In all, Nasdaq OMX Commodities and Nord Pool ASA will have more than 390 members from 22 countries across a wide range of energy producers, consumers as well as financial institutions.

Nord Pool is the world’s largest power derivatives exchange and one of Europe’s largest carbon exchanges operating in all of the Nordic (Denmark, Finland, Norway, Iceland and Sweden) and other European countries. Nord Pool ASA is responsible for the exchange operations and trading activities, including ownership of the Nordic derivative products.

In October 2008, Nasdaq acquired Nord Pool Clearing ASA and Nord Pool Consulting AS from Nord Pool ASA. The decision to buy Nord Pool followed the choice of Nord Pool’s previous owners ? power grid operators Statnett and Svenska Kraftnat ? to exercise their option to sell the shares in the company. This implies that the acquisition is based on a strong justification of combining the power and carbon derivatives exchange and clearing business on the Nord Pool platform. However, this deal is exclusive of the Nordic physical electricity market operated by Nord Pool Spot AS.

While the Nord Pool acquisition allows mutually attractive upside opportunities, it will also help broaden the current commodities product range, thereby attracting new financial participants to enhance liquidity and volume.

Nasdaq continues to expand its net derivatives trading and clearing exchange platform on a strong base. In December 2008, Nasdaq acquired a majority interest in the International Derivatives Clearing Group (IDCG). In January 2009, the company acquired a 22% stake in European Multilateral Clearing Facility N.V., a leading European clearing house now used for all Nordic transaction services. In January 2010, Nasdaq increased its stake in Agora-X to 85% and on March 8, 2010, the company purchased North American Energy Credit and Clearing Corporation (“NECC”). Together with Nord Pool Spot, Nasdaq Commodities has set up N2EX, the marketplace for physical U.K. power contract.

Through the addition of Nord Pool, Nasdaq continues to expand its exchange operations, particularly enhancing its competitive edge over its derivatives-focused rivals CME Group Inc. (CME), IntercontinentalExchange Inc. (ICE) as well as NYSE Euronext Inc.’s (NYSE) NYSE ARCA and NYSE Amex.

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(NDAQ) Nasdaq OMX Incorporated Acquires Nord Pool ASA

Nasdaq continues to perform and expand its net derivatives trading and clearing exchange platform on a strong base. In Dec 2008, Nasdaq acquired a majority interest in the IDCG. In Jan 2009, the company acquired a 22% stake in European Multilateral Clearing Facility N.V., a leading European clearing house now used for all Nordic transaction services.

In Jan 2010, Nasdaq increased its stake in Agora-X to 85% and on Mar 8, 2010, the company purchased North American Energy Credit and Clearing Corporation (NECC). Nasdaq now also intends to offer central clearing in its U.K. power derivatives market in 2010.

Through the addition of Newedge, Nasdaq continues to expand its clearing house and OTC operations, particularly enhancing its competitive edge over its derivatives-focused rivals CME Group Inc. (CME) where Newedge is already a clearing member, IntercontinentalExchange Inc. (ICE) and LCH.Clearnet. It will also help increase efficiencies through cost-savings, transparency and liquidity. Hence, the addition of Newedge appears appropriate for the company.

On the other hand, the clients of Newedge can continue to execute IRSs in the well-established OTC market while reducing counterparty risk by simultaneously navigating their positions to IDCG, which will also allow segregation of funds protection.

Overall, we believe the ongoing restructuring developments are crucial to Nasdaq, given the company’s competitive environment in the backdrop of the current favorable economic trends that could provide more opportunities and leverage.

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(NDAQ) Nasdaq OMX Group Adds Newedge Clearing

Founded in 1973, CBOE’s IPO plan was being devised long time ago but it got delayed due to the legal hassle with the members of the former Chicago Board of Trade (CBOT). CBOT is the futures exchange from which CBOE was originally spun off in 1973 and which was bought by the Chicago Mercantile Exchange Group Inc. (CME) in August 2008.

The issue of the dispute rose when some CBOT members retained trading rights in the CBOE, claiming that they were entitled to a share of the CBOE upon demutualization. Though for several years, CBOE had been arguing that any merger effectively eliminated CBOT members’ exercise rights, it finally settled the dispute by paying $4.2 million to the CBOT members in 2009.

