Solid outlook for exchanges, clearinghouses in 2024

Financial market infrastructure firms, such as exchanges, clearinghouses and securities depositories, should continue to enjoy strong performance in 2024, says Fitch Ratings.

In a new report, the rating agency said its credit outlook for financial market infrastructure companies is neutral for the year ahead.

“This reflects expectations for continued robust financial performance of [infrastructure firms] due to resilient business models and an increasing share of recurring and less volatile non-volume revenue, which should support profitability if trading revenues moderate,” it said.

For instance, securities exchanges will benefit from their continued diversification into data, analytics and other non-trading business lines, it said.

Exchanges are also expected to see strong derivative trading volumes and to enjoy a modest recovery in the market for initial public offerings.

Exchanges will continue to face elevated operational risks due to trends such as the migration to cloud technology, and the integration of past acquisitions.

Fitch also said it expects some of the global exchanges to deleverage in 2024 “as synergies from recent acquisitions are being realized.”

For clearinghouses, Fitch said it expects counterparty credit risks to remain high in 2024 “due to macroeconomic pressures on counterparties’ credit profiles.”

However, these pressures will be offset by prudent margining and enhanced default management practices at the clearinghouses.

“The continued evolution of regulation, including enhancements to margining requirements, capitalization, and recovery and resolution legislation, as well as regulatory promotion of central clearing, will support clearing houses’ credit profiles,” Fitch said.

Central securities depositories will also continue to enjoy strong net interest income in 2024, as interest rates stay high, Fitch said.

Depositories also face heightened operational risk from the move to shorten the settlement cycle in the U.S. and Canada to T+1 in 2024, it noted, although these risks “will be mitigated by [the firms’] prudent risk management, strong operational capabilities and robust profitability and capitalization.”