Source: Wall Street Journal                            Date: 12 October, 2011

The world's largest markets are expanding into the territory of banks and foreign markets. Mongolia is an example of this. The London Stock Exchange (LSE) offered its services to the Mongolian Stock Exchange to implement trading software for high volume trade and introduce policies and practices.Changes to financial exchanges will have heavy consequences for corporations hoping to raise capital and investors of all sizes. Investors may gain access to more products and platforms and exchanges will grow larger from all the acquisition. Unless regulators scale back the plans of these financial exchange groups, there will be fewer markets with wider scopes."From a profitability standpoint, it's better for the exchange to be bigger," said Mike Bingle, managing director with private-equity firm Silver Lake Partners and overseer of its investments in exchanges. "They get to leverage their cost structure, technology, and all the money they spend on sales and marketing."Regulators can allow exchanges access to the long sought-after over-the-counter derivatives market. Over-the-counter derivatives are customized financial contracts that offer protection against events like changes in key interest rates. Regulators are pressuring large banks to direct derivatives business to exchanges because their trading systems work well under stress, and customers are insulated from one another's loan losses through clearing. The aim of authorities is to spread out risk of default, ensuring that one firm's failure will not create a domino effect. This change would create more competitive pricing for investors, but put the squeeze on smaller banks, forcing them to offer more collateral.Leading exchanges away from share trade into new territory may improve the business of exchanges, creating more transparency and better pricing. Yet, banks argue they have the liquidity, expertise, and networks in place to offer better prices now. Exchange-backed group would have to develop all of this. Exchange-backed markets could offer an easier way for such firms to trade in these markets and compete more evenly with Wall Street banks.