The CBOE’s current strategy is to convert from a member-owned organization to a publicly traded corporation (demutualization) known as CBOE Holdings Inc. Many analysts and market insiders expect the company’s market value to go up to $5 billion. CBOE has also announced a special pre-IPO dividend of $113 million and a post-IPO dividend of 20?30% from last year’s profits.

Moreover, the IPO is expected to be accepted by the market on a modestly high premium because of the rumors that CBOE could be an acquisition target for the already strong peers in the industry such as Nasdaq OMX Group Inc. (NDAQ), NYSE Euronext Inc. (NYX), InterContinental Exchange Inc. (ICE) and CME, which has already been in informal speculation. However, all the big shots of the industry first await CBOE to go public and secure a market valuation for itself.

U.S.’s stock exchange industry has a vast history of acquisitions. While Nasdaq acquired Philadelphia Stock Exchange, NYSE acquired Euronext NV and combined in April 2007 to form the Nasdaq OMX Group. Chicago Mercantile Exchange acquired CBOT in 2007 after the latter went public in 2005 along with NYMEX in 2008, which in its turn went public in 2006. Hence, these trends increase the likelihood of the acquisition of CBOE in the near future.

The CBOE projects to utilize the net proceeds of the IPO to repurchase the shares it will issue to both CBOE members in the demutualization and the former members of the CBOT who are due to receive stock as a part of the settlement agreement.

The CBOE recorded a net income of $106.5 million in 2009, down 9.2% from 2008, due to competitive pressures that weighs on the pricing and market share of the company. However, revenue increased 2% from 2008 to $426 million. Given the current critical sustainability factor in the already saturated trading market, we believe a merger can provide strength to the CBOE’s long term growth prospects.

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($GS) Chicago Board Options Exchange Files for IPO

Additionally, the Board of Nasdaq has also decided to shell out another $100 million for its amortization prepayments on its term loan during 2010. The company is working vigorously to tame its liquidity and capital position in an efficient manner.

In January 2010, Nasdaq capitalized on an opportunity to refinance its outstanding credit facility at extremely favorable terms. The terms of the new $1 billion debt offering grants increased flexibility in capital management decisions while reducing the interest rate exposure.

Recently, Standard & Poor’s ratings services upgraded the long-term counterparty credit rating expecting Nasdaq to generate good earnings and operating cash flows in 2010. The rating agency also raised its debt rating on Nasdaq’s new debt reflecting sound financial outlook and improvement in operating efficiencies.

Over the last 30 days, 3 of the 17 analysts covering the stock have lowered their estimates for the first quarter of 2010 while 4 revised upward. Currently, the Zacks Consensus Estimate for first quarter operating earnings is 48 cents per share, which would be up by 0.12% from the year-ago quarter.

The higher number of upward estimate revisions for the first quarter indicates a likelihood of upward pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been very steady over the last 4 quarters, with all positive surprises. The average remained positive at 3.34%. This implies that Nasdaq has surpassed the Zacks Consensus Estimate by 3.34% over that period.

Nasdaq’s fourth-quarter earnings surpassed the Zacks Consensus Estimate by a couple of cents on low charges and expense management. However, the top-line declined on weak volumes.

Nevertheless, an improved outlook for equity investments and the number of recession-proven private companies seeking capital will add to the IPO pipeline in 2010. We believe that Nasdaq’s operations will gain momentum once the global economy stabilizes and rebounds to its historical highs.

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(NDAQ) Nasdaq OMX Group to Do Share Buyback

Besides, the company’s organic growth is helped by the increase in market technology and access services revenues primarily due to the increased deliveries of contracts and changes in the exchange rates of various currencies compared to the U.S. dollar. Additionally, the company’s net derivatives trading and clearing exchange platform continue to perform on a strong base. Going forward, these revenue drivers have the potency to generate growth.

Further, Nasdaq generates a healthy balance sheet along with a strong cash flow of its diverse business model. Recently, this strength provided an opportunity to refinance the company’s outstanding credit facility on extremely favorable terms.

Additionally, in Jan 2010, S&P’s ratings services upgraded the long-term counterparty credit rating on Nasdaq to “BBB” from “BBB-“, expecting the company to generate good earnings and operating cash flows in 2010. The rating agency also raised its debt rating on Nasdaq’s new debt to “BBB” from “BB+”, reflecting a sound financial outlook and improvement in operating efficiencies.

