Trading Drives Strong Results for the Exchanges While Diverging Valuations Create Opportunity

The North American exchanges have undergone substantial changes in recent years, as regulatory changes, sharp shifts in market conditions, and Intercontinental Exchange and Nasdaq’s continued efforts to reposition their firms as diversified technology companies have kept the group in flux. The exchanges have enjoyed substantial tailwinds over the last couple of years as their core trading and listing operations benefited from cyclical highs in equity market volatility and IPO activity, with futures and options volume far above prepandemic levels. We do expect these tailwinds to fade and project more normalized rates of growth going forward, but, in our view, recent market activity has left shares of some exchanges oversold and we see opportunity for investors in the industry group.