Trading volumes on NYSE Euronext’s (NYSE:NYX) global derivatives and cash equities exchanges fell significantly during August.  Average daily volume (ADV) for global derivatives fell 38.4% year-on-year as a decrease in market volatility over the last year discouraged investors.
Cash products trading did not provide any relief either as U.S. cash products ADV fell 54.6% whereas European cash products trading volume was down 50.1% compared to August 2011. NYSE’s main competitor, Nasdaq OMX (NASDAQ:NDAQ), has also been hit hard by the prevalent economic conditions as concerns over the growing national debt have adversely affected investor confidence in the U.S.
Our $27 valuation of NYSE Euronext’s stock is in-line with the current market price.
A Sign For Worry Or A Seasonal Low?
Derivative trading usually experiences a trough during the summer months leading to September. This year, however, investors in the U.S. have been particularly cautious. The daily average for U.S. options traded through the NYSE in August fell 46.3%, year-on-year, a decrease of 11.4% from the average for July. Trade volume for NYSE Liffe, NYSE’s futures exchange, decreased 53.9% from 137,100 contracts traded in August 2011 to 63,200 contracts.
To attract customers, NYSE has introduced three new futures contracts based on MSCI global indices: mini MSCI Canada, mini MSCI Emerging Markets Latin America and mini MSCI World index futures. These contracts will be traded via NYSE Liffe.  The futures will allow investors to access global markets and will be particularly lucrative for institutional clients looking to balance exposure to North American markets as well as developed world markets and developing South American markets.
Although currently depressed, we expect derivatives trading volumes to pick up in the long term, especially since equity returns remain low in the current economic conditions. Derivative trading is the most important business for NYSE, accounting for ~60% of our price estimate.
NYSE’s Retail Liquidity Program (RLP), which allows retail investors to execute trades outside the traditional marketplace, is off to a good start, with an average of 6 million share trades executed per day in the first month.  High-frequency brokers like Tradebot Systems Inc, Hudson River Trading LLC and Getco LLC, and RGM Advisors LLC have supplied orders for retail clients on the platform so far, with transactions involving almost 2.7 million shares across 281 companies. The platform might just provide the shot in the arm that cash trading in the U.S. needs.
You can gauge the effect of a change in our forecast by modifying the interactive charts above.Notes:
- NYSE Euronext Announces Trading Volumes for August 2012, Press Release, 10th September, 2012 [↩]
- NYSE Liffe U.S. Expands mini MSCI Futures Portfolio with Three New Global Futures Products, Press Release, 10th September, 2012 [↩]
- NYSE Euronext Retail Program Executes 6 Million Shares a Day, Bloomberg, 11th September, 2012 [↩]