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- [00:00]
Brett Shafer
This episode is presented by Interactive Brokers. Interactive Brokers is the best platform for global investors. From their one of a kind market coverage to their best in class pricing, IBKR truly has it all. If you're serious about investing, head on over to ibkr.com stay tuned for more Interactive Brokers later in this episode.
- [00:23]
Narrator
Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode.
- [00:51]
Brett Shafer
Welcome into the Chit Chat Stock Podcast, a podcast to help you find your next great investment. Today we are driving into a new thematic episode. We are talking about stock exchanges and Ryan, I have this question in the notes so you see it here. So you probably already know this since we researched along with the episode, but did you know that there are upwards of 40 publicly traded stock exchanges globally, including Jamaica, some other smaller ones, Hong Kong, I think in India, Singapore. Not all of them are available for US investors. Some of them are a little harder to invest in. But was this higher or lower than what you thought initially before doing research for this episode?
- [01:34]
Ryan Henderson
Honestly, it's probably about what I was expecting. Maybe I would have. I guess I just assume most countries had their own stock exchange whether they were publicly traded or not. The amount available to US Investors I'm guessing is probably more in the ballpark of 25 depending on. Well, depending on your broker I guess.
- [01:59]
Brett Shafer
Of course IBKR has the widest selection our sponsor obviously. But there's a, you know, some countries have more than one United States, Europe has a lot. And then there's also some that are conglomerate of many different ones as we'll get into with the London Stock Exchange today. What? Well, maybe this is something for the question for when we get into the actual first section here, but these are some of the best businesses in the world. We're going to go through some of the examples. We have two case studies for the listeners each. So Ryan has a case study or two case studies. I have two case studies and we're also going to start out with going through the general stock exchange business model and why they are some of the most attractive businesses in the world. Natural monopolies, kind of national champions sometimes. And if you look at the company Intercontinental Exchange ticker is ice. It's not ice. Different, different ice. They're the New York Stock Exchange as well as some other businesses and they have gone on a 17% total annual return CAGR since 2005. That is, while some may argue they diversified their business, the nasdaq, the CME Group have done wonderfully for long term shareholders as well. And the questions we're going to try to answer today is why and whether there are some interesting opportunities around the globe. With a few of these case studies we're going to get right into it. But first, Quick Housekeeping. I don't mention this in every episode, but if you like these episodes, if you like our podcast, if you listen to it at all, please give us a five star review on Spotify or Apple. Check out our newsletter Emerging Moats Stock Research. The link is in the show notes there and if you're on YouTube, check just comment like give us a subscribe. Ryan, I'm going to let you kick things off. Let's get right into the episode. What is the stock exchange business model? Why are they attractive businesses in your opinion? Then I'll follow up with some of my own notes as well.
- [03:57]
Ryan Henderson
Yeah, the way I think we're going to go about this is I'll explain some of the basics behind the business model, how they actually make money, because I think a lot of people have some concept of it but maybe don't understand the exact specifics. And there's also a other revenue drivers under the hood that are less discussed. And then Brett, you can talk through some of the competitive advantages as well. And after doing research on this sector, I've become pretty convinced that these are maybe the best business models in the world. Some of the widest moat companies around
- [04:32]
Brett Shafer
like better than software. What do you think?
- [04:35]
Ryan Henderson
I would take these over software. It is such a self reinforcing network effect and we'll talk about why that is. But there's also there are local monopolies, most of them and I think that's important. I'll talk about why the local part is important, but before we do, there are basically four types of ways that stock exchanges make money and they're actually all fairly meaningful depending on the specific exchange. So some will have higher listing fees, some will have higher software revenue, whatever it is. Um, but, but there's typically sort of four common ways. The first one is transaction and execution fees. So for most, most exchanges globally, this is the largest source of revenue and it's probably what most people think about when they picture a stock exchange. So these are micro fees for every share or contract executed on their platform. This is typically when I say micro fee in the U.S. i believe, New York Stock Exchange, it is 3, 10 of a share, 3/10 of a cent per share or the pricing model can vary depending on the security that's traded, but that's kind of how small they are. And this is, it's basically the underlying fee that the exchange provides for its matching engine. So it's matching you to a buyer or seller depending on which side you're on. That's a markup for their services. For a long time. Investors basically paid this. So brokers would just pass on this cost, which I am assuming used to be higher. As these exchanges have become more digitized, the cost has probably come down. But brokers would just pass this on to the investors, they pay the commission and the broker would probably tack on some, some extra cost there as well to generate revenue for themselves. However, now you see this with a lot of brokers offering commission free trading, it's basically just a different entity will pay the cost to the exchange, whether that's a bank or a broker dealer, and then they'll just pass the cost onto you in some way.
- [06:50]
Brett Shafer
Sometimes it's referencing like a citadel in this situation.
- [06:54]
Ryan Henderson
Correct, correct. And actually as I was reading into this, the high frequency trading firms and the exchanges are more closely connected than I thought. So talk about that in a second. But transaction and execution fees, microtransactions, all very, very small on their own. As you amass tons of scale and more and more investors are on your platform or on a brokerage platform and they're using your matching engine, you end up collecting billions. So that is usually the largest source of revenue. The second one is listing and corporate services. So companies pay a substantial one time fee to list their shares. Usually again this, all these kind of vary by exchange, but you can just, this is the IPO fee and then they have recurring annual maintenance fees to remain on the exchange. Again, pricing models can vary here, but the New York Stock Exchange for example charges fees based on the total number of shares that you list. So it's typically a balance depending on the year. Like in 2021, 2020, New York Stock Exchange and Nasdaq saw a big boost in one time listing fees. Right. Because of the new IPOs, maintenance is going to be more gradual assuming you don't get a bunch of delistings. But yeah, that's, that's sort of the second pillar. And then the third one is market data and information services. So this is what most exchanges will refer to as their recurring revenue segment. And, and there's a ton of different data sets that exchanges can sell. But the premise here is basically that as the actual exchange operator, as the matching engine, they generate a ton of first party data. So think bid, ask the real time stock price. I mean they are, they are generating that data. They're the first party to have access to it.
