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Record derivatives trading activity drove strong profits for the major U.S. stock exchanges and other financial market infrastructure firms in 2023, Fitch Ratings says.

The sector enjoyed strong revenue growth last year, which, in turn, supported robust profit margins at the exchanges, the rating agency said in a new report.

“The jump in revenue was driven by high derivative trading volumes and expansion in data, analytics and technology services,” Fitch said.

While equity trading volume was relatively flat, heightened market volatility sparked record derivatives trading volumes, “particularly in commodities and interest rates, influenced by geopolitical tensions and economic uncertainty,” it said.

Alongside the surge in derivatives trading activity, the exchanges’ other business lines “contributed to earnings growth” at the big U.S. exchanges ICE and Nasdaq, Fitch said.

“Mergers and acquisitions have temporarily increased leverage and lowered coverage ratios for ICE and Nasdaq, but the firms are actively reducing debt,” it said.

Looking ahead, Fitch indicated that equity initial public offering (IPO) activity is expected to remain weak in 2024, despite an increase in IPO volumes toward the end of 2023 and the “healthy pipeline of companies that have filed to go public.”