High Trade Volumes Across Derivatives, Equities In Europe, U.S. For NASDAQ OMX
NASDAQ OMX Group (NASDAQ:NDAQ) has reported varying trends in trade volumes for derivatives and equities this year. The global exchange operator witnessed low derivative trade volumes in the U.S. from January through July this year, though they picked up in August. On the other hand, cash equity trade volumes surged in August after fluctuating throughout the year. Derivative trading on NASDAQ’s European trading platforms fell on a year-over-year basis for the first time this year in July. However, volumes picked up in August. Moreover, equity trade volumes on its European platforms have been slightly better than 2014 levels through the year thus far. Below we take a look at NASDAQ’s metrics across various products for August and our full year forecasts for them.
We have a $47 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.
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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 13% sequentially and year-over-year to 88 million contracts in August. August was the first month this year where trade volumes were higher on a year-over-year basis. [1]
Back in 2014, NASDAQ lost share to competing exchanges in this market. The combined share of the NASDAQ OMX Boston Exchange, NASDAQ Options market and NASDAQ OMX Philadelphia Exchange (PHLX) fell by one percentage point to 26.9% through 2014. The decline in market share was attributable to increasing competition, leading to significant pricing pressure. [2] The trend continued through the first half of 2015 as well, with NASDAQ capturing about 26% of the market for Q1 and Q2 combined, compared to 27.2% in the 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.
On the other hand, European derivatives trading volumes were strong through Q1 and Q2 this year. Volumes fell both sequentially (-19%) and year-over-year (-14%) to 6.1 million contracts traded per day in July. This picked up again in August to 7.2 million contracts traded per day. August volumes were about 7% higher on a y-o-y basis. As a result, NASDAQ has resumed growth in its European derivatives trading business. The company has witnessed y-o-y growth for European options and futures volume in every month this year except July.
Cash Equity Trade Volumes
NASDAQ’s cash equity trade volumes in the U.S. improved by 15% month-over-month to 31.4 billion shares traded in August. Volumes were 47% 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. [1] Despite lower trade volumes in the first half of the year, the implied revenue generated per 1,000 shares this year has been slightly higher than the year-ago period. As a result, 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.
Trading activity in NASDAQ’s Nordic and Baltic exchanges witnessed a similar decline in the March quarter. However, the trend reversed in Q2 with trade volumes picking up; the total value of shares traded on these platforms combined stood at $219 billion for the June quarter – about 16% higher than the prior year period. The trend has continued in Q3 thus far, as the company has reported the total value of shares traded on its European platforms at around $138 billion for July and August combined, about 20% 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 conducted.
How Revenues Varied With Trade Volumes
NASDAQ has reported comparatively lower trading revenues this year. Lower revenue capture per transaction, coupled with varying volume trends, led market services revenues to fall by 11% y-o-y to $478 million in the most recent quarterly earnings. However, non-trading businesses partially offset the decline, due to which the company’s consolidated revenues were down by 7% year-on-year to $807 million in Q2. [4] Similarly, the company reported a a 9% y-o-y decline in market services revenues for Q1 and Q2 combined to just over $1 billion. Consolidated company-wide revenues were down by only about 5% on a y-o-y basis to $1.7 billion, with non-transaction businesses driving growth.
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More Trefis Research
- NASDAQ OMX Monthly Metrics, NASDAQ Investor Relations, September 2015 [↩] [↩]
- Federal Regulations Self-Regulatory Organizations; NASDAQ OMX PHLX LLC, Justia Regulations, September 2014 [↩]
- NASDAQ OMX Q2 2015 Earnings Call Transcript, Seeking Alpha, July 2015 [↩]
- Nasdaq Reports Record Second Quarter 2015 Non-GAAP Results, NASDAQ Press Release, July 2015 [↩]