The head of NYSE Euronext (NYX) on Thursday criticized new trading techniques used by some rivals as a "giant step backwards" for an industry under increasing regulatory scrutiny.

Duncan Niederauer, chief executive, said the use of so-called "flash" order types "tilts the playing field toward a select group of participants," and said they mirrored practices that NYSE Euronext itself has ended.

His comments came as the transatlantic exchange operator reported a second-quarter loss thanks to a $355 million charge related to its new U.K. clearing business, though the company boosted its full-year forecast for cost savings.

Shares were recently 3.3% higher at $27.90.

NYSE Euronext is the only major U.S. equities platform not to use flash order types, which display stock orders to off-exchange liquidity pools before they're sent out to the broader market.

Niederauer has been critical of the practice in recent weeks and acknowledged on a conference call that NYSE Euronext gave up "a percentage point or two" of market share by not following competitors' lead. But, he said, "we felt it was the right decision to make."

Flash orders have come under fire because they're perceived as giving an information advantage to certain traders. Niederauer acknowledged comparisons to the Big Board's old market model, in which specialists were criticized for the same reason.

"It's a little ironic that some of the same people who insisted we eliminate those information advantages" have now adopted flash orders, he said.

Rivals Nasdaq OMX Group Inc. (NDAQ) and BATS Exchange implemented their versions of flash orders in June, in response to the success of upstart Direct Edge, which has grown to become the third-largest U.S. equities market operator thanks in part to the practice.

NYSE Euronext has seen its market share in U.S. cash equities drop to about 28% in July from 33% at the beginning of the year, partially due to the rise of flash order types, Niederauer said Thursday.

Niederauer expressed confidence that the Securities and Exchange Commission, which has been reviewing the practice, will address the issue appropriately and that any action won't affect overall market liquidity.

If regulators crack down on flash orders, NYSE Euronext will likely see a bump in its market share, Chief Financial Officer Michael Geltzeiler told Dow Jones Newswires.

 
   Charges Hit 2Q

A modest rise in revenue from the prior quarter and lower expenses year-on-year for NYSE Euronext were wiped out by the $355 million paid to LCH.Clearnet Group Ltd. under a deal that sees the stock market and derivatives exchange operator taking more of its clearing in-house.

The clearing move is seen adding more than $100 million in annual revenues and is anticipated to be accretive in 2009, while staffing reductions will contribute further cost savings.

The cost of staff cuts in the U.S. and Europe also weighed on the quarter, though earnings were ahead of consensus excluding special charges, and the company said it would beat its target of extracting $100 million in synergies this year from the acquisition of the American Stock Exchange.

The reported net loss of $182 million, or 70 cents a share, compared with a $195 million profit in the second quarter of 2008. Excluding one-off charges, a 51-cent surplus in the latest quarter was ahead of the 45-cent consensus among analysts.

NYSE Euronext, like rivals, has been paring expenses to counter intensifying competition in the cash equities business and a slide in volume of some its core derivatives products, its largest business segment by revenue.

The company is cutting almost 300 staff, a move that helped cut fixed costs by 6% compared with a year ago.

Revenue rose to $1.125 billion from $1.03 billion a year ago and $1.1 billion in the prior quarter, with the company citing the positive impact of pricing changes for the sequential improvement.

NYSE Euronext said its U.S. futures platform is expected to see an operating loss of $25 million to $30 million this year as the company works to build trading activity and secure equity partners for the venture.

It also plans to launch new futures contracts based on MSCI indexes in the third quarter, as well as fixed-income derivatives following a new clearing partnership with Depository Trust and Clearing Corp.

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

(Doug Cameron and A.H. Mooradian contributed to this article)