Nasdaq, CME Third-Quarter Profits Increase on M&A


U.S. bourse operators, Nasdaq Stock Market and CME Group both reported higher third-quarter profits on Wednesday.

Nasdaq Stock Market , the second-largest U.S. equities exchange, said Wednesday that quarterly profit rose 12-fold, helped by a gain from the sale of its stake in the London Stock Exchange.

Nasdaq, which last month struck a complicated three-way deal with Borse Dubai to jointly buy Nordic markets operator OMX, also raised its full year income and revenue forecasts to reflect the sale of its 30 percent LSE stake.

Nasdaq had twice bid unsuccessfully for the LSE.

Net income for the third quarter rose to $365 million, or $2.41 per share, from $30.2 million, or 22 cents per share, a year earlier.

Excluding special items, Nasdaq earned $62 million, or 42 cents per share, beating analysts' average estimate of 39 cents, according to Reuters Estimates.

Fox-Pitt, Kelton analyst Edward Ditmire said Nasdaq's results were strong as it "put the LSE attempt behind it profitably, continued to gain U.S. equity share, and turned a rival into an ally in Borse Dubai."

Market Shares Drives Revenue

Total revenue rose nearly 62 percent to $652 million.

Net exchange revenue, which excludes rebates and various fees, rose about 23 percent to $210 million from $171.2 million.

Nasdaq Chief Executive Bob Greifeld said in a statement the results were built "largely on the success of new highs in trading volume and market share."

Nasdaq's matched market share -- which refers to trades executed within its own markets instead of being routed to other venues -- in stocks listed on its market fell to 47.3 percent from 48.7 percent in the year-ago quarter.

Nasdaq's matched market share in securities listed on NYSE Euronext's New York Stock Exchange rose to 18 percent during the third quarter from 12 percent the prior year.

The exchange said it took market share from NYSE-listed and American Stock Exchange-listed securities, which drove revenue growth during the quarter.

Nasdaq expects 2007 net income between $501 million and $507 million, up from a previously issued guidance of $171 million to $181 million.

The company expects full-year net exchange revenue of $800 million to $810 million, up from previous guidance of $775 million to $790 million.

These estimates and third-quarter results include a $431.4 million pre-tax gain from the sale of its LSE stake and other items, the company said in a statement.

The latest quarter's results also include a pre-tax gain of $35.2 million related to gains in Nasdaq's foreign currency option contracts.

Nasdaq also spent $1.1 million in work-force reduction and took other charges during the quarter.

Shares Upbeat

Nasdaq sold most of its 30 percent stake in the LSE to Borse Dubai last month as part of a complicated three-way deal in which the two companies agreed to jointly acquire OMX.

The two markets also agreed to swap stakes in a deal to create a group of exchanges linking the United States, Europe and the Middle East.

Deutsche Bank analyst Rob Rutschow said in a recent research note that the next few quarters will be "fairly messy" for Nasdaq as it "realizes gains, retires and reissues debt and attempts to cut costs in the combined OMX franchise (likely taking charges)."

Nasdaq shares are up about 37 percent since the beginning of this year, compared with rival NYSE Euronext, whose shares are down about 10 percent this year.

Shares of Nasdaq were up 82 cents at $42.89 in morning trading. They reached their 52-week high of $43.29 on Oct. 10.

CME Profit Up on Heavy Trading Volume, Shares Jump

CME Group , parent of the world's largest futures exchange, said Wednesday that third-quarter profit nearly doubled on trading growth across its range of futures and options products.

The Chicago-based company said third-quarter net income rose to $201.6 million, or $3.87 per share, from $103.8 million, or $2.95 per share, a year earlier.

Excluding merger-related costs, the company earned $4.31 per share for the quarter. Total revenue increased 106 percent to $565.2 million.

Analysts on average had expected earnings of $4.12 per share, before special items, on revenue of $579.4 million, according to Reuters estimates.

CME's stronger-than-expected results reflected a combination of lower expenses and higher investment income, Edward Ditmire, analyst at Fox-Pitt Kelton in New York, said in a research note.

In early trading on the New York Stock Exchange CME shares surged to $664.46, up $29.86 or 4.7 percent. 

CME Group was formed in July when Chicago Mercantile Exchange Holdings bought the Chicago Board of Trade. Since completing the merger the stock is up more than 11 percent.

CME Chairman Terry Duffy told analysts on a conference call that combination of the two exchanges' trading facilities is going smoothly and according to plan.

The exchange previously reported a 49-percent increase in third-quarter derivatives trading volume, to 12.7 million contracts a day.

Volatility in global financial markets during the quarter helped push CME trading volume higher, especially in the interest rate, equity index and currency segments.

CME's average rate per contract, a key measure of margins, slipped to 62.2 cents in the third quarter from 63.9 cents in the second quarter.

CME said late on Tuesday it intends to take an equity stake of about 10 percent the Brazilian Mercantile & Futures Exchange (BM&F), the world's fourth largest derivatives market.

BM&F will take a 2-percent equity stake in CME. BM&F is the largest derivatives exchange in Latin America. Its major product lines are Brazilian interest rates and foreign exchange.

"This is an interesting tie-up which brings a major exchange into a close relationship with CME; something that could lead to synergies in the longer term," Ditmire said.

The exchange also said it will sign a letter of intent on Wednesday with South Korea's Korea Exchange to list the popular KOSPI 200 futures contract on CME's electronic Globex platform in 2008.