NASDAQ OMX Group Witnesses Mixed Volumes In January

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NASDAQ OMX Group (NASDAQ:NDAQ) released its monthly volume report for January, reporting varying trends in Europe and U.S. for cash equities and equity derivatives. [1] While U.S. equity options failed to show growth in January, they saw increased volumes in Europe. On the other hand, cash equities performed impressively in the U.S, but fell in Europe. Below we take a look at NASDAQ’s metrics across various products for January and our full year forecasts.

We have a $50 price estimate for NASDAQ OMX’s stock, which is about 15% lower than the current market price.

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See our full analysis for NASDAQ OMX Group

Equity Derivatives Remain Suppressed

Continuing the trend from last year, U.S. equity options volume fell 16% year-on-year (y-o-y) to 76 million contracts in January. This is likely the consequence of NASDAQ’s declining market share in equity options, which dropped from 27.9% in 2013, to about 26.9% in 2014, and further to approximately 25% in 2015. [1] Moreover, the industry-wide drift towards lower derivative volumes further contributed to the deterioration in derivative volumes. We expect the downward trend in market share to continue in 2016, as new and upcoming players enter the domain.

European derivative volumes were up slightly on an annual basis to 8.9 million contracts in January. However, on a sequential basis volumes declined. This is in contrast to the trend seen last year, when Nordic and Baltic exchanges were the main drivers of growth in equity option volumes. We expect European derivatives trade volumes to pick up going forward, by approximately 5% to around 399,000 contracts traded per day, or a total of 100 million contracts in 2016.

Cash Equities Witness Growth

The year started on a high note for NASDAQ’s cash equity volumes, rising nearly 11% y-o-y to 33 billion shares. [1] This level was last seen in August 2015, when the impending slowdown in China caused volumes to skyrocket. The impressive performance in January can likely be attributed to the Chinese slowdown and other macro factors such as uncertainty around oil and the rout in the global financial markets. We expect the uptrend in volumes to continue in the first quarter of the year despite NASDAQ’s declining market share in cash equities, as repercussions of the aforementioned global factors continue to be felt.

Cash equities have traditionally been the bedrock of NASDAQ’s business. However, lately, the company has been losing market share. From 2014 to 2015, the company’s market share declined 100 basis points to 67.7%. Consequently, the value of European equity shares traded on NASDAQ’s platform decreased 4% y-o-y to $71 billion in January. Comparatively, the figure was considerably higher (7.5%) on a sequential basis. Going forward, we expect NASDAQ’s market share for cash equities to stabilize around 68%.

 

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Notes:
  1. NASDAQ OMX Monthly Metrics, NASDAQ Investor Relations, February 2015 [] [] []