3rd UPDATE: Nasdaq CEO Touts Equities Business, 1Q Profit Up 70%
April 20 2011 - 2:11PM
Dow Jones News
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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