The consolidation underway among the world’s leading exchanges is likely to be a precursor to bigger changes in the capital markets that could see exchanges competing with investment banks on some of their own turf, according to a report.

Bearing Point, a management and technology consultancy, says in a global study of capital markets out today that exchanges are likely to compete directly with investment banks by 2015, driven by their need to find new routes to growth and profits.

Peter Horowitz, managing director of Bearing Point Financial Services and one of the authors of the study, said the list of the 10 leading investment banks and brokerages had changed every 10 years since 1985 due to consolidation and heightened competition from commercial banks.

“In 2015, exchanges will enter that top-10 list,” he said.

“We can expect a more dynamic shift over the next 10 years as exchanges, which are searching for profits and growth more aggressively than ever before, muscle their way into the [investment bank] playing field.”

The next step for exchanges would be to lead consolidation of clearing and some back-office functions, he said, which will become utility businesses.

Beyond that, there could be some disintermediation of investment banks as clients look to avoid the hefty fees involved in banks’ traditional role of underwriting and placing securities.

The study, undertaken by Datamonitor, the research group, pointed to the example of Google, which avoided banking fees in its initial public offering by selling shares directly over
the internet to interested investors.

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