NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF) are squaring up to compete again after burying their merger plan, and both see selling technology and market services to other exchanges and traders as key to their independent futures.

The Big Board operator has already laid out an ambitious plan to more than double annual revenue from its technology arm to $1 billion by 2015, and its erstwhile partner this week detailed its own strategy, creating a new IT and data unit to extol the virtues of German engineering.

The world's largest exchange operators have in recent years viewed the sale of technology services and data as a key growth driver, mitigating the ups and down of trading fees. Selling the hardware that powers trading and back-office services is also a useful path for tapping growth in emerging markets.

"Exchanges today at their core are technology companies," said Russ Chrusciel, head of derivatives risk management services for trading technology company SunGard. "What used to be a crowd of several hundred people on a trading floor has turned into a conglomeration of buildings, servers and technology architecture."

Deutsche Boerse systems already powers exchanges in Ireland, Slovakia and Austria, while NYSE clients include markets in Japan, Qatar and Poland. The technology arena has also drawn in rivals like Nasdaq OMX Group Inc. (NDAQ), CME Group Inc. (CME) and London Stock Exchange Group plc (LSE.LN).

The prospect of intensifying competition between NYSE and Deutsche Boerse carries an added twist. The companies spent a year talking about how they could stitch together a unified trading system using the best pieces from each of their operations.

"There was bound to be some sort of learning process, but I'd be surprised if either one completely opened the door" during those discussions, said William Rhode, senior analyst for the market research firm Tabb Group.

Representatives for NYSE Euronext and Deutsche Boerse declined comment.

Deutsche Boerse's plan involves consolidating its existing services in supplying price data and other market information into a new unit that will also export the systems that run the German company's stock and derivatives markets. Together the businesses last year contributed about EUR92 million ($120.4 million) of Deutsche Boerse's EUR2.3 billion ($3 billion) in sales revenue.

"In the process, we can bolster our technology leadership, strengthen customer relations and pack a more powerful punch overall," said Deutsche Boerse Chief Executive Reto Francioni on a conference call with analysts Tuesday.

The German effort mirrors the Big Board's two-year-old push to consolidate and expand its NYSE Technologies division, which now includes two purpose-built data center facilities near New York and London as well as a growing range of services designed pump more market data to traders at faster speeds. NYSE Euronext on Tuesday rolled out a new mechanism that automates some compliance functions.

Institutional investors like mutual funds and pension plans have begun to embrace the same tools that algorithm-driven firms, such as high-frequency traders, have developed to scan and trade the increasingly fragmented electronic markets. Exchanges have responded with a broader and custom-built array of systems ranging from cloud computing services to brick-and-mortar trading hubs built to withstand hurricanes and bomb blasts.

"There's a tremendous amount of new regulation coming into play, especially for the derivatives market, and that creates a need for more automated systems," said Tyler Moeller, chief executive of Broadway Technology LLC.

NYSE Euronext CEO Duncan Niederauer last week projected that revenues from his company's technology services would rise at least 10% this year, up from $490 million in 2011. The company aims to build on existing partnerships with banks like Goldman Sachs Group (GS) and Citigroup Inc. (C), as well as foreign-based markets that have installed NYSE Euronext-designed trading engines.

Deutsche Boerse already maintains its own portfolio of partnerships with smaller exchanges and elsewhere has acquired economic indicators, like the Chicago Purchasing Managers Index, to help expand a service that feeds such numbers directly to electronic trading firms' automated strategies.

 
 -By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com
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