) is a leading global exchange group which runs NASDAQ stock
exchange. It is the largest cash equities securities market in the
U.S. in terms of the number of listed companies and in the world in
terms of share value traded. The company derives around 22% of its
value from cash equity trading in the U.S. from Nasdaq stock
market, Philadelphia stock exchange (Nasdaq OMX PHLX) and Boston
stock exchange (Nasdaq OMX BX). Its main competitors are NYSE
We have a price estimate of
$26.80 on Nasdaq OMX Group's stock
which is about 6% below the current market price.
NASDAQ's transaction-based platforms in the U.S. provide market
participants with the ability to access, process, display and
integrate orders and quotes for cash equities.
Recovery in US Trading Volume Underway
The average daily volume of the equity securities traded in the
US stock market increased from 4.9 billion in 2006 to 9.8 billion
in 2009 at an annual growth rate of 26%, driven by greater
liquidity, increased electronic trading and volume heavy trading
techniques like algorithmic trading. However volumes dropped off
to around 8.5 billion in 2010 as high market volatility and
macro uncertainty kept investors away from investing. In the past,
economic downturns have not restricted the total volume transacted
in U.S. equity markets for long.
We expect the average daily cash equity trading volume to
recover and grow to over 11 billion by the year 2013 as increased
automation and more advanced trading platforms allow for heavier
trading. According to some studies, 50% of all equity trades
occurring in the U.S. will be based on automated algorithmic
trading in 2010.
Decline in Nasdaq's share of the US listed
Prior to 2006, NASDAQ was successful in gaining market share of
U.S. cash equities traded due to
a continuous technological innovation and improvements in
the order executions. However, starting in 2008 a rise in
competitors and electronic exchanges like BATS Global Markets and
Direct Edge have been able to capture around 20% market share of
the total U.S. cash equities market in a short amount of time.
We expect Nasdaq's market share to improve to about 23% by the
year 2014 as Nasdaq implements new trading technology which
improves the quality of trade execution by improving speed and
lowering the cost of trading platforms.
If Nasdaq were able to regain more market share in line with
historical levels and reach 25% by the end of our forecast period
this would add around 8% upside to our price estimate.