U.S. Equity Trading Picks Up, European Derivative Volumes Fall For NASDAQ OMX
Global exchange operator NASDAQ OMX Group (NASDAQ:NDAQ) has witnessed mixed trends in trade volumes this year. The company has reported low trade volumes in the U.S. for derivative trading in 2015 thus far, while cash equity trade volumes have fluctuated throughout the year. Comparatively, trading activity on its European platforms has been moderately better over the previous year. The other key trend for NASDAQ this year has been the trading division’s comparatively lower revenue. As a result, the company reported an 11% y-o-y decline in revenues generated by the market services division in its most recent quarterly earnings. NASDAQ reported a 7% year-on-year decline in consolidated revenues to $807 million in Q2, with revenues generated by non-transaction businesses partially offsetting the decline in trading revenues. [1]
Trade volumes for equity options in the U.S. remained low through the month of July, while equity trade volumes in the U.S. picked up after a slow Q2. Moreover, equity trade volumes on NASDAQ’s European platforms were higher than comparable prior year period volumes, while derivative trade volumes continued to be suppressed. Below we take a look at NASDAQ’s metrics across various products for July and our forecasts for them.
We have a $46 price estimate for NASDAQ OMX’s stock, which is slightly lower than the current market price. NASDAQ OMX’s stock price has fluctuated between $45 and $54 this year.
See our full analysis for NASDAQ OMX Group
Cash Equity Trading
NASDAQ’s cash equity trade volumes in the U.S. improved sequentially by 4% to 27.3 billion shares traded in July. Trade volumes were about 11% higher than the comparable prior year period. This was a change from the trend observed in Q1 and Q2, when cash equity trading was relatively subdued. [2] The implied revenue generated per 1,000 shares in 2015 thus far has been slightly higher than the year-ago period, due to which cash equity trading revenues stood at $636 million for Q1 and Q2 combined, only about 4% lower than the prior year period. 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 in Q1. However, trade volumes picked up from Q2 and have remained higher than previous year levels since then. The total value of shares traded on these platforms combined was $65 billion in July, which was about 12% higher than the year ago period. Management mentioned that the company faces pricing pressure due to increased competition, while unfavorable foreign exchange rates may persist in the near term. [3] We currently forecast the transaction fee per trade to remain largely flat compared to the prior year period at just over a dollar per transaction.
Derivatives Trade Volumes
The NASDAQ OMX Group is a diverse global stock market operator, 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 rose by 10% sequentially to 78 million contracts traded in July. However, the volume was still about 10% lower than the comparable prior year period. The number of equity options traded on NASDAQ’s U.S. platform has been lower than previous year levels in every month of the year thus far. [2]
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, leading to significant pricing pressure. [4] The trend has continued through 2015 as well, with NASDAQ capturing only about 26% of the market in the first half of the year compared to 27.2% in the comparable prior year period. 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.
Comparatively, European derivatives trading volumes were high through Q1 and Q2 this year. However, volumes fell both sequentially (-19%) and year-over-year (-14%) to 6.1 million contracts traded per day in July. This could be worrying news for the company since European derivatives trading was the only area with consistent growth in volumes through the year.
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More Trefis Research
- Nasdaq Reports Record Second Quarter 2015 Non-GAAP Results, NASDAQ Press Release, July 2015 [↩]
- NASDAQ OMX Monthly Metrics, NASDAQ Investor Relations, August 2015 [↩] [↩]
- NASDAQ OMX Q2 2015 Earnings Call Transcript, Seeking Alpha, July 2015 [↩]
- Federal Regulations Self-Regulatory Organizations; NASDAQ OMX PHLX LLC, Justia Regulations, September 2014 [↩]