Nasdaq is well known as the U.S. equities exchange; however, that is only one part of what we do. Throughout the last 30 years, Nasdaq has been a technology provider to more than 130 marketplaces, financial regulators and post-trade organizations in over 50 countries around the world.
We recently held a webinar with Microsoft, ‘Reimagining Global Markets: How Marketplace Technology Is Driving Economies Forward,’ diving into the intersection of cloud and the technology that powers some of the world’s largest marketplaces. Alan Ross, Managing Director of Financial Services at Microsoft Azure Engineering, moderated the discussion with Nasdaq’s Head of Digital Assets, Johan Toll, and Head of Business Development for New Markets, Ben Haaland.
Throughout the Covid-19 pandemic, we have witnessed the digital transformation of marketplaces. The implementation of several key regulatory initiatives in capital markets has forced firms to focus attention and resources on reimagining their technology stacks – implementing cloud, machine learning and Distributed Ledger Technology (DLT) to modernize and digitize their infrastructure. The pandemic accelerated this trend with the almost immediate need to operate remotely, scale capacity and resiliency and the ability to support new entrants, such as the large spike in retail traders.
The shift to remote work was not restricted to the financial sector. Industries such as real estate, insurance, and logistics all had to accelerate their digitization efforts and reinvest their business models as well as how they transact with their constituents and broader ecosystems. One way this has manifested is in the development of marketplace models – these capital markets’ exchange set-ups can help firms digitize and make their businesses more accessible to consumers.
Marketplaces are comprised of buyers and sellers agreeing to the worth of goods and services. Marketplace dynamics is made of four key components:
- Market Creation: The standardization and digitization of an asset. This function also includes the governance and rules around the created underlying asset.
- Price Discovery: The process of allowing buyers and sellers of an asset to come together and negotiate price. There are numerous market models used today that can help enable price discovery.
- Transaction Execution: Executing transactions on a marketplace with a clear record of ownership as well as the payment instructions for the number of participants on the marketplace.
- Market Integrity & Transparency: An important part of marketplace dynamics is processing the influx of data and using surveillance tools to detect any kind of market manipulation or abusive behaviors that are taking place, such as spoofing or insider trading.
One example of a marketplace model outside of capital markets is cryptocurrency exchanges. Cryptocurrencies are currently facing challenges in relation to infrastructure scalability and market integrity. These markets have seen a substantial rise in volume and volatility due to increased demand from retail and institutional investors. As the current regulations surrounding cryptocurrency have not yet caught up to the regulations surrounding capital markets, there is more room for bad actors and market manipulation.
In addition, we are seeing an increased interest in marketplace models in the commercial real estate industry. Real estate has a high cost of entry, making it difficult to access capital and liquidity is often restricted for investors. A marketplace model can ease these burdens and make the market more accessible for institutional and retail investors alike.