Nasdaq OMX (NYSE:NDAQ) is a leading global exchange group which runs NASDAQ stock exchange. It is the largest cash equities securities market in the U.S. in terms of the number of listed companies and in the world in terms of share value traded. The company derives around 22% of its value from cash equity trading in the U.S. from Nasdaq stock market, Philadelphia stock exchange (Nasdaq OMX PHLX) and Boston stock exchange (Nasdaq OMX BX). Its main competitors are NYSE Euronext (NYSE:NYX) and CME Group (NYSE:CME).
We have a price estimate of $26.80 on Nasdaq OMX Group’s stock which is about 6% below the current market price.
NASDAQ’s transaction-based platforms in the U.S. provide market participants with the ability to access, process, display and integrate orders and quotes for cash equities.
Recovery in US Trading Volume Underway
The average daily volume of the equity securities traded in the US stock market increased from 4.9 billion in 2006 to 9.8 billion in 2009 at an annual growth rate of 26%, driven by greater liquidity, increased electronic trading and volume heavy trading techniques like algorithmic trading. However volumes dropped off to around 8.5 billion in 2010 as high market volatility and macro uncertainty kept investors away from investing. In the past, economic downturns have not restricted the total volume transacted in U.S. equity markets for long.
We expect the average daily cash equity trading volume to recover and grow to over 11 billion by the year 2013 as increased automation and more advanced trading platforms allow for heavier trading. According to some studies, 50% of all equity trades occurring in the U.S. will be based on automated algorithmic trading in 2010. 
Decline in Nasdaq’s share of the US listed shares
Prior to 2006, NASDAQ was successful in gaining market share of U.S. cash equities traded due to a continuous technological innovation and improvements in the order executions. However, starting in 2008 a rise in competitors and electronic exchanges like BATS Global Markets and Direct Edge have been able to capture around 20% market share of the total U.S. cash equities market in a short amount of time.
We expect Nasdaq’s market share to improve to about 23% by the year 2014 as Nasdaq implements new trading technology which improves the quality of trade execution by improving speed and lowering the cost of trading platforms.
- US Equity Options Volumes Surge In July For NASDAQ
- NASDAQ’s Cash Equity Volumes Plunge In July
- NASDAQ’s Fixed Income Volumes Decline In July
- Acquisitions And Operations Drive NASDAQ’s Second Quarter Revenue
- NASDAQ’s Fixed Income Volumes Continue to Decline In June
- NASDAQ Earnings Preview: Transaction-Based Revenues Likely To Be Affected By Decreasing Market Share
If Nasdaq were able to regain more market share in line with historical levels and reach 25% by the end of our forecast period this would add around 8% upside to our price estimate.Notes: