Nasdaq Launches Another Options Exchange in The U.S.

June 29th, 2012 by Trefis Team
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Nasdaq OMX (NASDAQ:NDAQ) will launch its third stock-options market in the U.S., on Friday, 29 June 2012, after the U.S. Securities and Exchange Commission (SEC) approved the Nasdaq OMX BX Options. [1] The new platform will complement the NASDAQ Options Market (NOM) and NASDAQ OMX PHLX, which have a combined market share of 17% of the U.S. equity options market. The exchange will offer rebates to retail brokerage firms for their orders to attract more business and will initially options contracts on five securities linked to  Citigroup (NYSE:C), Intel (NASDAQ:INTC), Micron Technology (NASDAQ:MU), Alcoa (NYSE:AA) and Patriot Coal Corp (NYSE:PCX).

See our full analysis of Nasdaq OMX

The venture comes just a week after NASDAQ announced its intentions to launch a new interest-rate derivatives trading platform in London (See Futures Exchanges Talk Derivatives Reforms While Europe Burns) and will use the options-trading license from the Boston Stock Exchange, acquired by the company in 2007. Apart from the initial offering, 50 additional securities will be added on July 10th and the list will further be augmented on July 17th. Market uncertainty has led to a steady increase in trading volumes over the last few years, options trading volumes rose by 26% in 2010 and by 12% in 2012, as derivatives offer higher returns in volatile markets than traditional cash products do. [2] We believe that this trend is likely to continue over the next few years and NASDAQ, with its new platform will have a higher share in the market. We forecast the company’s U.S. Derivatives Trading Revenue to increase steadily through the coming years, as illustrated in the graph below.

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Our price estimate of $27 on Nasdaq OMX’s stock, is about 20% above the current market price. The company’s stock has taken a hit after its mishandling of the Facebook (NASDAQ:FB) IPO, (See Facebook’s Relationship Status With Nasdaq: It’s Complicated) which cost investors over $100 million in losses and prompted several lawsuits against the exchange. The IPO market was hit after the saga, but we believe it will recover soon (See NYSE Gets Creative In Trying To Spur Interest In The IPO Market) Nasdaq has come under the SEC’s scrutiny after the incident [3] and may need to update its trading system to avoid further incidents and glitches, but is on the road to recovery. Biopharmaceutical firm Tesaro Inc. and software firm Exa Corp., were the first IPOs on the Nasdaq Stock Market since Facebook and performed smoothly without incident on the first day of trading. [4] We maintain a positive outlook for the company’s U.S. Listings, you can gauge the effect of a change in forecast on the company’s stock price by modifying the interactive graph below.

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Notes:
  1. Nasdaq OMX Wins SEC Approval for New BX Options Exchange, Nasdaq, June 28th, 2012 [↩]
  2. Volume Climbs 11.4% to 25 Billion Contracts Worldwide, Futures Industry Report [↩]
  3. SEC may order Nasdaq to upgrade trading systems Reuters, 29th June, 2012 [↩]
  4. No Hitches For Nasdaq On Latest Offerings, Wall Street Journal, 28th June, 2012 [↩]