 of the trading volumes, depending on the type of instrument. Bonds, typically more complex instruments than equities, provide the higher rate of return, generating similar ‘exchange’ revenues for substantially lower trading volumes. However, a further $82Tn of bonds are traded in the OTC markets, usually by telephone. The complexity of the products and the relatively low volumes do not make them amenable to trading on the big Exchanges, but they are now beginning to trade on smaller scale systems (which often provide a bulletin board facility to satisfy search needs) What does this mean for B2B e-Commerce? The financial exchanges can provide a useful analogy for evolution of B2B exchanges. 3 One basis point is 0.01% Trading volumes and Revenues Proportions for Exchange Traded Equities & Bonds$ Trillion; Basis PointsExchangeTradedNon-Exchange TradedExchange Traded$34Tn$82Tn$10Tn4bp1bpBondsEquitiesTrading volumes and Revenues Proportions for Exchange Traded Equities & Bonds$ Trillion; Basis PointsExchangeTradedNon-Exchange TradedExchange Traded$34Tn$82Tn$10Tn4bp1bpBondsEquities
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