However, Nasdaq’s top-line growth has been marred by a decline in market and issuer services exchange revenues that plummeted on a lower average net fee per share, decreasing trading activity and market competition.

Besides, the global economic crisis experienced in the last couple of years has also led to a decline in initial public offerings (IPOs) that directly impacts new listings, trading volumes and related revenues. We do not expect any random growth in the top-line unless the current market recovery provides resonance to liquidity and credit quality.

Moreover, Nasdaq’s rival trading platforms launched in recent years have snipped off the market share held by the long-standing exchange operator. The recent addition in market players has pressured fees generated from handling trades and volumes.

The company’s matched market share executed in Nasdaq-listed securities declined from 46% in 2007 to 33% in 2009, while the combined matched market share in all U.S.-listed securities declined from 29% in 2007 to 23% in 2009. This steady erosion substantially and directly increases the operational and financial risk of the company in the upcoming years.

The outstanding technical performance and rating upgrade has enabled the company to enter new markets on a low cost and highly flexible platform, offering value addition to its clients and creating additional sales opportunities. However, the ongoing low M&A activity and headwinds related to volume and pricing continue to limit the stock’s upside. We believe that Nasdaq’s operations will gain momentum once the global economy stabilizes and rebounds to its historical highs.

On Monday, the shares of Nasdaq closed at $18.80, up 0.9%, on the New York Stock Exchange.

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(NDAQ) Nasdaq OMX Group Analyst Initiates Coverage at Neutral

Nasdaq’s GAAP net income was $43 million or 20 cents per share, up from $35 million or 17 cents in the year-ago quarter but down from $60 million or 28 cents in the prior quarter. This included $51 million in impairment charges related to unconsolidated investors (net of tax), $16 million in pre-tax expenses associated with occupancy sub-lease reserves workforce reductions, $12 million in pre-tax gains on the sale of certain businesses and $5 million (2 cents per share) in a Swedish tax benefit.

Total net exchange revenues declined 8% to $369 million from $403 million in the year-ago period on declining revenues from transaction services, market data, broker services and cash equity trading. Moreover, declining volumes and lower average net fee per share on Nasdaq’s trading system weakened the results. Market Services net exchange revenues for the quarter declined 14% from the year-ago period to $240 million, but increased 4% from the previous quarter.

Issuer Services revenues for the fourth quarter were $82 million, down 4% from the year-ago period on weak global listing services revenue. Market technology revenues increased 26% from the year-ago period to $44 million, primarily due to the increased deliveries of market technology contracts and changes in the exchange rates of various currencies compared to the US dollar.

On GAAP basis, total operating expenses declined to $220 million from $223 million in the previous-year quarter. On non-GAAP basis, operating expenses declined 4% from the prior-year period on a reduction in compensation expense and lower core operating expense. The reductions were driven by successful integration efforts associated with Nasdaq’s business combination with OMX and acquisition of the Philadelphia Stock Exchange.

For full year 2009, net income attributable to Nasdaq OMX shareholders declined to $266 million or $1.25 per share from $314 million or $1.55 in 2008. This included a benefit of $19 million or 9 cents per share related to the Swedish tax benefit for 2009. Total net exchange revenues were $1.45 billion, down from $1.46 billion in 2008.

Debt Restructure Update

Moving ahead with its debt restructuring strategies, in Jan 2010, Nasdaq completed its $1 billion underwritten public offering of senior notes and borrowing from the $950 million senior unsecured credit facility. The new credit facility includes a $700 million funded term loan and a $250 million unfunded revolver.

The company used the net proceeds from the notes offering along with the borrowings from the new senior unsecured credit facilities and cash on hand to repay all outstanding debt taken under its existing senior secured credit facilities and cease the associated credit agreement.

Nasdaq is expected to benefit from the current debt restructuring as trimming its old debts will help generate financial flexibility, besides liberating it from the stringent terms and conditions of the old credit facility that allowed only a restricted utility of the borrowings. However, the current high rate of interest associated with the new loans may weigh on the company’s bottom-line in the upcoming quarters.