- [08:50]
Brett Shafer
They have an insane amount. I mean if you go back to the New York Stock Exchange or London Stock Exchange, that's depending on the record keeping, 200 years of data. And there's not really any other entity that has that treasure trove and that's probably part of what builds up that competitive advantage over time.
- [09:08]
Ryan Henderson
Yeah, so that's, I mean like what you're referencing there is like historical data which they can sell on an ongoing basis forever and they'll, they'll usually sell that to like quant funds or something like that for like so quantities back test or. Yeah, universities as well. But the real time data, they get it faster than anyone. So if you're a research platform, fiscal AI for example, and you want to offer real time data, you want to offer the latest stock price quote, whether that's through a reseller, it's ultimately going to come from the exchange. And then the last one here that I mentioned is technology and connectivity. This is one I actually didn't know existed prior to researching these businesses. But large trading firms like the Citadels or high frequency traders will place, they'll pay rent to the exchange to place their servers physically inside the exchange's data center to reduce latency. This is how far high frequency trading has come. They are literally renting space near the, as close to the exchange's matching engine as possible so that they can get, they can shave off microseconds those seconds.
- [10:21]
Brett Shafer
I mean it's the speed of light from Chicago and Miami is not fast enough. They want to be right in. It's technically not New York. Right. It's New Jersey. I don't know why for whatever reason it's in New Jersey, they want to be right next door at the data center, which is quite interesting.
- [10:35]
Ryan Henderson
Yeah. So. And there's probably some revenue generators that I didn't mention here, but that's kind of how I think of these businesses is execution or transactions. You can picture that as the people running around the stock exchange floor transacting, even though that's not actually what happens anymore. There's the listing fees, there's the data selling and then there's the tech or basically befriending HFTs. The thing I'd mention here is that These are kind of self reinforcing. So as you generate more listings, there's more incentive to transact. As you have more transactions in volume, that data becomes more valuable to sell more in demand. So like a fiscal AI, for example, I keep going back to them. You know, the first priority is getting stock data for U.S. equities or North American equities usually. I, I think most research platforms think that way too, because it's the biggest market. Whereas Argentine equities, for example, might be a little slower, might not be as in demand. I'm using Argentina as an example here, but other emerging markets as well. So these all become sort of self reinforcing. And we'll talk about the network effect in a second. But it really creates a bunch of. And I know this is a dangerous term, optionality for what they can sell. Last thing I'll say here before Brett gets into the competitive advantages that stock exchanges have. And they have plenty. I do want to about why every country tends to have their own exchange. Not every country, but why 40 stock exchanges are publicly traded and the global companies don't all just aggregate to a single exchange. Because that was kind of a question that popped up into my mind is why wouldn't a company in the UK just prefer to list on the New York Stock Exchange, go get the most capital that they can? And there's a few reasons. First one is if you're a company in the Philippines, for example, you're probably smaller than most US Companies that are listed on an exchange. So smaller exchanges tend to have more localized listing requirements and they're much more attainable for local companies to list. So the small Filipino company might not be able to list on the New York Stock Exchange. It's more practical for them to list on the Philippine exchange. The second one, and this is probably the biggest, is investor familiarity. So local investors exhibit home country bias, which means they prefer to invest in brands that they use every day, brands that they know. I think about this a lot with Canada, actually. It seems like a lot of investors.
- [13:21]
Brett Shafer
What was it? Not Bridgewater. What's the.
- [13:24]
Ryan Henderson
Well, Constellation Software.
- [13:25]
Brett Shafer
Constellation Software. And then what's the investment conglomerate?
- [13:29]
Ryan Henderson
Oh, starts with B. Brookfield.
- [13:32]
Brett Shafer
Brookfield and then Fairfax. You got your.
- [13:36]
Ryan Henderson
Yeah, there's just a tendency.
- [13:37]
Brett Shafer
Yeah, yeah.
- [13:38]
Ryan Henderson
To prefer. You're sort of like a national champion, I guess when you're on that actual
- [13:43]
Brett Shafer
exchange, there's availability for local brokerages. If you're in the United Kingdom, you might not have access to everywhere else. So you probably have it much easier if it's on the London Stock Exchange. It just makes sense. Yeah.
- [13:56]
Ryan Henderson
And the other part is you get more analyst coverage. So if you know you're a US citizen, you probably read a lot of US analyst reports if you're into that. And you get index inclusion, stuff like that as well. Last couple ones here. It eliminates some currency risk just being on your own exchange. And then fourth, government and commercial favorability. So governments and other businesses might be more likely to treat you better, more likely to deal with you if you're seen as more of a company from the country. And I use Coupang as an example here. Coupang listed on the New York Stock Exchange, I believe an American company that only does business in South Korea and they kind of we saw recently the Korean government not reacting so positively to this data breach or maybe giving them less favorable treatment than they would have if they were actually a Korean headquartered company listed primarily as their primary listing on the Korean exchange. So it's when I when we say local monopoly, it's got wonderful benefits. Brett's going to talk about the competitive advantages, but they also are. There's some local advantages that prohibit. You might see dual listings, but it encourages companies to keep their primary listing in their home country.
