Nasdaq Derives One-Third of its Stock Value from US Cash Equity Trading


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Nasdaq OMX Group ( NDAQ ) is a leading global exchange group that delivers trading, exchange technology, securities listing, and public company services across six continents. According to our analysis, the company derives 32% of its value from U.S. listed cash equities trading. The NASDAQ stock market is the largest single pool of liquidity for trading U.S.-listed cash equities, matching an average of approximately 19% of all the U.S. equities volume for 2010. The biggest competitor to Nasdaq is NYSE Euronext ( NYX ) with 3 major exchanges in the U.S. - NYSE, NYSE Arca and NYSE Amex. NASDAQ also faces competition from BATS Global Markets and other regional exchanges.

We have a price estimate of $25.87 for Nasdaq's stock , which is about 5-10% below the current market price.

US Cash Equity Trading at a Glance

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. The platforms allow the routing and execution of buy and sell orders as well as the reporting of transactions for cash equity securities, providing fee-based revenues.

The speed of order execution and information availability are major competitive factors for exchanges. NASDAQ, through its R&D and innovation in trading technology has managed to gather better volumes in the past few years.

Key Drivers of U.S. Cash Equity Trading

1. Average Daily Cash Equity Trading Volume

Trading volumes increased from about 5 billion in 2006 to nearly 10 billion in 2009, driven by the formulation of automated, volume heavy techniques of trading like algorithmic trading. Volume dropped in 2010 partially due to unforeseen market closures and trading disruptions. Going forward, we anticipate a 10% annual increase in cash equity trading volume.

2. Nasdaq's Market Share of U.S.-Listed Securities

During 2006-08, Nasdaq was successful in gaining market share due to its better technological infrastructure, but the arrival of new stock markets like BATS Global and Direct Edge has sparked a sharp decline in Nasdaq's market share over the past few years. Nasdaq's market share declined from almost 30% in 2008 to about 19% in 2010.

Going forward, we expect Nasdaq to regain some of its lost position in the market as it continues to provide better trading technology that increases speed and reduces trading costs.

See our complete analysis of Nasdaq OMX stock here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
More Headlines for: NDAQ , NYX

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