(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
Following the high-profile IPO of Miami International Holdings (MIAX), which raised $345 million, attention has turned to how U.S. exchanges are financing their growth—and what that means for their market positioning, product strategies, and technological innovation. Traders Magazine spoke with several industry experts to examine the current dynamics of capital raising in the exchange space, its impact on valuations, and the challenges emerging players face.
“Running an exchange is capital-intensive,” said Jim Toes, President & CEO of the Security Traders Association (STA). “Technology alone is a huge expense, and it’s ongoing, since you constantly need to deploy newer, faster technology to compete.”
Toes emphasized that beyond operational funding, the public markets give exchanges tools for broader strategic moves. “A benefit of going public for any company is having the ability to use your stock as currency for acquisitions,” he noted.
“These acquisitions are not necessarily other exchanges, but can be venues or ATSs—think Cboe and BIDS. You’re competing globally now, and that often requires a 24-hour trading solution.”
He also pointed to the added benefits of public status when it comes to attracting talent. “Going public adds an important weapon to your arsenal to battle for talent—compensation through stock options,” Toes said. “Almost by definition, a publicly traded company is more important than a private one. It offers a chance for everyone to share in its success.”
Khody Azmoon, CEO and co-founder of Openpool by BLOX Markets, described a wave of capital formation among both incumbents and emerging venues. “MIAX recently completed a $345 million IPO to fund broader expansion. The Texas Stock Exchange has raised about $161 million, and 24 Exchange and Bruce Markets have brought in strategic partners to accelerate overnight trading initiatives,” he said.
Other venues are focusing on more niche plays. “OneChronos secured a $32 million round to scale its batch auction model and just announced expansion plans for Japan,” he added.
“More broadly, fundraising momentum remains strong across market infrastructure, driven by a wave of recent trading venue entrants and emerging startups,” he told Traders Magazine.
This expansion is not just about growth for growth’s sake. “Capital gives exchanges ammunition to outbuild their competitors, simply put,” said Eric Croak, President of Croak Capital. “The exchange that owns the lowest latency, best liquidity incentives, and most regulatory foresight will prevail. $100 million could mean milliseconds off a routing speed or an acquisition that automatically provides 8% market share.”
Valuation Drivers: From Trades to Data
Market participants emphasized that exchange valuations are increasingly tied not to trading volume, but to recurring revenue streams like market data and connectivity.
“Exchanges are valued primarily on their monopolistic data licensing revenue, which generates 80–90% operating margins,” said Christina Qi, CEO of Databento. “Trading fee revenue has been under pressure for decades due to competition and regulatory changes, but data revenue continues growing as algorithmic trading increases demand for market information.”
Croak echoed that view, noting a stark valuation difference depending on revenue source. “An exchange generating $1 in data revenue is valued at $4. An exchange generating $1 in execution is valued at perhaps $2,” he said. “It is almost as if trading platforms are no longer being valued as marketplaces but rather as software-as-a-service plays.”
Azmoon framed this shift as investor preference for durable, high-margin businesses: “Investors are rewarding exchange groups that deliver steady, higher-margin income from market data and technology services, valuing them more like subscription-style businesses.”
With valuations driven by recurring revenue, and fresh capital enabling technological investment, exchanges are becoming more aggressive in expanding into adjacent markets.
“Capital raising is less about survival and more about turbo-charging arms races in speed, data, and product expansion,” commented Michael Ashley Schulman, Partner & Chief Investment Officer at Running Point Capital Advisors.
“You’re not just launching exchanges anymore; you’re building marketplaces, analytics suites, and sometimes even blockchain side quests,” he stressed.
According to Schulman, “With fresh capital, exchanges can fund co-location arms races, pump R&D into smarter routing, and court market makers like college football programs chasing 5-star recruits. Innovation isn’t a nice-to-have—it’s the whole game plan.”
Toes similarly sees access to capital as a tool for rapid market entry. “As legislation like the CLARITY Act provides certainty on rules and regulations with crypto, you’ll see traditional stock exchanges getting in the space. Having publicly traded shares as currency will help them.”
Challenges in the Capital Markets: Tightropes and Trade-Offs
Despite recent success stories, raising capital in today’s environment isn’t without obstacles. “The IPO market has always been choppy,” said Azmoon, “but MIAX’s $345 million listing shows that investor appetite for well-positioned market operators remains strong—especially in the current bull environment.”
The more pressing concern, he said, is regulatory headwinds. “One to watch is the SEC’s upcoming roundtable on trade-through prohibitions in the NMS stock and listed options markets. A potential shift we’re hearing about is the introduction of an OPR de minimis threshold—potentially removing quote protection from exchanges with less than 1–2% market share.”
Additionally, ongoing litigation over the SEC’s “Tick Sizes, Access Fees, and Transparency” rule creates uncertainty. “These developments suggest that new exchange entrants will need deeper capitalization to compete effectively,” Azmoon noted.
Croak agreed that the bar is rising. “Higher rates increase the costs of issuance, liquidity providers are selective of their exchange equity positions, and regulators increasingly review any transaction that appears to consolidate power.”
Exchanges are responding by reframing their narratives. “We’re seeing hybrid offerings, diversification storylines, and highlighting of non-cyclical revenue sources in fundraising pitches,” Croak said.
The Long Game: Liquidity, Network Effects, and Market Share
In the end, raising capital is only one part of the equation. As Qi put it: “The real competitive advantage of fundraising comes from achieving critical mass of order flow—without sufficient liquidity, even well-funded venues struggle to attract participants.”
Exchanges must overcome the inherent network effects of the industry. “Most trading volume concentrates on a few major venues, making it difficult for new entrants to achieve sustainable market share,” Qi explained.
“Investors understand this. So unless you have a differentiated value proposition—be it tech, market model, or data—capital alone won’t carry you far.”
While recent fundraising efforts suggest a vibrant market for exchange innovation, experts agree that capital is a catalyst, not a cure-all. Whether used for acquisitions, infrastructure, or international expansion, capital alone doesn’t guarantee success in a space dominated by regulatory complexity and liquidity moats.
As Schulman concluded: “In this game, capital is both playbook and scoreboard—it’s the difference between a market structure operator with durable data revenue and compliance infrastructure, versus one running a vibes-based playbook.”
