NYSE Euronext (NYSE:NYX) is expected to announce earnings for the third fiscal quarter of 2012 on Tuesday, 6th November. The company has been hit hard by declining trade volumes this year as tough macro-economic conditions have deterred investors. Revenues for the second quarter were down 9% from 2011 and net income was 19% below that of the prior year period. The recently released monthly volume summary for September showed no signs of respite. The average daily volume for nearly all products was below the figure for the same period last year. We expect earnings to remain suppressed in the near term with a long-term recovery as global economic conditions improve.
Our $27 valuation of NYSE Euronext’s stock is in-line with the current market price.
Losing Market Share In The U.S.
Along with a general decline in investor confidence, NYSE’s volumes have also been affected by increased competition in the U.S. market. BATS, which opened just six years ago, provides an alternative to the two incumbent giants, NYSE and Nasdaq (NASDAQ:NDAQ). The two exchanges operated by BATS now account for more than 13% of cash products traded in the country, increasing from just over 10% in January.  In contrast, NYSE’s market share has dropped from 29% in January to 25% at the end of September. As a result, year-to-date U.S. cash products average daily volume at the end of September fell by 26% from 2011. 
We expect increased competition to have a deleterious effect on NYSE’s trading volume, but we forecast a long-term recovery coinciding with improving economic conditions leading to a market-wide increase in volumes.
The recently launched Retail Liquidity Program (RLP) might help NYSE mitigate the effect of declining volumes as it allows trading firms to participate in retail trades outside the traditional marketplace. (See NYSE Is Worth $34 With Alternative Retail Equity Market Rollout)
Tough Times In Europe
European volumes have been affected by the prolonged debt crisis that has plagued the region. Year-to-date European derivatives products average daily volume at the end of September was down 20% from last year. NYSE Liffe has so far enjoyed a duopoly in the European market with Deutsche Boerse. This might be challenged by Nasdaq’s new derivatives trading platform which will open in London next year. The exchange is targeting 10% market share in the first year.  As with U.S. cash products, European volumes will be influenced by increased competition and weak economic conditions prevalent in the region.Notes: