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Exchange & ratings franchise
What it is
Stock and commodity exchanges benefit from liquidity network effects - traders go where the volume is, which attracts more volume. Credit rating agencies operate under mandated ratings for bond issuance, with the issuer paying for its own rating
Both are regulated infrastructure with high fixed costs
Impact on industries
- Liquidity network effects are among the most durable moats in finance - a competing exchange cannot bootstrap volume against an incumbent
- Mandated ratings create regulatory demand independent of issuer preference, and power and commodity market deepening adds new volume streams
- Issuer-pays remains a structural conflict that periodically attracts regulatory scrutiny, since the rated entity chooses and pays the rater
- Volume cyclicality against a fixed cost base swings earnings, and regulated MDR caps mean fintech volume growth does not convert proportionally into revenue