Sep 19, 2025
Clipping Fees on the World’s Transactions
What They Are
Croupier-style businesses are the financial market equivalents of casinos: they don’t take directional bets, they run the table. Like a croupier at a roulette wheel, they clip a small fee on every trade, every contract, every listing.
This category includes:
Exchanges (NASDAQ, CME, ICE, London Stock Exchange): where securities, commodities, and derivatives are traded.
Index & Benchmark Providers (MSCI, S&P Global, FTSE Russell): licensing fees tied to trillions of assets benchmarked to their indices.
Clearing & Settlement Systems (DTCC, Euroclear): critical infrastructure clipping fees on the back end.
Rating Agencies (Moody’s, S&P, Fitch): gatekeepers who monetize credit ratings, effectively tolling capital access.
They are toll road businesses. They provide infrastructure that is essential, regulated, and nearly impossible to dislodge. Unlike operators who risk capital, these firms get paid whether the market goes up or down, as long as there is activity.
Historical Context
The model goes back centuries. The Amsterdam Stock Exchange (1602) and London Stock Exchange (1801) were born as venues for commerce and speculation. Their owners profited not from trading, but from facilitating it. The Chicago Mercantile Exchange (CME) grew from agricultural contracts to global derivatives dominance. NASDAQ began as an electronic bulletin board, now one of the world’s premier listing venues.
The business evolved in the late 20th century when exchanges demutualized. Once run as member-owned utilities, they became public companies, free to maximize profits. That shift unlocked the compounding power of fee-based infrastructure. CME, for example, has compounded at double-digit rates for decades, paying out dividends while expanding into new contracts.
Index providers are a more recent phenomenon. MSCI and S&P Global monetized the passive investing boom by charging licensing fees for ETFs and mutual funds that track their indices. As trillions poured into passive products, these firms collected royalties on flows — effectively creating the royalty model of indexing.
Why It Matters
Croupier-style businesses are almost perfect fits for our ethos: capital preservation, asymmetry, and compounding.
Capital Preservation: They are infrastructure. You cannot trade U.S. Treasuries, settle a stock trade, or launch an ETF without passing through these toll gates. Their dominance is entrenched by regulation and network effects.
Asymmetry: They benefit from volatility in both directions. When markets boom, volume rises. When markets crash, hedging spikes. Heads they win, tails they win.
Compounding Power: These are high-margin businesses with recurring revenues, low incremental costs, and global scalability. Index providers in particular operate with near-software economics.
Optionality: They continuously add new products — new futures contracts, new ETFs, new ratings categories. Each innovation layers on more tolls.
In a sense, they are the “royalty model” applied to the financial system. Instead of collecting from miners or oil rigs, they collect from the endless churn of global capital.
Contrarian Curiosities
Investors think of exchanges as cyclical, tied to trading volume. But structurally, they are compounding monopolies with inflation-protected pricing power.
Rating agencies and index providers are often ignored as boring back-office functions. Yet they enjoy near-oligopoly dominance with massive operating leverage.
Passive investing has created hidden royalty streams: MSCI and S&P clip fees forever on trillions of indexed assets.
Most investors obsess over banks and brokers. We ask: why own the gambler when you can own the casino?
Regulation, usually seen as a risk, is in fact their moat. Compliance requirements force market participants through these toll roads.
Case Studies & Examples
CME Group (Derivatives): The global leader in futures and options. Owns benchmark contracts in interest rates, commodities, FX. These products are irreplaceable — you can’t “replicate” the liquidity of Eurodollar futures elsewhere. CME clips fees on every trade, every hedge, every volatility spike.
Intercontinental Exchange (ICE): Started in energy trading, expanded into financial futures and clearing. Now also owns the NYSE. ICE thrives on diversification and innovation, consistently creating new contracts to monetize.
NASDAQ: Initially dismissed as the tech listing board, NASDAQ monetizes listings, market data, and trading. It benefits not just from big tech, but from the structural demand of being the home for growth companies.
MSCI & S&P Global (Indices): Their indices are embedded in trillions of dollars of ETFs and mutual funds. For every dollar that flows into a passive product, these firms clip licensing fees — forever. This is the royalty model applied to financial markets.
Moody’s & S&P Ratings: Companies and governments cannot issue debt without ratings. These firms act as gatekeepers, tolling access to capital. Their economics are extraordinary: high margins, recurring demand, and entrenched oligopoly.
Risks and Misconceptions
Regulatory Risk: Governments occasionally push back on rating agencies or exchange fees. But history shows regulation often cements their dominance rather than dismantles it.
Competition Risk: New entrants rarely gain traction due to network effects. Liquidity begets liquidity.
Technological Risk: Crypto exchanges briefly looked like disruptors, but mainstream flows still return to regulated incumbents.
Valuation Risk: These businesses trade at premiums. Entry discipline matters.
The misconception is that these are cyclical. In truth, their pricing power and structural moats make them secular compounders.
How We Apply It
We view croupier businesses as the toll road sleeve of the portfolio. They are not cyclical trades; they are compounding machines. When we evaluate them, we ask:
Is the moat structural (regulation, liquidity, network effects)?
How much pricing power do they wield?
Do they benefit symmetrically from volatility (up and down)?
Is there optionality in new products, benchmarks, or markets?
How inflation-protected are their fee models?
Our philosophy: own the infrastructure, not the operators. We would rather clip perpetual fees than speculate on trading profits.
Closing Reflection
Croupier-style businesses remind us of a simple truth: in markets, the house always wins. By owning the exchanges, index providers, and rating agencies, we position ourselves alongside the house — not as gamblers, but as owners of the table.
In our portfolio, they serve as the fee-clipping compounding machines: boring, resilient, misunderstood by many. Like royalties, they whisper, not shout. But in that whisper is the sound of compounding lifeforce across decades.