Mid-Year Slowdown In Trading Activity For NASDAQ OMX Group
Global exchange operator NASDAQ OMX Group (NASDAQ:NDAQ) has witnessed limited growth in trade volumes this year. The company reported low trade volumes in the U.S. for both cash equity trading and derivative trading in Q1 and in the current quarter thus far. Comparatively, trading activity on its European platforms has been moderately better over the previous year.
In its most recent quarterly earnings, NASDAQ reported a 4% year-on-year decline in consolidated revenues to $858 million. Market Services revenues, or trade-based revenues, were down by almost 7% y-o-y to $539 million, while revenues generated by NASDAQ’s technology division were down by over 7% over the prior year period to $130 million. [1] A similar trend has continued through the June quarter as well, with the company observing a sustained period of low trade volumes in the U.S. Moreover, equity trade volumes on NASDAQ’s European platforms also witnessed a sequential and year-over-over decline in the month of May. Here’s a quick roundup of NASDAQ’s metrics across various products for the month of May and our forecasts for them.
We have a $46 price estimate for NASDAQ OMX’s stock, which is about 10% lower than the current market price. NASDAQ OMX’s stock price has fluctuated between $48 and $52 since the company released its Q1 earnings in late April.
See our full analysis for NASDAQ OMX Group
Derivatives Trade Volumes
NASDAQ OMX 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 total number of equity options traded on its U.S. marketplace fell by 13% annually and 7% sequentially to 67 million contracts in May. [2] Total contracts traded in Q2 thus far are about 14% lower than the comparable prior year period at 139 million contracts.
Similarly, the total number of equity options traded in the U.S. in the March quarter was about 6% lower than Q1’14 at 251 million contracts. [1] Back in 2014, NASDAQ lost share to competing exchanges in this market. 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% through 2014. The decline in market share was attributable to increasing competition in this market leading to significant pricing pressure. [3] However, the company’s share picked up in Q1 this year, as it managed to capture 27.8% of the trades in this segment through the quarter. We currently forecast NASDAQ’s combined market share in the derivatives trading market in the U.S. to gradually decline to under 26% in the long run.
On the other hand, European derivatives trading volumes were high through Q1 at 25.4 million traded contracts, which was a 7% improvement over the year-ago period. This continued in 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. The trend continued in May as well, with a total of 7.5 million contracts traded during the month. May volumes were 23% higher than the prior year period. 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.
Cash Equity Trading
NASDAQ’s cash equity trade volumes in the U.S. through Q1 were about 5% lower than the comparable prior year period at a total of 83 billion shares traded during the quarter. The trend continued in the second quarter, as the total number of shares traded for April and May combined fell by 10% y-o-y to 48 billion shares traded. [2]
The implied revenue generated per 1,000 shares in Q1’15 was slightly higher than the year-ago period at $4.03, due to which cash equity trading revenues stood at $339 million for the quarter, only a 1% y-o-y decline. 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 moderate 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 has improved slightly through April and May. The total value of shares traded on NASDAQ’s European platforms for April and May was roughly flat over the prior year period at about $150 billion. Management mentioned that the company faces pricing pressure due to increased competition, while unfavorable foreign exchange rates may continue in the near term. [1] 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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More Trefis Research
- NASDAQ OMX Q1 2015 Earnings Call Transcript, Seeking Alpha, April 2015 [↩] [↩] [↩]
- NASDAQ OMX Monthly Metrics, NASDAQ Investor Relations, June 2015 [↩] [↩]
- Federal Regulations Self-Regulatory Organizations; NASDAQ OMX PHLX LLC, Justia Regulations, September 2014 [↩]