* Nasdaq up first, reporting on Wednesday
* Profits at all 5 public US exchange operators seen down in
Q3
* Cost controls and capital management expected to be in
focus
By John McCrank
NEW YORK, Oct 19 (Reuters) – U.S. exchanges are expected to
report lower profits for the third quarter as volumes in cash
equities, options and derivatives slumped with retail investors
on the sidelines amid low volatility in the markets.
Daily equity volumes of NYSE-listed shares fell 29.4 percent
from a year earlier, Arca/Amex-listed volume was down 47.9
percent and Nasdaq-listed volume slumped 23.9 percent, said
Richard Repetto, an analyst at Sandler O’Neill + Partners.
“We suspect typical summer seasonality along with the
persistent decline in volatility levels were the primary
drivers” of the declines, Repetto said in a note to clients.
Volume may remain tepid in the fourth quarter as investors
keep cash on the sidelines due to uncertainty around the U.S.
election and the so-called “fiscal cliff,” which could lead to
deep federal spending cuts and tax increases at year end if
Congress takes no action, said Keefe, Bruyette & Woods analyst
Niamh Alexander.
“We expect cost control and capital management to dominate
conversations again,” she said of the exchanges.
The year-ago quarter also makes for a tough comparison. Last
August, volatility spiked on concerns over Europe’s debt crisis
and the downgrading of the U.S. credit rating, leading to a big
increase in trading as investors tried to keep up with wild
market swings. This year, however, volatility was muted.
NASDAQ OMX GROUP
Nasdaq reports its results on Wednesday.
The New York-based trans-Atlantic exchange operator may
update on an expected decision by the U.S. Securities and
Exchange Commission on the company’s $62 million compensation
plan for Facebook’s botched public offering on May 18.
Market makers and broker dealers are estimated to have lost
upward of $500 million when a glitch led to hours of delays on
confirmations for many orders in the highly anticipated IPO.
At stake in the SEC decision is the extent to which U.S.
exchanges, which match hundreds of billions of dollars of
securities transactions daily, can be liable for technical
snafus.
Nasdaq Chief Executive Robert Greifeld has said the payback
plan, if approved, would likely take effect by year end.
Nasdaq is expected to report earnings of 60 cents a share,
not including items, on revenue of $410.6 million, according to
Thomson Reuters I/B/E/S. That compares with 67 cents a share on
revenue of $438 million a year earlier.
CME GROUP INC
CME, the biggest U.S. futures exchange, reports on Thursday.
Confidence in the futures industry, and in CME, has yet to
recover after the collapse last October of futures brokerage MF
Global left a shortfall of $1.6 billion in customer funds.
Investors will be looking for clarity from new Chief
Executive Phupinder Gill on how he intends win back clients.
Gill’s plans for international expansion – CME expects to
open its first non-U.S. exchange in London next year – and for
capitalizing on new Dodd-Frank rules which are pushing
over-the-counter swaps onto regulated exchanges, will also be in
focus.
The recent law mandates the clearing of OTC swaps in early
2013. Alex Kramm, an analyst at UBS, said he believes the
clearing of interest rate swaps alone could add $500 million in
revenue, or 25 percent, to earnings for CME in the medium term.
CME is expected to have earned 70 cents a share on revenue
of $693.4 million in revenue. A year earlier, it reported a
profit of 95 cents a share on revenue of $874.2 million.
CBOE HOLDINGS
CBOE, the largest and oldest U.S. stock options exchange,
reports on Nov. 1.
CEO William Brodsky is banking on the exchange’s exclusive
indexes, like options on the CBOE VIX “fear” index, to cushion
profits as overall stock-options trading declines and
competition from both new and established exchanges rises.
Brodsky took the market public more than two years ago amid
high expectations, so far unfulfilled, that CBOE would be bought
by a competitor. In an Oct. 8 note, Sandler O’Neill’s Repetto
speculated that CME, whose trading floor is across the street
from CBOE, could buy CBOE and a second options exchange.
Even without a deal, Repetto said, growth in VIX contracts
“should increase the multiple and valuation of the CBOE.”
CME announced plans to buy the Kansas City Board of Trade on
Oct. 17.
The Chicago-based company is expected to have earned 38
cents a share on $124.2 million in revenue. That compares with
50 cents a share on $143.6 million in revenue a year earlier.
INTERCONTINENTALEXCHANGE INC
Atlanta-based ICE reports on Nov. 5.
The commodities exchange switched all of its cleared OTC
energy swaps and options to futures on Oct. 15 to help its
clients avoid burdensome new regulatory requirements on the
swaps market under Dodd-Frank.
ICE said earlier this month its third-quarter average daily
volume fell 4 percent from a year ago, with average daily
commissions on OTC energy of $1.4 million, compared to $1.5
million in the year-ago quarter.
“While 3Q12 data was sluggish and below our expectations, we
still believe ICE is the best growing exchange in our space and
look forward to upside from OTC clearing mandates in 4Q12 and
’13,” Macquarie Securities analyst Ed Ditmire said in a note.
ICE is expected to profit from the clearing of credit
default swaps and energy swaps.
Analysts, on average, expect ICE to have earned $1.73 a
share, not including items, on $325.2 of revenue. That compares
with a profit of $1.87 a share, on revenue of $340.8 million.
NYSE EURONEXT
The New York Stock Exchange parent reports on Nov. 6.
Transaction fees make up around half of NYSE’s revenue and
with retail investors largely on the sidelines, cash equity
volumes have been soft. The Big Board parent is expected to
update on cost cutting initiatives.
The company is expected to have earned 42 cents a share, not
including special items, on revenue of $572.2 million. A year
earlier, it earned 71 cents a share on revenue of $704 million.
(Reporting By John McCrank, with additional reporting by Ann
Saphir; Editing by Kenneth Barry)