- [15:18]
Brett Shafer
Yeah. And you also have. Yeah. Like you mentioned, the dual listing, some major stocks and Nvidia, what have you got? Have 10 different listings around the world. Let's go through. Yeah. Some of the competitive advantages. I think you can see multiple at play. If we look at the broad moat categories that we look at, there are more but the general ones we like to start with our network effects, branding, economies of scale and switching costs. I think they might have all four if they're a strong one that's run well, has a long history of success such as the New York Stock Exchange. First network effects. The more traders linked up to your exchange or market makers, what have you, the more liquidity you can provide customers. And this gives you an advantage in pricing power versus any upstart and just the larger scale you have, which some might say economies of scale, but I think you can maybe put it differently. For example, if a new stock exchange popped up in Dallas or Miami, which there's been murmurings about, remember the long term stock exchange? I think there's talks about a Dallas one. I'm not exactly sure. But you'd have to convince every part of the financial ecosystem to that flows for buy and sells and listings to go from the New York Stock Exchange to also list there instead. And why I mean, sure, other players, such as the Citadel, they have a lot of power in the system, in the sector, but the network effect of the New York Stock Exchange and the Nasdaq for that matter, is incredibly strong. Now, if we go to branding, I'd say similar to luxury houses, stock exchanges have a history tied to a nation or a culture that gives them a feeling of prestige over any competitor. Sure, again, you could replicate every part of the New York Stock Exchange at the quote, Dallas Stock Exchange. But that has no prestige. No one wants to tell others that they are listed on the Dallas Stock Exchange. Again, this is made up. This isn't real. They, they want to tell them that they rang the opening bell and they IPO'd on the new York Stock Exchange. They want to tell their potential clients, We're a Fortune 500 company listed on the New York Stock Exchange. You should trust us. Only legitimate companies. And this has been a problem with the Nasdaq actually, because of the Chinese scam codes that are populated their exchange. But this comes with the prestige and branding and trust that has been built up over 200 years for the New York Stock Exchange line of stock exchange, the same. Then there's also economies of scale. At greater volumes comes the ability to drive down pricing if you want, versus the competition and still make money. Now, they don't necessarily have to do this because there's no competition, but it gives them tons of operating leverage, which I'd say is similar to the software industry. And then they're switching costs. I mean, imagine how hard it would be to convince every part of financial ecosystem to switch trading to a random exchange in Miami or Dallas. I cannot even really conceive of why a company would want to list on some random exchange instead of the New York Stock Exchange if they're an American company or nasdaq. Again, you know, there are dual listings, but the most volume is going to flow to the best player. And with so many moving parts that come with buying and selling of stocks, it would take a mountain to get volumes to move somewhere else. And if we look here, there's a. I misspelled when I made the title here, but you can see it in the economics of Intercontinental Exchange and their exchanges revenue business. It's grown at a steady, if we go back to 2018, 8 and a half percent CAGR. Since then, operating income has grown at 9%. And what are we at about a 50% profit margin there? I'm sure they go higher, but it's like a 90% gross margin business. Insanely good. Again, anyone watching the video Ignore my misspelling, but you can see that there it's just a steady business. Consistent cash flow, consistently high margins, and really one that's very, very easy for them to defend.
- [19:01]
Ryan Henderson
If you're a regular listener to chitchat stocks, then you've probably heard us talk about Interactive Brokers. Here are three reasons why we think Interactive Brokers is better than any other brokerage platform. Number one, they've got it all. Stocks, bonds, ETFs, options, crypto, you name it. 170 markets, 36 countries, 28 currencies. Number two, they've got best in class pricing. They have zero commissions on US listed stocks and ETFs and offer margin rate up to 54% lower than the industry. Number three, you can ditch the separate high yield cash account. Interactive Brokers offers up to 3.14% interest on instantly available cash held in your investment account. Head on over to ibkr.com rates subject to change. Margin involves risk restrictions apply. Interactive Brokers is a member of sipc. I think the branding point is important to take home because there's a lot of investors that, that a lot of firms that won't even consider certain securities if they are not listed on specific exchanges. I mean, even think about if you're looking into a company and you see that they're listed on an OTC market or an OTC exchange and it's really illiquid, it's kind of a deterrent. So that kind of, I mean, that part of that is the supply and the network effect and having all that capital to begin with, that's also giving you an actual bid or an ask. But it's also, I think there's just a stigma if you're not the leading exchange in that it might be hard to get in or out and that maybe the company isn't credible enough.
- [20:40]
Brett Shafer
That's fair. That's fair. All right, let's go to my first case study, which was going to be actually a company called at first Newam N U A M which is the combined stock exchanges of both Chile, Chile, Colombia and Peru. It's kind of like the Andean corridor, excluding Ecuador, I guess, but they're too small. However, when I looked it up, this stock is not even available to trade on ibkr. It looks extremely promising though, and I guess for our sponsor and a shareholding of mine still shows the long Runway to grow for ibkr, getting global distribution for clients and the long Runway to grow and modernize financial technology within Latin America. Two themes that we have covered time and time again on the show, they're working with NASDAQ to update its infrastructure. So hopefully these markets will open up soon for global trading. It's currently. And again, I'd have to look at the numbers deeply to kind of confirm everything, but it's currently trading at 10 times earnings and 1 times book value. But the actual pick something that is available for all shareholders or all listeners of the show generally would be the London Stock Exchange Group. The ticker is going to be lseg and it's on, you know, naturally, the London Stock Exchange, LSE for the abbreviation. This is perhaps the oldest continuing company we've ever covered, which makes sense given that the English and the Dutch were the largest innovators in joint stock trading back a few centuries ago. The LSE was part of the Royal Stock exchange in the 1500s. But funny enough, the stockbrokers were apparently kicked out because they were too, quote, unruly for the aristocrats of Great Britain, which is a nice stereotype for that country, for everyone that. For everyone that knows the history of them. And they had to start trading from Jonathan's Coffee House, which I wonder if you can. I wonder if this is a place you can actually visit. It'd be quite interesting. That would be where I would go if I visited the United Kingdom. The tower, what is it? The Clock Tower. I don't even know. We're skipping that. We're going to Jonathan's Coffee House. That's where I'll spend a few hours. But by around 1800, a formal stock exchange was formed. And with the rise of the British Empire dominating the globe over the next 100 years, the London Stock Exchange was the center that financed things such as railroads across the globe. Many of the US Railroads had London investors, which have created some hilarious anecdotes when reading throughout that history where investors would report back or the companies would report back to investors that the company was doing great, but they were simultaneously at war with a native tribe or civilization on the Western front, which is, you know, there's some analogies that can be played in modern times today. Don't worry, everything's fine about our business. And turns out our, you know, FTX is about to collapse.
