Shulou(Shulou.com)11/24 Report--

On the morning of December 19, Beijing time, it is reported that large technology companies are targeting customers in the capital market. Last week, Microsoft announced a partnership with the London Stock Exchange Group (LSEG), the third such alliance in more than a year.

In November 2021, Google invested $1 billion to sign a 10-year cloud computing services agreement with the Chicago Mercantile Exchange. In the same month, Amazon AWS reached a partnership with Nasdaq. Last week, Nasdaq completed a project to move one of its American options exchanges to the AWS cloud computing platform.

For exchanges, the advantages of partnering with tech giants are obvious. "We will develop products together and go to market together," said David Schwimmer, chief executive of LSEG. "it's mainly about our data and analytical capabilities."

Microsoft will help LSEG migrate its infrastructure to Microsoft's cloud computing platform to gain stronger data processing capabilities, resulting in faster and more flexible use of data.

Niki Beattie, chief executive of Market Structure Partners, a consultancy, said: "the transition to cloud computing is very important and they must prepare for the next generation of computing power." If not, "it will be difficult to keep up with the pace and move forward".

LSEG's data and analytics business is a pillar of the company, generating 2.4 billion pounds in revenue in the first half of 2022, serving clients including fund managers, analysts, traders and investment bankers. They use this data to make decisions. LSEG currently has corporate data that account for 99 per cent of the total market capitalization of global capital markets, as well as price and economic data from 165 countries.

"Microsoft has strong artificial intelligence and algorithms, LSEG has unique data, and they have the infrastructure to operate and develop products," said a major investor in LSEG. "therefore, there is reason to think that this will drive revenue growth."

So will this partnership lead to a Bloomberg killer? More than 40 years after Michael Bloomberg founded Bloomberg's data business, Bloomberg's financial terminals can be seen everywhere on the trading floor. LSEG previously bought Refinitiv for $27 billion, and its Eikon terminal is a competitor to Bloomberg, but it is far less popular than Bloomberg.

One of the most popular features of Bloomberg is its messaging application. Microsoft and LSEG hope to combine Microsoft's Teams instant messaging system with LSEG's data analysis to develop a new, unified chat and data platform.

"the main reason people use Bloomberg is chat and community ecology," said Ben Quinlan, chief executive of Quinlan and Associates, a consultancy. "this is an important part of the institutional financial market." He believes that Bloomberg's customers are so sticky that it has long been difficult for new products to break into the market.

However, a person close to LSEG said it was wrong to think that the partnership between Microsoft and LSEG would open the next phase of competition in the financial terminal market. "Microsoft will certainly optimize Eikon's user interface, but that's not the most important thing. If so, this war will never be won." He points out that Eikon accounts for a small percentage of Refinitiv's revenue, about $1 billion.

He also said that the view within LSEG is that sales of financial terminals will gradually decline because there will be fewer and fewer manual traders. The battle for the future is to "transfer" data through cloud computing platforms, to import data into computer programs for transactions, and to customize systems developed by banks themselves.

In this respect, Microsoft has a product advantage that has been established since the 1980s: Excel spreadsheets. By integrating LSEG's financial data into Excel tables, the two sides plan to use algorithms to help analysts create unified financial models, charts and presentations within Microsoft Office.

"this is an ambitious package" that "will lead to a more competitive and integrated technology product that will solve some clumsy problems", said Ian White, an analyst at Autonomy Research.

So how does this help technology companies? The first is the financial gain. Microsoft estimates that the 10-year partnership will generate $5 billion in revenue, while LSEG has promised to spend at least $2.8 billion. Microsoft will also acquire a 4 per cent stake in LSEG and gain a board seat.

These cloud computing companies also believe that establishing close cooperation with exchanges will help ensure business with thousands of related financial companies. For example, Nasdaq has many infrastructure customers who rely on the Nasdaq platform for trading and clearing, which means they will have to move to AWS along with Nasdaq.

"We will have the opportunity to build new partnerships. Our infrastructure has not yet entered some markets, so we will have an opportunity to expand," said Scott Mullins, AWS's managing director for the global financial services industry.

"Cloud computing providers definitely want to know more about financial markets. They can set minimum customer spending on the platform to ensure future revenue," says Mr Beatty of Market Structure Partners. "it may be critical for Microsoft to strike such a deal when competitors already have something."

Analysts say these partnerships are not exclusive to avoid being targeted by regulators. Regulators are expected to keep a close eye on the development of technology giants in global capital markets, especially given that a handful of companies around the world control the vast majority of the cloud computing market. According to data, Amazon, Microsoft and Google Cloud had a combined global market share of 66% in the third quarter of this year.

The Bank for International Settlements (BIS) warned in July that financial institutions are increasingly relying on cloud computing software from a handful of large technology companies, which could have a "systemic impact on the financial industry".

"Cloud computing has changed the way you think about strategic vendors," says Lee Sustar, an analyst at consultancy Forrester Research. "when cloud computing platforms become the carrier of all your IT systems, it essentially presents a challenge of a different nature."

At present, UK companies that outsource data to cloud computing providers must comply with FCA rules, including plans to deal with possible outages of cloud computing platforms.

Some worry that US technology companies are increasingly influential in the infrastructure of global financial markets, which could pose greater challenges, such as becoming exchanges themselves.

At present, these companies want to make money by selling cloud infrastructure, so they will not seek to compete with big customers, says Mr Beatty. But in the long run, as these technology companies gain more experience in the financial sector, they may also seek to expand into the industry.

In October, the Financial Conduct Authority began seeking advice on the role of large technology companies in the financial sector. Sheldon Mills (Sheldon Mills), the agency's director of user and market competition, is assessing the threat posed by tech giants to market competition. "this issue is crucial when we think about the role of large technology companies in providing critical infrastructure such as cloud computing services," he said. "

The main purpose of the Financial Conduct Authority is to figure out what the tech giants ultimately want to do based on exchange co-operation and their data. "they need each other right now, but in the long run, current friendly suppliers could be a serious threat," Beattie said. "

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