Overall, the issue of current debt offerings is crucial to Nasdaq given the company’s competitive environment in the backdrop of the current favorable economic trends that could provide more opportunities and leverage.

Guidance

For fiscal year 2010, Nasdaq management expects total operating expenses to be in the range of $865 million to $885 million, including about $50 million in non-recurring costs. The company projects to record recurring quarterly tax benefits of $4 million to $5 million with respect to the Swedish tax benefit for the near future.

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(NDAQ) Nasdaq OMX Group Beats on Low Charges

The company swung to a GAAP net income of $60 million or 28 cents per share compared to $69 million or 33 cents in the prior quarter and $58 million or 27 cents in the year-ago period. Results included one-time charges counting $25 million in debt conversion expense, $16 million in pre-tax expenses associated with asset retirements, workforce reductions and other non-recurring items, and $5 million in pre-tax merger expenses.

Excluding these charges, pro forma earnings per share came in at 42 cents, in line with the Zacks Consensus forecast. Results were aided by growth in the company’s core businesses and significant progress from new initiatives.

Net revenue (net of liquidity rebates, brokerage, clearance and exchange fees) slipped 4.9% sequentially and 12.5% year over year to $349 million. The decline was primarily attributable to foreign currency fluctuations. The company continued to expand its Market Technology business following its selection as the strategic technology provider to the Osaka Securities Exchange (OSE) and the Kuwait Stock Exchange (KSE).

Total operating expenses decreased 11.3% year over year to $197 million primarily due to lower compensation expense, marketing and advertising expense, reduced expenses for computer operations and data transmission, besides lower general, administrative and other expense.

Nasdaq has updated its 2009 guidance for total operating expenses to a range of $840 million to $850 million, including approximately $50 million in non-recurring costs.

The company reduced total principal amount of debt obligations by $232 million to $452 million at the end of the quarter. The reduction was attributable to the repayment of $113 million on $2.0 billion term loan and the conversion of $119 million of 3.75% convertible notes held by Silver Lake and another holder into common equity.

The world’s largest exchange, which operates across 70 bourses in more than 50 countries, offers trading, clearing and settlement in equities, futures, options, fixed-income and exchange-traded products.

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(NDAQ) Nasdaq OMX Group Reports In-Line With Forecasts

The company swung to a GAAP net income of $125 million or 44 cents per share from a GAAP net loss of $182 million in the prior quarter and a net income of $174 million or 66 cents in the year-ago period. Results included one-time charge related to merger expenses and exit costs, the impact of the disposition of Hugin Group B.V., the sale of investments in BM&F Bovespa and a fair value adjustment to investment in BIDS Holdings L.P.

Excluding these charges, pro forma earnings per share came in at 53 cents, beating the Consensus forecast by more than 18%, or 8 cents. The upside was attributable to growth in the company’s core businesses, significant progress from new initiatives which offset lower trading volumes.

Net revenue increased 2.1% sequentially but slipped 13.8% year over year to $624 million. The decline was primarily attributable to foreign currency fluctuations.

NYSE Euronext has significantly reduced dependence on the competitive share trading business as 30% of its group revenues now came from derivatives, including its recently launched NYSE Liffe Clearing derivatives clearing unit.

U.S. operations posted a 7.6% year over year decline in revenue to $293 million. Revenue from European operations slumped 17.2% to $337 million due to reduced trading volumes.

Fixed operating expenses decreased 0.7% year over year to $431 million. However, operating income still slumped 33.7% to $197 million, primarily due to negative foreign currency fluctuations. NYSE Euronext also slashed its headcount by 3% from the year-ago quarter to 3,399.

The transatlantic exchange, which operates across 6 cash equities exchanges in 7 countries and 8 derivatives exchanges, offers trading, clearing and settlement in equities, futures, options, fixed-income and exchange-traded products.

Meanwhile, bigger rival CME Group Inc. (CME) reported third-quarter earnings of $3.35 per share earlier this week, beating the Consensus forecast by 5 cents. Other rivals, including IntercontinentalExchange Inc. (ICE) and NASDAQ OMX Group Inc. (NDAQ) are scheduled to announce quarterly results next week.

Zacks Investment Research
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(NYX) NYSE Euronext Beats Consensus by 18%