Will Merrill Lynch buy up all the world’s exchanges? It could certainly afford to do so, but it won’t. The returns are just not there, and there are good reasons why they won’t ever be.
An exchange is essentially a machine for reducing transaction costs. Exchanges are only used when it is cheaper to do so than to employ alternative dealing systems or search individually for a counterparty to a trade. Given that the major source of profits to exchanges are transaction related, any increase in an exchange’s profits necessarily comes from an increase in transaction volume or transaction costs.
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