Duncan Niederauer will on Friday have his first chance to lay
out NYSE Euronext's (NYX) standalone strategy following the
collapse of its blockbuster merger with Deutsche Boerse AG (DB1.XE,
DBOEF), though for once looking back might be more appetizing than
the challenges that lay ahead.
The chief executive of the Big Board parent faces the toughest
task among peers redrawing their lines after 18 months of
deal-making produced precious little change among the platforms
that handle the ever-changing demands of stock and derivative
trading.
NYSE's share of U.S. stock trading fell to a record low last
month, derivatives volumes were down sharply and the company faces
currency headwinds when returning profits from its existing
European business.
Niederauer also confronts a potential tax on some European
trading and will look to dust off projects set aside while NYSE
Euronext tried to push through a deal that would have created the
world's largest stock and derivatives exchange operator.
For all the strength of the NYSE brand, the company is only the
third-largest U.S. exchange operator by market value after CME
Group Inc. (CME) and IntercontinentalExchange Inc. (ICE), and the
global number six.
"After having just 'lost' a year on the [Deutsche Boerse] deal,
we believe management is now under pressure to deliver something
for investors," said Alex Kramm, an analyst at UBS AG (UBS).
The stock has slid 27% since news of the proposed merger first
emerged a year ago, the worst performer in the sector.
NYSE Euronext last week took the first step in regaining ground,
resuming a $550 million share repurchase program that analysts view
as the first step towards a broader focus on capital management.
Cost cuts are also seen on the agenda.
The move offers some salve for investors who would have shared a
$900 million special dividend with Deutsche Boerse shareholders if
the deal had been consummated, and some analysts see room for more
payouts.
"Investors have been patient and supportive and it's time to
reward them for that patience and support," Niederauer said in an
interview on the day the European Commission announced it would
block the deal.
"The investors can look forward to hearing a lot of details on
our go-forward plan on our earnings call next week, which will
include the post-trade space and technology business," he said.
"People can also expect us to talk about our capital management
strategy going forward."
NYSE Euronext enjoys an advantage in its balance sheet, which
carries the least amount of debt since NYSE and Euronext-Liffe
sealed their combination in 2007.
Simple fixes to some of the company's main challenges are
outside Niederauer's control, however.
The euro-zone crisis and capital constraints on banking clients
have seen some investors disengage from financial markets, slowing
trade in stocks, options and futures across the industry.
Rivals feel pain too, but NYSE Euronext feels it all over. The
company's share of U.S. stock trading fell to 23.9% of the market
in January, which Raymond James Financial said was a record low. As
volatility tapered off, more trading moved to private electronic
markets.
Easing market turmoil has also played into reduced stock-options
trading. NYSE Euronext remains the biggest U.S. equity options
market operator by volume, but overall activity last month slowed
by 11% compared to prior-year levels, according to industry clearer
OCC.
NYSE Euronext experienced a sharper decline in its London-based
futures market, which had been the lynchpin of its merger with
Deutsche Boerse. Volume in fixed-income futures contracts tumbled
by 30% year-on-year in January, as traders saw less need to hedge
interest rates that are widely expected to remain very low as
Europe grapples with its sovereign debt crisis.
Europe poses other challenges for the firm. Abandoning the deal
with Deutsche Boerse brought a silver lining for some NYSE
stockholders, in reduced exposure to Europe's troubled economies
and banks. But NYSE Euronext maintains a broad presence in the euro
zone, operating markets in the Netherlands, Portugal, Belgium and
France.
Nicolas Sarkozy, the French president, continues to back a tax
on financial transactions that some analysts have seen hitting NYSE
Euronext hardest because France could adopt such a levy even if the
European Union does not. If traders can redirect their business to
exchanges beyond French borders, one scenario could see NYSE
Euronext cede three-quarters of its market share in Euronext-listed
stocks, where last year it held about 62% of the market, according
to estimates by Raymond James.
Parting with Deutsche Boerse also left NYSE Euronext without a
self-owned clearinghouse facility for its European markets, a
function currently fulfilled by LCH.Clearnet (LCHC.YY). Though the
exchange firm extended its contract with LCH while working through
the Deutsche Boerse deal, investors will be listening for signals
on Niederauer's strategy--whether NYSE Euronext will resume
building its own clearing functions or perhaps pursue a deal for
LCH.Clearnet itself.
The clearinghouse operator is currently talking with London
Stock Exchange Group PLC (LSE.LN) about a sale.
Friday also represents a chance for Niederauer to refocus on
building up NYSE Euronext's technology division, which the company
intends to generate $1 billion in annual revenues by 2015.
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
jacob.bunge@dowjones.com
--Doug Cameron contributed to this article.
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