Challenges of Starting Exchange Marketplaces During Recessions and How to Mitigate Them

Exchange marketplaces will experience several challenges during a recession, just like every other business. While cutting costs is prudent, failing to keep up with changes can jeopardize the long-term performance of any business, which is true for exchange marketplaces as well. Whether it be establishing a new marketplace or expanding an existing marketplace, companies operating in this industry need to ensure they have access to the tools and technology that will allow them to survive the upcoming recession the world is seeing today and the macroeconomic challenges faced by consumers.

Exchange marketplaces have progressed from focusing on paper-based transactions to computer-based models. With evolving technologies, the number of new assets entering global markets has grown exponentially, thereby creating a need for marketplace operators to adapt quickly or lose growth momentum. For this reason, operating an exchange marketplace has become more difficult, costly, and complex. There are, however, ways for marketplace operators to mitigate these challenges and thrive.

First, in today's fast-paced world, time-to-market is a critical success factor as it has a significant impact on the addressable market opportunity. This is why it makes sense for an exchange marketplace operator to team up with a technology solutions platform that makes the trading process easier and faster for their customers through seamless buyer and seller onboarding, efficient money deposits and withdrawals. It is also imperative to select a technology platform that also supports the seamless addition of new instruments and asset classes as and when needed. 

Second, exchange marketplace operators need to choose a technology partner that helps them minimize costs in the long run. Starting an exchange the traditional way entails a number of steps, including licensing and registration. Every business also needs to control operating expenses, which include labor, office, and training expenses. This complex, costly process might deter new players from entering the market today despite the lucrative opportunities available for marketplace operators. On the other hand, spending time, money, and human resources on maintaining an outdated infrastructure with legacy software is not wise given the budgetary constraints the industry might face in the near future with a recession looming on the horizon. To mitigate all these challenges, it is important to ease the operational and technological entry requirements for new exchange platforms while giving access to technology partners that help new marketplaces keep operating costs to a minimum. The right software and infrastructure, supported by a robust exchange-grade trading engine that ensures the highest trading standards, can help marketplace operators in achieving operational efficiency. 

Third, as the capital markets industry undergoes a digital transformation, new digital assets are being rapidly adopted. The current technology infrastructure is inadequate to support this growing number of assets. There is a need for infrastructure that will allow for the rapid creation of new exchange platforms, allowing market participants (investors and traders) to move to their desired asset class or security faster and cheaper. This is where a software solution that handles all the processes including buyer and seller onboarding, transactions, and configuration of new assets without having to write a single line of code comes in very handy. To remain relevant in this digital era amid the expected recession, marketplace operators will have to partner with a technology solutions provider that ticks this box.

Another significant challenge exchange marketplaces face today is the risk of timely settlements, particularly between different jurisdictions and markets. It is addressed by the utilization of modern technology where assets can be transferred between markets using a cost effective and immediate settlement model. Additionally, it will guarantee shared liquidity between various markets and countries without requiring the addition of a complicated intermediary structure. 

To conclude, setting up an exchange marketplace amid a looming recession calls for a comprehensive software solution that enables the marketplace operator to launch on a fully compliant, end-to-end encrypted exchange platform that includes registry, custody, trading, matching, and also clearing services. It is also important to remove the technological barrier allowing new exchanges to focus solely on creating and operating their markets. Exchange marketplaces with team up with technology solutions providers that tick all these boxes are likely to be well-positioned to mitigate the recession-induced challenge and thrive in the long run.