UPDATE:NYSE Euronext CEO:Won't Join 'Race To Bottom' In Pricing
April 30 2009 - 10:35AM
Dow Jones News
NYSE Euronext (NYX) won't pursue market share at the expense of
profitability in the battle for cash equities trading, its top
executive said Thursday.
Chief Executive Duncan Niederauer acknowledged in a conference
call that the exchange operator has taken hits on both sides of the
Atlantic as smaller electronic trading platforms have nibbled away
at NYSE Euronext's market share.
A host of multi-lateral trading facilities in Europe have drawn
high-frequency traders away from incumbent exchanges with more
favorable pricing schemes and speedy technology; in the U.S., BATS
Exchange and Direct Edge have made similar inroads.
NYSE Euronext has sought to compete, introducing changes to its
U.S. equities pricing scheme and launching its own electronic
platforms in Europe, but Niederauer said there is a limit to how
much the exchange will slash prices.
"We will not chase share at the expense of profitability or join
the race to the bottom being pursued by some competitors," he
said.
NYSE Euronext reported Thursday that first-quarter net profit
fell to $112 million, down 53% from a year ago, with net revenue
flat at $1.11 billion, below analysts' expectations.
The exchange boosted its cost-savings estimate for 2009 by $100
million after realizing $51 million in cost savings from the fourth
quarter last year, surprising many analysts.
Shares of NYSE Euronext rose sharply in early trading, up 9.6%
to $24.67.
Niederauer acknowledged that the 50% U.S. market share target
for Tape A securities he laid out earlier this year was
"aggressive," especially as the exchange has seen its share slide
by 150 basis points over the quarter.
In the U.S., Niederauer said, alternative trading platforms made
inroads because incumbent exchanges' prices were too high and their
technology wasn't up to snuff.
While NYSE Euronext has updated its technology - it's in the
process of rolling out the Universal Trading Platform, a faster
engine covering all asset classes - Niederauer said that upstart
competitors' prices are likely to remain below NYSE Euronext's "for
some time."
Michael Geltzeiler, chief financial officer for NYSE Euronext,
said in an interview that the pricing issue remains a challenge
because "some of our competitors don't seem to have a profit
motive."
Bank consortiums back many of NYSE Euronext's smaller
competitors, allowing them to operate at much slimmer margins than
major exchanges - or at an outright loss, as some market observers
suggest.
Niederauer touted the March launch of NYSE Arca Europe, the
exchange's entry into the crowded MTF field, and its European dark
pool platform SmartPool, debuted in February, as evidence that NYSE
Euronext is "playing offense" in ways it hadn't done in the
U.S.
Another European positive came Thursday with the announcement
that London-based clearing entity LCH.Clearnet would reduce fees
for clearing cash equities trades by about one-third.
Since NYSE Euronext is LCH.Clearnet's primary customer in that
business, Niederauer said the exchange will be able to pass savings
to customers.
"That's one place where I'd been worried about our ability to
compete, on the relatively high clearing fees," he said.
High-frequency traders traditionally make up about 40% of U.S.
cash equities volume, Geltzeiler said, though that figure has
likely increased as banks and retail traders have stepped back from
a volatile market.
That shift hasn't helped NYSE Euronext, he said, "but when we
get back to a more normal [customer] mix, that will bode well for
us," Geltzeiler said.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com