- [23:30]
Ryan Henderson
If you think, if you think management teams are able to lie today, the companies could report whatever they wanted back to their London investors back at this time.
- [23:42]
Brett Shafer
That's true, that's true. It is all based on trust. Now. In 1986, they went electronic, they deregulated, and in 2000-2001, they transformed from a private partnership to a publicly traded corporation. In 2021 they acquired Refinitiv for $27 billion. Questionnaire was maybe this was a divorce ification but it's a Bloomberg competitor. I'm. I'm sure it's European focus maybe along with some other data analytics services. Seems like a solid business honestly. So maybe they overpaid but who knows. It's essentially vertical integration where they can provide more analytics on top of LSE listings revenue. Now the problem with LSE is that for basically over the last 100 years US UK capital markets have become less and less relevant. I mean the country has become smaller on the global stage relative to other countries. There is zero excitement about the UK economy. And listen, new listings have become non existence. Many stocks trading on the LSE have actually said there is a discount and want to switch primary listings to the United States. For example, ARM holdings, one of the hottest stocks out there that went public over the last few years is an English company but they decided to list in New York. Interestingly, very little of LSE's revenue comes from actual stock trading. Today you have clearinghouse, you have a majority stake in Trade Web which is bond trading and then they have data analytics and subscriptions from that acquisition. Now Tradeweb is I think fascinating. That seems like a good asset. We looked at market access before but I think Trade Web is actually gaining market share from them. And the electronification of bond trading seems quite, quite interesting. If you look at LSE it's trading at a PE of 37. But the big what I saw for the bull case was a potential margin expansion story. And they're also trading at according to fiscal AI and EV to EBITDA of 15 if that matters to you. But right now look, they have gross margins which shows the attractiveness of these business models. You know stock exchanges and the stuff that is associated with them. It's 90% but their operating margin is only 25% they are currently and this kind of shows how old this business is. They're still on an ongoing migration to the cloud. And it they are supposedly reinvesting to modernize while merging everything from the 2021 acquisition you got 90% gross margins, price to sales ratio of 5. Probably some good pricing power. You know if you get back to a 40% margin maybe there's something there. I guess without going too long any interest in LSE stock?
- [26:21]
Ryan Henderson
Yeah, I mean they recently Elliott Management has been acquiring a stake in the London Stock Exchange.
- [26:30]
Brett Shafer
Little activist that could be nice for them.
- [26:32]
Ryan Henderson
Yeah, I'm curious why they've struggled so much. So the stock is up. I mean it's not terrible, but the stock is up 20% over the last five years total return. It just obviously they've got a phenomenal competitive advantage. Phenomenal branding people are still even though it has maybe lost its status to the New York Stock Exchange as the global leader for the financial center, it is still what, the second largest exchange in terms of trading volume I would guess other than maybe nasdaq.
- [27:13]
Brett Shafer
Well, probably not. Yeah. I'm sure the US dominates with both of those. Yeah, you know, it's hard to get bullish on the United Kingdom economy but at the right price is interesting.
- [27:28]
Ryan Henderson
Something that concerns me and this is more hearsay than any evidence is we have seen a number of companies change their primary listing. So arm like you said UK company chose to primary list I think on the New York Stock Exchange that might have been what you said in the US and wise, for example, another UK company has announced that they are moving their primary listing from the London Stock Exchange to the new or to an American exchange. It feels like maybe they have such high listing requirements that they're deterring companies which that is for an exchange that should be basically priority number one. Get as many companies as you can within reason credible companies I should say, you know, validate that they are real businesses to list and give investors as many options as possible. I'm not super excited by the London Stock Exchange although I do think Refinitiv's got a pretty good data analytics or data analysis data business. And I think they are more of like a cap IQ competitor than a Bloomberg. Although they do have infinitive's got their like news ARM as well. So I guess.
- [28:44]
Brett Shafer
All right, rat run. We don't need to go in the weeds of data analytics competition. Let's go to your first case study as we move along here. A company that is going to challenge your pronunciation probably more than any country in the world. Poland.
