3rd UPDATE: Nasdaq CEO Touts Equities Business, 1Q Profit Up 70%

Nasdaq OMX Group Inc. (NDAQ) is prepared to spend a year pursuing its plan to acquire and split NYSE Euronext (NYX), its chief executive said Wednesday, touting a renaissance in equity-related trading.

Bob Greifeld said the exchange operator's efforts to trade cash equities and options more efficiently over the past four years has seen it outperform more diversified peers or those focused on futures, a view likely to be challenged by many in the industry.

"The much-maligned cash equities business over a long period of time is definitely outperforming the much-vaunted derivatives business," said Greifeld during a conference call after reporting a 70% rise in first-quarter earnings

The pursuit of NYSE Euronext in partnership with IntercontinentalExchange Inc. (ICE) would see Nasdaq drop its own push into the over-the-counter derivatives market that many in the industry view as a key growth driver.

Nasdaq OMX would keep its target's cash equities and U.S. options business while ICE acquires the futures and OTC operations, if the partners manage to break up NYSE Euronext's agreed merger with Deutsche Boerse AG (DB1.XE).

Greifeld said overcoming U.S. antitrust concerns will be the catalyst for entering "friendly" discussions with the Big Board operator, which so far has rejected the ICE-Nasdaq overture.

He said Nasdaq OMX has submitted to the U.S. Department of Justice the names of more than 100 customers that could assess the impact of a potential combination of with NYSE Euronext.

Nasdaq and ICE on Tuesday unveiled a souped-up proposal that included a reverse breakup fee and financing commitments that are good for a year.

Central to Greifeld's plan is a wager on trading stocks and options contracts--the most competitive businesses for exchanges--that hinges on the idea of dramatically reducing the cost of electronic trading by running more platforms with fewer systems.

Taking over NYSE Euronext's exchanges would allow Nasdaq OMX to boost discounts for the largest trading firms to the point where customers would trade "essentially for free," Greifeld said, making it harder for smaller competitors to best the combined company on price and services.

Operators of many incumbent stock exchanges have in the past decade diversified into options and futures, which carry higher trading fees and growth rates. Greifeld said Wednesday that this strategy is partially flawed, and that stocks and futures on interest rates are separate businesses that "don't intertwine".

"Our investors recognize that many more businesses have gone off the tracks by moving away from the core than businesses that have gotten into trouble by focusing on the core," he said in an interview. "We're not going to move outside the cash equities business, it's who we are."

Greifeld trumpeted Nasdaq OMX's earnings, which he said have risen 85% since the first quarter of 2007. During that period, he said, futures-heavy CME Group Inc. (CME) saw earnings rise 12% while Deutsche Boerse posted a 16% decline and NYSE Euronext 23%. Nasdaq OMX's revenues were flat for that time while NYSE and Deutsche Boerse both recorded declines.

Nasdaq OMX will continue to develop ventures into power-trading and other commodities markets but these efforts run separately from the main, stock-centric operations, Greifeld said.

The company reported first-quarter profits of $104 million, or 57 cents a share, up from $61 million, or 28 cents a share, a year earlier. Revenue, less liquidity rebates, brokerage, clearance and exchange fees, jumped 15% to $415 million.

Duncan Niederauer, the NYSE Euronext chief executive who is also slated to lead the combination with Deutsche Boerse, has in the last 10 days become more vocal in promoting the agreed merger over the approach from ICE and Nasdaq. Greifeld declined to say whether Niederauer should stand down, but said it was a matter for the Big Board to contemplate.

"Duncan certainly knows at the end of the day he works for shareholders and his loyalty is to shareholders and not to Deutsche Boerse," said Greifeld. "That fact will loom large in all these considerations."

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

(Matt Jarzemsky contributed to this article)

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