NASDAQ OMX Reports Sluggish Volumes For U.S. Trading, European Volumes Continue To Impress

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NASDAQ OMX Group (NASDAQ:NDAQ) is one of the most well-diversified global stock market operators, with trading products ranging from equities, derivatives, exchange traded funds and fixed income products. The exchange operator announced its monthly volume report for April, reporting a decline in trading volumes in the U.S. On the other hand, the company observed healthy activity in Europe in both equity and derivatives trading. Here’s a quick roundup of NASDSAQ’s metrics across various products for the month of April and our forecasts for them.

We have a $46 price estimate for NASDAQ OMX’s stock, which is about 15% lower than the current market price. NASDAQ OMX’s stock price has risen by almost 10% since the company released its Q1 earnings in late April.

See our full analysis for NASDAQ OMX Group

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Derivatives Trading

The total number of equity options traded in the U.S. fell by 14% over the year ago period and 8% sequentially to 72 million contracts in April. [1] Similarly, the total number of equity options traded in the U.S. through Q1 were about 6% lower than the comparable prior year period at 251 million contracts. [2] In 2014, NASDAQ ceded share to competition in this domain. The combined share of the NASDAQ Options market, NASDAQ OMX Boston Exchange and NASDAQ OMX Philadelphia Exchange (PHLX) fell by a percentage point to 26.9% in 2014. Management attributed the decline in market share to intense competition in this market leading to significant pricing pressure. [3] However, the company’s share has picked up in 2015 thus far, as it has managed to capture 27.8% of the trades in this segment through the March quarter. We forecast NASDAQ’s combined market share in the derivatives trading market in the U.S. to gradually decline to under 26% through the end of our forecast period.

On the other hand, European derivatives trading volumes rose during April, with the number of options and futures traded on NASDAQ’s European platforms rising by 20% annually and 5% month-over-month to 9.1 million traded contracts in the month. These volumes were high through Q1 as well at 25.4 million contracts traded, which was a 7% y-o-y improvement over the year-ago period. We forecast NASDAQ’s European average daily options volume to bottom out after a 12% decline in 2014. The combined revenues generated by derivatives trading in Europe and the U.S. through Q1 were down by over 15% y-o-y to $116 million.

Equity Trading

NASDAQ’s cash equity trading volumes in the U.S. through Q1 were about 5% lower than the comparable prior year period at a total of 83 billion shared traded through the quarter. The trend continued in April, with the total number of shares traded through the month falling by over 13% y-o-y to 25 billion shares traded. [1] However, the implied revenue generated per 1,000 shares was slightly higher than the year-ago period at $4.03, due to which cash equity trading revenues were only by 1% lower than Q1’14 revenues at $339 million for the March quarter. We currently forecast revenues generated by NASDAQ’s U.S. equity trading to be about 2% higher than 2014 at about $1.35 billion due to a nearly 6-7% rise in trade volumes for the full year.

A similar decline in trading activity was observed in NASDAQ’s Nordic and Baltic exchanges through the March quarter. The total value of shares traded on these platforms combined was $234 billion in Q1, over 8% lower than the year ago period. This figure improved slightly to $83 billion in April, about 4% higher than April 2014 levels. Management mentioned that the company faces pricing pressure due to increased competition, while unfavorable foreign exchange rates may continue in the near term. [2] We currently forecast the transaction fee per trade to remain nearly flat compared to the prior year period at just over a dollar per transaction.

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Notes:
  1. NASDAQ OMX Monthly Metrics, NASDAQ Investor Relations, May 2015 [] []
  2. NASDAQ OMX Q1 2015 Earnings Call Transcript, Seeking Alpha, April 2015 [] []
  3. Federal Regulations Self-Regulatory Organizations; NASDAQ OMX PHLX LLC, Justia Regulations, September 2014 []