NYSE Outbid For LME In Europe, Looks East for Futures

NYSE Euronext (NYSE:NYX) faced a setback last week as a low bid price forced it out of the race to acquire London Metal Exchange (LME), one of the largest futures exchanges in the world. The failure of the deal is a big blow to the company as its merger with German exchange operator, Deutsche Boerse AG, was blocked by the European Commission in February. Competitors CME Group (NASDAQ:CME), IntercontinentalExchange (NYSE:ICE) and the Hong Kong Stock Exchange are still vying for the lucrative business which would help them consolidate their positions in the European market.

See our full analysis of the NYSE Euronext stock here

Shaken But Not Stirred

NYSE was very eager to acquire LME as NYSE Liffe, the derivatives trading platform and clearing business, shares storehouses with LME for the storage and delivery of commodities. Although the fallout of the deal is a disappointment for NYSE, we expect European derivative trading volumes to increase over our forecast period as the debt crisis in Europe leads to a shift in focus from cash products to options and derivatives among investors. Regulations by the European Union afford increased transparency and standardization while increased trading has inspired confidence in the markets. We expect options trading to flourish over the next few years. Derivatives trading is one of the company’s key divisions, accounting for 41% of our $34 price estimate for NYSE Euronext’s stock, which is 38% above the current market price.

Eyes Turn East

Growing markets in Asia provide a tremendous potential for businesses in the region and subsequently for investors and traders. NYSE has taken several steps to capitalize on the growth in this geography, (See NYSE Opens Liquidity Center In Tokyo, Targets $1 Billion in Technology Solutions Revenues) including an agreement with the China Financial Futures Exchange (CFFEX) to promote the development of a futures and options market. The two exchanges signed a Memorandum of Understanding (MOU) to explore opportunities for expansion and collaboration through exchange of information. ^[1] We expect the exchange to realize new avenues for revenue generation as Asian markets go through a period of economic growth, and we will keep a close eye on such further developments.

Understand What Drives a Stock at Trefis

1. NYSE Euronext and China Financial Futures Exchange Sign Memorandum of Understanding, Press Release, 16^th May 2012 [↩]