- [29:00]
Ryan Henderson
Yeah. Okay, so this is the leading Polish stock exchange. So I'm going to give this a go. But I believe I'm going to botch this. The Gilda Papyrao Wardasha, Warsaw. I'm going to have it written down in the show notes. The only reason I do that, I'm going to call it the Warsaw Stock Exchange or the wse. The only reason I do that is on some research terminals you're not going to be able to find the company by looking up Warsaw Stock Exchange. So if you're interested just look it up. On Google or whatever and get the actual name. And it should be on fiscal AI or whatever your research terminal is. The Warsaw Stock Exchange is the largest stock exchange not only in Poland, but in all of central and Eastern Europe. And its roots date back to 1817. I think that's going to be sort of a recurring theme this episode. And in that all these businesses seem to have been around for basically a century or as long as the economy has existed in those markets. So anyway, the modern history dates back more to 1991. So following the overthrow of the communist regime in 1989, the current Warsaw Stock Exchange was created as a joint stock company by the State treasury in 1991. And they hosted their inaugural trading session four days later with only five formerly state owned companies listed. Today, WSE's main market lists exactly 400 companies. So there's been plenty of growth in. Well, actually I think Poland has had the fastest growing economy in Europe over the last 30 years, partly because they were coming off a lower base. But it's been helpful for their listings as well. If we look at the total return over the last 10 years, things have been pretty good. Up until sort of 2025 they were fine. I don't think it was a home run investment. But over the last year they've basically almost tripled because, and I'm going to talk about this, they may have hit sort of an inflection point and maybe we can kind of debate whether or not this is an inflection point or just a temporary boost. But I mentioned that they're the leading exchange. They also do a lot more than that. They also have New Connect, which is a separate exchange designed for smaller companies. And they'll often have small companies list on the New Connect and then as they grow they'll graduate them up to their main exchange. So they have done that a number of times. And then they also operate the leading fixed income exchange, the leading options exchange and the leading commodities exchange for Poland as well. They really are a one stop shop for Polish capital markets. The interesting part here and the reason I was interested in this, other than Brett saying that he was interested in it and I should do it, as one of my case studies was they honestly may have reached an inflection point. And we're seeing that in trading volumes. So over the last month, so February, they released like trading volume data. Month by month we saw the following growth in trading volumes. They call it turnover value, but you can think of it as trading volume main market grew 24% NewConnect trading volume grew 63%. Global Connect, which is smaller, grew 367%. The debt instruments market volume grew 39%. ETFs have seen explosive growth. They grew 180% and the derivatives declined 20%. It's not a very big business for them, so it doesn't really matter. And then commodities are all over the place. I wasn't going to go into every single one, but those are obviously very commodity specific. What is driving this heightened activity I think is the most important question to ask and it's hard to point to one specific thing. But here's what I found. First, equities are performing really well in Poland. So the Poland MSCI index was the second best performing index in the world over the last year since January 1, 2025. So a little over a year ago the Poland MSCI index is up 78%. Second is increasing interest from Polish investors as well as global investors. So partly this is partly because stocks are doing well, people get more interested. It's kind of that self reinforcing cycle. But also in August, Poland introduced the OKI personal accounts that allow citizens to invest up to 100,000 Polish zloty tax free. So maybe you can kind of think of this as like a Roth IRA comparison for Poland and them rolling that out naturally is going to be a boost to trading volumes. And then the last sort of catalyst here, and it's hard to tell exactly how much this is actually mattered, is that they launched the V1 of their Warsaw automated trading system. This is supposed to be like a multi asset trading platform developed from scratch to replace their old trading platform. Apparently it's extremely low latency. Basically newest tech unifies all the different assets onto a single platform. I don't know all the specifics, but this is when you look at the, the emerging markets, a lot of the stock exchanges that I saw kind of rest on their laurels a bit and just have a wonderful place in the local economy and they just benefit.
- [34:34]
Brett Shafer
We're about to talk about another one of those next. Right.
- [34:39]
Ryan Henderson
Warsaw seems to be proactive and I think part of that is that Poland and specifically some of the bigger cities in Poland are sort of tech hubs. I mean they want to get.
- [34:51]
Brett Shafer
Do you want to guess the GDP per capita of Poland, Ryan? 2024?
- [34:56]
Ryan Henderson
No, I'm afraid I'm going to be too off.
- [34:58]
Brett Shafer
All right, let me give you some reference. US is like 70 to 90. I can't remember, say it's 80 and someone like Brazil, Mexico, Argentina are 10
- [35:08]
Ryan Henderson
to 15,000 I'll go 35, 52. Interesting.
- [35:16]
Brett Shafer
Yeah. 1990, when the communist wall fell 6,000. It's almost passing some of the quote unquote Western European markets that are supposed to be on par with the United States that people are, you are demerging United Kingdom, France, Spain, I think they're already higher than places like Spain and Italy. I mean, it's been an insanely strong economic growth and that's probably part of the reason why the stock exchange is now doing well.
- [35:43]
Ryan Henderson
And it's a very common tech outsourcing place. I know a lot of people will have developers abroad in Poland or a lot of American companies will do that, especially in the age of remote work. And you're also seeing a lot more, I think, business development there. Like there's a lot of gaming studios based in Poland. I think one of the big ones is.
- [36:06]
Brett Shafer
Oh yeah, the one that does the daily household stuff. Right.
- [36:12]
Ryan Henderson
Also CD Project Red or something like that that did like cyberpunk, which was actually kind of a flop. But anyways, yes, there's a lot of development talent over there. So it doesn't totally shock me. It just, there's a lot of.
- [36:25]
Brett Shafer
I mean there's more to the economy than that. It's. But yeah, I mean, exactly. Yeah, there's a lot of tech stuff. Same with Estonia, some of those other former eastern block countries. And I will say for anyone's a stickler in macroeconomic data, it's purchasing power parity. So maybe not apples to apples, but for local citizens, I mean the economic power now is just phenomenal. And when you get past that, we're going to talk about this for the next case study. Mexico. When you get past a certain level of GDP or incomes, people are able to save more, spend more on not necessarily luxury items, but discretionary items. And with those savings, people learn about investing and that can grow much faster than the underlying economy. Once more people hit that middle class, upper class become wealthier.
- [37:10]
Ryan Henderson
Yeah. And I mean you can kind of get a sense sometimes when governments are trying to get investors involved in the economy. And I think, you know, having a 100,000 Polish lottie tax free account is certainly a step in that direction real quick. Free cash flow per share has grown at a 7.8% CAGR over the last decade and it's likely going to inflect this year and over the next few years given the trading volume increase. Right now they trade an EV to EBIT of 16.4 and they pay out most of their cash flow, almost all of it. In dividends each year. So about a 4% dividend yield right now. I do want to talk about this real quick because this is sort of a competitive advantage that we may be glossed over, but a lot of these are sort of quasi government entities. So the Warsaw Stock Exchange in particular, I think the Polish government has like a 35% stake in the business, which is probably why they're required, well, maybe not required, but required in air quotes to pay out a big chunk in dividends as the government wants that recurring revenue. But I mean, you think about it, it's great incentives and it also leads to a massive moat. And even though they're technically independent, I don't think most governments want a bunch of different exchanges. They want one or two dominant exchanges. And I think there's a couple reasons. One, market stability. You can aggregate supply into one place, especially in emerging countries. You want people to participate in the economy, you can give them a fair price if everyone's aggregating to the same exchange. And then second, they want to be able to police the market. So if there's a flash crash, for example, and you have to halt trading or whatever, and this is kind of a rare scenario, but in the case that it happens, I don't think a government wants to have to talk to 100 different exchanges and get them to shut down. They want one centralized place where they can kind of control things if they need to. So I think that's sort of the case with Poland. You're basically more or less making a bet on the economy with, yeah, somewhat. With the stability of a 4% dividend yield as well. All right, folks, before we move on, let's talk about our home for investment research, Fiscal AI. Fiscal AI is the complete stock research platform for fundamental investors. We use it as every single day here at Chit Chat Stocks. It has everything you need to research individual companies, from 20 years of financial data to company specific segments and KPIs earnings call transcripts, Morningstar reports and insider ownership data and much, much more. And they just lowered the price of their Highest tier by 60%. If you want a complete enterprise grade financial data terminal, check out Fiscal AI. If you use our link Fiscal AI Chitchat, you will automatically get two weeks of Fiscal Pro for free. No card required. And if you want to upgrade, our link will get you 15% off any paid plan. Again, that's fiscal AI chitchat. The link will be in the show Notes.
- [40:17]
Narrator
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- [41:12]
Brett Shafer
Man, what an opportunity. 100% ago, late 2024. I mean if you look at the kind of the growth of their economy, it wasn't slowing down at all. And yeah, what an opportunity. It's still not that expensive today, but of course there's geopolitical risk with them. And you know, 16 times if people believe maybe there's some over earning that could not be that cheap. But I mean compared to London Stock Exchange, I'm much, much more interested in this one. Let's keep moving though. Or Ryan One last thing I'll say
- [41:46]
Ryan Henderson
is despite already being one of the best performing indexes, the Poland MSCI index also still remains one of the cheaper indexes for the average valuation ratio. So I think this is starting off a pretty low base and I talked about the momentum that you get when volume is growing, valuations are growing, more global investors, more incentive to buy data. I think this could be sort of the beginning of honestly a big volume growth tailwind for them.
- [42:17]
Brett Shafer
Yeah, I saw some as a person that, well I guess I'm living in South America right now, so I'm not patriotic or anything. But I thought it was interesting where there was like a chart. When Poland became its own country again in 1990 or 1989, the GDP of the country was say like $200 billion, something like that in today's dollars. In South America, the GDP was something like a trillion. And today Poland's GDP on its own is almost the same size as South America, which is astonishing given the population differences. So I mean they've just been done phenomenally. It's a really interesting economy to look at and there's also some interesting individual stocks, but we got to keep moving. I have one that a little stickier. It's a company I've owned in the past, I don't own right now, but it's maybe one that, you know, over the next decade could turn into the next Poland. And any longtime listener of the show knows what company this is going to be. It is Bolsa Mexicana de Valores or as I'll just call it BMB or the Mexican Stock Exchange. Naturally you can buy it shares on the Mexican Stock Exchange. The ticker is going to be bmv. Colon B O L S A A. You can buy this through Interactive Brokers. And I will mention we've used charts throughout this episode. Let's highlight our friends at Fiscal AI. Use our link in the show notes. Get 15% off any paid plan. They aggregate the data from, you know, the providers from the stock exchange for you so you can analyze stuff really, really quickly, save you time making a better investor. The link will be in the show notes. All right. For bmv for the Mexican Stock Exchange. I've actually owned this one in the past. We did a full episode on them two years ago and I don't think it was our most listened to episode. In fact it was probably on the lower end. But I think it was quite informative on a fascinating business. And for a full hour breakdown I would go back to that episode. I don't think much has really changed. Bolsa Mexicana is pretty much a pure play. Stock exchange makes money on listings, equity trading, derivatives, debt listings clearinghouse and selling data on top. So if you don't want the Intercontinental Exchange or London Stock Exchange kind of mixing in other businesses, maybe this is something that's more for you. It was started before 1900 in Mexico City and went through a classic electronification process similar to that what we saw with other exchanges. It used to be a monopoly, but a few years ago, excuse me, the Mexican government wanted some competition so they added a new exchange. Bolsa still holds 80% share of trades, so not really a huge concern. And if it turns into a duopoly, well, they're going to be the biggest winner there. What's interesting is that there's this chart that I have in the show Notes which is retail trading accounts in Mexico. It ends in 2023, but really it just has been explosive growth as the economy has gotten a little more modern with fintech and a little wealthier from 2019 there is basically none retail trading accounts. And now it's into the 7 million as of 2023. And I assume with the rise of things like new bank, interactive brokers and other and Others, Mercado Libre is probably over 10 million and you know it's going to steadily grow with the population of that country over a hundred billion. Now as we sit here in 2026, trading volumes across Bolsa or Mexican Stock Exchange have not exploded higher despite solid growth in the Mexican economy. And the iShares, Mexico ETF absolutely ripping in 2025, a lot of that was on the back of silver and stuff like that. But the glass half full would argue that trading is going to eventually follow economic growth like it has in Poland. Now the glass