Moody's has a positive outlook for exchanges and trading venue operators, as well as for retail brokers, the rating agency said in a report discussing its expectations for 2018.
The outlook for market makers and advisory boutiques is stable, Moody's said.
The rating agency's outlook for exchanges reflected the greater scale many operators have reached through consolidation. Efficiency and organic growth should drive "strong" profitability and margins in 2018 for the sector, Moody's said. The companies have "defensible and unique" products, and increasing demand for proprietary data and an eventual return to higher trading volumes should benefit profitability further, Moody's said. However, regulatory risk does contribute to uncertainty in the space, the agency wrote.
For retail brokers, rising interest rates and higher average interest-earning assets should benefit the sector, Moody's wrote. The 2017 price war among the retail brokers did lower the average commission, but trading activity rose during the year to offset some of the lost revenue. That competitive pressure will continue to affect the space, according to the agency.
Moody's said a challenging operating environment will continue to impede revenue for market makers and advisory boutiques even though profitability is improving. The stable outlook reflects the "tepid" volumes and client activity amid subdued volatility, Moody's said.