EARNINGS PREVIEW:Trading Slowdown, Regulatory Woes Hang Over Exchanges In 4Q

TAKING THE PULSE: The new year finds exchanges in soul-searching mode as a nearly year-long push by NYSE Euronext (NYX) and German exchange operator Deutsche Boerse AG (DB1.XE) to seal their $17.7 billion tie-up is seen as all but dead amid increasingly unlikely European Union approval of the deal. The collapse of that deal--the sector's largest in years--would cap a year that saw the failure of several ambitious, cross-border exchange mergers, and push executives toward smaller, less-transformative dealmaking.

Exchanges in the fourth quarter were hard-pressed to match the third quarter's trading surge as a normal slowdown during the holidays was only worsened by nagging fears over the debt crisis in Europe. Stock exchanges have been particularly hard hit, with December ranking as the quietest month for buying and selling U.S. equities in four years. Meanwhile, the collapse last year of MF Global Holdings (MFGLQ) remains an overhang on the futures sector as questions persist over regulatory practices.

 
   COMPANIES TO WATCH: 
 
   Nasdaq OMX Group Inc. (NDAQ) - Reports Feb. 1

Wall Street Expectations: Analysts polled by Thomson Reuters are looking for a per-share profit of 62 cents on $418 million in revenue. A year earlier, the company turned in per-share earnings of 69 cents--55 cents excluding one-time items--on $400 million in revenue.

Key Issues: A trading slump is still crimping Nasdaq, which lost some market share in stock-trading and is expected to see lower overall fees from its options markets. The exchange operator in turn is focusing on adding services beyond the execution of trades for its members. Details on new acquisitions and payoff from recent deals for platforms like FTEN are expected to remain the focus for the electronic market operator. Tech-heavy Nasdaq in the fourth quarter also chalked up a string of listing wins, including the defection of blue chip Texas Instruments Inc. (TXN) from Big Board operator NYSE Euronext.

 
   CME Group Inc. (CME) - Reports Feb. 2

Wall Street Expectations: Analysts predict a per-share profit of $3.71 on $754 million in revenue. A year earlier, the company reported per-share earnings of $2.93--$3.77 excluding one-time items--on $763 million in revenue.

Key Issues: The demise of MF Global Holdings--among the biggest brokers in the futures industry--took center stage for CME in the fourth quarter, and as the largest self-regulatory organization in the U.S. futures market, the exchange company has faced increased scrutiny as both a regulator and a business. MF Global's late-October downfall left a sizable hole in the futures market, dampening some trading and revealing a still-unresolved shortfall in customer funds that has been estimated at $1.2 billion. As 2011 wound down, investors reduced their outstanding business on CME's markets to its lowest level of the year and trading slowed in contracts linked to interest rates and stock indexes.

 
   IntercontinentalExchange Inc. (ICE) - Reports Feb. 8

Wall Street Expectations: Analysts are looking for a per-share profit of $1.68 on $326 million in revenue. A year earlier, the company reported per-share earnings of $1.34--$1.35 excluding one-time items--on $285 million in revenue.

Key Issues: The futures market operator saw trade in its energy and commodity markets slow from frantic third-quarter levels, with traders in particular pulling back from ICE's soft commodity markets--factors that some analysts attributed in part to the gap left by MF Global's exit. Contract volume declines are expected to be offset by higher average fees collected by ICE on trading, particularly in energy derivatives that are traded privately between banks and big trading firms. Analysts are uncertain whether ICE will be able to keep up its strong growth pace in the New Year; J.P. Morgan told clients this month that the exchange could run into trouble boosting volume in its key energy franchise given last year's unusually strong levels.

 
   CBOE Holdings Inc. (CBOE) - Reports Feb. 9

Wall Street Expectations: Analysts expect a per-share profit of 35 cents on $122 million in revenue. A year earlier, the company reported per-share earnings of 31 cents--32 cents excluding one-time items--on $117.4 million in revenue.

Key Issues: CBOE saw its bread-and-butter stock-options trading slide as 2011 came to an end, due in part to a leveling-off of the market volatility that fuels trade in the company's most popular contracts. Turnover in CBOE's proprietary options linked to major stock indexes came in 22% higher than fourth-quarter 2010 levels, but single-stock options volume fell 25% and overall trading averaged about one-fifth below the activity of the tumultuous third quarter. Expect CBOE to outline growth prospects for its in-house derivatives markets, including contracts linked to its widely followed VIX volatility index, and a nascent push into futures trading.

 
   NYSE Euronext (NYX) - Reports Feb. 10

Wall Street Expectations: Analysts are looking for a per-share profit of 52 cents on $639 million in revenue. The company a year ago reported earnings of 51 cents a share--46 cents excluding one-time items--on $613 million in revenue.

Key Issues: Very slim chances are seen for the Big Board's efforts to secure its planned tie-up with Deutsche Boerse after European Union antitrust regulators determined this month that merging the firms' European derivatives markets would create a monopoly. A decision on the matter is set for Feb. 1 in Brussels, and investors will be looking for Chief Executive Duncan Niederauer a week later to lay out the path forward for his company. NYSE and Deutsche Boerse haven't ruled out a court fight if the EU blocks their deal, but analysts expect Niederauer to chart a course that includes share repurchases, cost-cutting and a refocus on NYSE Euronext's ambitious effort to expand its technology division.

(The Thomson Reuters estimate and year-ago figures may not be comparable due to one-time items and other adjustments.)

-By Mia Lamar and Jacob Bunge, Dow Jones Newswires; 212-416-3207; mia.lamar@dowjones.com

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