half empty approach would argue that listings, you know, the geographical proximity and the fact that you have companies such as nubank and Mercado Libre not even touching the Mexican market. I don't think at least as a primary listing, the glass of empty would say, oh well look, you know, it's gonna still center on New York. This isn't Europe, it's the North American block. Canada, Mexico are going to have the problem where a lot of companies are going to want to do primary listings on the New York Stock Exchange. If you look at their trading or listings activity, I think there's arguments for both sides because the debt offerings on their platform. If you look at just Q4, 2025, the amount of medium and long term debt placements, there's 30 new listings. Short term debt, there's 341. There was 95 medium and long term debt listings in 2025 and over a thousand short term debt listings in 2025. I mean that's really solid business there and that's doing great. But in 2025 alone, there's only two new listings for equities. Both came in Q4 2025. And maybe this is when the market's gonna unlock because there's talks about new listings coming in 2026. But if you look at it, and this isn't a business firing all cylinders like the Warsaw Stock Exchange, trading and listings revenue has been fairly stagnant, although still very profitable. You can kind of look at the segments KPIs that fiscal AI has to kind of dig into the specific details there. But. But their information services business has been growing nicely. You know, maybe it's growing at 10% year over year. Yeah, Ryan's going to show the chart here. I guess the question I'm on the fence on is, is equity trading going to be a multi year thing that kind of follows economic growth eventually in Mexico or in the future? Would a company like Mercado Libre and New bank want to list in Mexico among other, many, many other companies. Or will training brokerages in Mexico connect to the New York Stock Exchange or NASDAQ and make it irrelevant? This is kind of the Catch 22 when associating with the IBKRS of the world because well, if you're a, say an investor in Mexico or any other South American market or sorry, Latin American market, you open up an IBKR account or any competitor, hopefully IBKR given they're our sponsor and they give you access to invest not only on the Mexican Stock Exchange. If you're in Mexico, bought the New York Stock Exchange and if Mercado Libre is listed on the New York Stock Exchange and you have access to that in Mexico, well, why do you care? So I think that's, that's interesting could be downside of the thesis. If I look back at my specific notes, my thesis on BNB was one high quality asset. Mexican economy is booming and it was trading at a cheap price. I think I agree on both that it's still a high quality asset. Clearly not as high quality as something like the New York Stock Exchange which is the gold standard. The Mexican economy is still booming and I still think that's going to continue. Today it trades at a dividend yield of 5.4% PE of 13 on very depressed trading volumes. You know, maybe you could argue you're getting a paid to wait situation here. I feel like you could work out even in a tough period their average revenue growth over the last 10 years has been 5.5% per year. Thoughts on this one, Ryan? Any interest?
- [49:24]
Ryan Henderson
Yeah, I think Mexico, when I think about the economies that I have some grasp on, they're probably one of the ones I'm the most encouraged by, most excited by. I do think there is like you said, some risk that global investors can just go straight to the New York Stock Exchange and maybe the massive companies will primary list on the biggest exchanges like New York Stock Exchange or nasdaq. But I still think there's going to be home country bias, especially for sort of the middle tier type Aeromexico.
- [50:01]
Brett Shafer
They came out of bankruptcy boom. Bmv, Mexican Stock Exchange.
- [50:05]
Ryan Henderson
Right. And we talked about why that is and why there's advantages to listing on your local exchange. But I think they're going to be in a good spot and with it's very rare, I think that you see a chart like what we saw with the Warsaw Stock Exchange where it's just grown like doubled in a year. These usually I would guess, I mean growing a country, it's more like or growing an economy is more like probably like an oil tanker than a speedboat. You know, it takes a long time for things to develop. And Mexico has a lot of the right conditions in place I think, to make that happen. Where you've got the right, you've got a young age generally across the population. The population is growing. GDP per capita is growing. There's near shoring. We've talked a lot about the positives of Mexico generally and I think it would be very surprising if that did not flow through to increased trading volume for Bolsa.
- [51:07]
Brett Shafer
Yeah. And just for context on the size of their economy and per capita numbers, their GDP per capita and US current US dollar terms has gone from about 11,000 to 14,000 to a little in between 14 and 15,000 from 2022 to 2024. And on a purchasing power parity basis, they're around the low 20s. So there's still a lot of room to grow if that thesis catches on. But let's close things out, Ryan, with the final case study here. This is another interesting economy with US Relations. Philippines, huh? How did you find this one?
- [51:44]
Ryan Henderson
I mean, I don't know exactly how I discovered it. I think Asian Century Stocks did a write up on them a long time ago that I found, which kind of helped with some of the research here as well. Shout out to Michael Fritzel. I recommend looking out his looking at his service. The I'm calling this a one to watch because you can't actually buy shares on interactive brokers at the moment. That may change at some point and if it does, I encourage people to look out for this because it is a solid business and it'll probably we're going to talk about it here. I think trades at a fair price. So the Philippine Stock Exchange PSE was formed in 1992 out of a quote, shotgun marriage. Thanks to Gemini for giving me that one. Basically between two rival exchanges in the Philippines. So the first one was the Manila Stock Exchange founded in 1927, which again, these exchanges are durable. If you are primarily concerned about capital preservation in your investing strategy, I recommend looking at exchanges.
- [52:52]
Brett Shafer
It's literally you just get shut down if a socialist takeover happens or communist takeover happens. That's the only time with Poland like, oh, we have a capitalist economy again. Okay, we're going to have one of these stock exchanges, right?
- [53:05]
Ryan Henderson
The second exchange there was the Mocatee Stock Exchange, which was formed in 1963. Apparently these were basically rival exchanges for the better part of 30 years until in 1992 the government forced them to combine. And the merger was apparently a key condition for the country to receive a development loan from the Asian Development bank, which they greatly needed at the time. So that was the shotgun marriage part. For about 10 years after that, Philippine Stock Exchange was a member owned nonprofit. But in 2001, they demutualized and became a shareholder based corporation. Two years later, they went public on their own stock exchange under the ticker PSE. No, I mentioned it. You can't buy shares on IBCare at the moment, but IBCare has done a great job of expanding to new markets over time. I think it's possible at some point, so maybe keep an eye out for it. Today they are the exclusive stock exchange for the country of roughly 117 million people. And that population continues to grow.
- [54:07]
Brett Shafer
You know, that's way bigger than I thought. Way, way bigger than I thought.
