By Bradley Hope and Michael Calia
Nasdaq OMX Group Inc. said its first-quarter profit more than doubled, exceeding analysts' forecasts, as the company posted a 27% rise in net revenue on increased sales of investor relations and other services to corporations.
The first quarter also benefited from a favorable year-ago comparison, as the 2013 period included $62 million in costs related to payments to firms affected by Nasdaq's 2012 mishandling of the Facebook Inc. IPO.
During the earnings conference call, Nasdaq Chief Executive Robert Greifeld addressed some of the concerns about high-frequency trading amid questions raised in a recent book by author Michael Lewis about whether the market is "rigged" against ordinary investors.
"We pride ourselves in providing fair and open access to our markets," Mr. Greifeld said.
In a follow-up interview, he declined to say whether high-frequency trading was a net positive for the markets, but cited viewpoints from investors, such as asset manager BlackRock Inc., that describe some high-frequency trading strategies as having a positive impact.
While Mr. Greifeld didn't state specifics, a recent commentary by BlackRock found that in recent years trading costs have gone down, while bid-ask spreads have narrowed and liquidity has increased.
Mr. Greifeld also said during the conference call that he was in favor of an "acceleration" of the evolution of the markets, especially in forcing more trading from so-called dark pools back onto the exchanges. Roughly 40% of trading takes place off exchanges, according to Tabb Group.
"It's certainly our hope that a result of some of this controversy is...an acceleration of efforts to bring more of the markets into the lit and transparent world," he said.
Nasdaq also disclosed for the first time its exposure to traders with a high number of quotes compared with actual trades--one definition of high-frequency trading. Market makers weren't included in the data, as they also have high quote-to-trade ratios but are required to provide liquidity to the market.
The HFT firms accounted for between $23 million and $29 million of Nasdaq's revenue in the first quarter, about 1% of the total revenue, according to a presentation made during the call. High-frequency traders are known for submitting a large number of orders, most of which are quickly canceled as they adjust their bids and offers to changes in the markets.
In the first quarter, Nasdaq earned $103 million, or 59 cents, a share, compared with $42 million, or 25 cents a share, in the year-ago period. Excluding adjustments related to mergers and strategic initiatives, the company's earnings were 72 cents a share. Revenue climbed to $529 million, a level the company termed a record high. Analysts polled by Thomson Reuters expected per-share earnings of 71 cents and $527 million in net revenue.
Nasdaq's market-services segment, its largest top-line contributor, posted a 17% rise in revenue to $213 million. Revenue in the technology-services segment that includes the corporate-services offerings, grew to $135 million from $75 million.
In the first quarter, Nasdaq said, it led all U.S. exchanges for listing initial public offerings with 47--accounting for 64% of the industry total.
Shares of Nasdaq were off 0.9% in late morning trade at $36.28, which puts the stock down 8.9% in 2014.
Write to Bradley Hope at firstname.lastname@example.org and Michael Calia at email@example.com
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