The quiet revenue at an exchange is custody

Trading fees make the headlines and swing with every move in the market. The revenue that holds up when trading goes quiet is less visible: custody for institutions and funds, and interest earned on customer balances.

Two businesses under one ticker

The trading business is a volatility business. Busy markets fill it and quiet markets empty it, and fee competition keeps pushing the rate down. The custody and balance business is closer to infrastructure. Assets held for funds and institutions stay put through quiet stretches, and they grow as more of the market arrives in regulated wrappers.

The mix between the two decides how cyclical the whole company really is.

What I'm watching

• Assets under custody, and who the new custodial clients are
• Interest income on balances, which depends on rates as much as on activity
• Trading revenue as a share of the total

Where I stand

Long, on the steadier half growing into a larger share of the whole. The market still prices the company mostly on trading, and I think that is changing.

What would change my mind

Custody fees compressing as competitors fight for the same fund mandates. The steady revenue is only steady if it is priced like infrastructure rather than like a commodity.