- [54:11]
Ryan Henderson
Yeah, same. The population density in Southeast Asia blows my mind. Yeah, yeah. There are 285 companies in total listed on the PSE with a combined market cap of about US$345 billion. Now here's the issue that has prevented them from growing at the rate that they maybe should have. Up until basically 2020, they had very strict listing requirements. So companies were required to list at least 20% of their float and they would have an IPO tax for 3 to 4% of their share sales, share sale value, which they were. The only Asian country that had one of these left a specific IPO tax. And this deterred, as you can imagine, a ton of companies from listing. Well, in 2021, that tax was appealed. In 2025, there was another tax called the stock transaction tax that was reduced from 0.6% of share sale value to 0.1%. And then there was another tax. I guess there's a whole bunch of taxes involved in the IPO process that was also further reduced. And on top of that, they dropped the float listing requirement from 20% to 15%. I think there's a very specific reason why this happened. We'll talk about this in a second. But they're clearly making a push to encourage more companies to list on their exchange. And the CEO, Ramon Monzone, sorry if I'm pronouncing it wrong. He's a former entrepreneur and Chicago Business School grad and he has explicitly said his three goals are to introduce more products, get more businesses or more companies listed, and introduce more retail investors. The. I think the reason that this is happening is because GCash, which is, I think the product, it's not the actual company name. They are the leading mobile wallet in the Philippines. They are. They've said for some time that they're planning to go public and now there's all these taxes being reduced. There's this float reduction change. And it seems like it's because GCASH has announced that they're planning to go public in the second half of 2026. This would be the largest IPO in Philippine history. So it seems like they're kind of trying to accommodate for them. But in general, I think it's encouraging that they're doing sort of everything they can. And it's both sort of the. From the government's perspective with the tax appeal and the exchange perspective to get as many companies to list as possible. The current market cap is 281 million US dollars. They've got 53 million in net cash on the balance sheet, so about $228 million enterprise value. Last year they earned 28 million in earnings before taxes. So EV to EBT of eight times. Again, they pay out most of their cash and dividends. So looking at about a 5% dividend yield at the moment.
- [57:16]
Narrator
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- [57:39]
Ryan Henderson
Easy.
- [57:39]
Narrator
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- [57:48]
Brett Shafer
that's juicy, dude. That, that, that's. Come on IB care. Give us the opportunity here. Let us. Let us buy.
- [57:55]
Ryan Henderson
Yeah, it's. It's been a lumpy decade for them, but it feels like they're taking the right steps to encourage more listings not only from Philippine companies, but from other Asian companies as well, letting local investors
- [58:10]
Brett Shafer
get in on the action. Yeah. And this, if you get a large, I don't know the size of GCash, but that can be kind of the anchor for a stock market which, which can be quite nice. All right, we're going long. We're hitting our hour mark here, Ryan, as we close things out. Any final thoughts? And I want you to Rank your top 5 favorite stock exchange stocks that you are interested in. This could be one that we covered or didn't on today's episode.
- [58:39]
Ryan Henderson
My number one is probably Poland. My number two, we didn't really talk about it today, but honestly, it might be the Intercontinental Exchange it that diversified though, it's tough. Yes, yeah, that's true. But I, I just keep looking at all these exchanges and thinking all the biggest ones here as they graduate and grow, they're going to do a list on the NYSE or the NASDAQ and it's like they are the meta of if we're making the social media network effect comparison even better. Yeah, yeah. Third one I'd say the Mexican stock exchange Bolsa is probably up there for me. And then fourth and fifth I haven't looked at but interested in is Japan, Tokyo Stock Exchange, they I think are the largest economy in the world. And then Taiwan but again, don't know.
- [59:34]
Brett Shafer
Taiwan's about 40% TSFC I think probably. Yeah. But hey, that's maybe not a bad economy to bet on. It's done quite well. Geopolitical risk aside, I'll go mine. I have Mexican Stock Exchange 1 I guess I cheated because I have a couple that I that are not available right now. But I think New UAM is quite interesting as well as, and this is my fifth one is the Argentina one which you can buy I believe, I believe that one is just absolutely dead. But if you kind of look at the transition from socialist policies to capitalist policies, you could have a, well quite risky, a multi decade tail when I think that stock has gone up a bit on the anticipation of that which makes total sense when you have the, the Malay coming in. But if you look at New um, Chile has gone way more capitalist with the recent election. It was a total blowout. They're the leading economy within the New UM stock exchange network. And then you have Colombia which while not not a cinch, may be moving into the more capitalist areas and they've had restrictions on stock investing in the past. So if New UM can again get global coverage, open up internationally, that could be quite interesting. Third, I'll put the Philippines, like I said, quite again, interesting. Fourth, Poland and then fifth Argentina. I think generally when looking at stock exchanges you want to pair it up of course with a good valuation. But an economy, you think it can continue to grow and those are kind of the four or five groupings that I think are quite interesting. All right, Ryan, anything else before we close out?
- [61:15]
Ryan Henderson
No, I would say I've become very concrete in my beliefs that these are impossible to disrupt usually unless the government wants it to. Yes. And if you're bullish on an economy and you don't know where specifically to put money, stock exchange would be one of the first places I would look.
- [61:38]
Brett Shafer
Stock Exchange and airports. Those are the two monopolies that are very, very hard to disrupt. In toll roads. Yeah, exactly. Exactly. Toll roads on the economy. That's gonna do it. For this episode, thank you to our sponsors again. Check out Fiscal AI Sponsor, Interactive Brokers and any other sponsors throughout this episode. Give us a review on Spotify or Apple Podcast. Check out the newsletter Emerging Moats in the Show Notes and check out anything else that we have to offer within the podcast Show Notes As a disclosure, we are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone once again and we'll see you next time.
- [62:37]
Ryan Henderson
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Brett Shafer
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Ryan Henderson
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Brett Shafer
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Ryan Henderson
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