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The NASDAQ OMX Group, Inc. (NDAQ)

Acquisition of eSpeed Conference

April 01, 2013 5:00 pm ET

Executives

Edward Ditmire

Robert Greifeld - Chief Executive Officer, President, Staff Director, Member of Executive Committee and Member of Finance Committee

Lee Shavel - Chief Financial Officer and Executive Vice President of Corporate Strategy

Eric W. Noll - Executive Vice President of Transaction Services - US and UK

Analysts

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

Christopher J. Allen - Evercore Partners Inc., Research Division

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Jillian Miller - BMO Capital Markets U.S.

Michael Carrier - BofA Merrill Lynch, Research Division

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

Brian Bedell - ISI Group Inc., Research Division

Akhil Bhatia

Gaston F. Ceron - Morningstar Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the NASDAQ OMX acquisition of eSpeed. [Operator Instructions] As a reminder, today's conference may be recorded. It's now my pleasure to turn the floor over to Ed Ditmire. Sir, the floor is yours.

Edward Ditmire

Good afternoon. On behalf of NASDAQ OMX, I'd like to welcome you to this investor call to discuss the acquisition of eSpeed. Thank you to everyone for participating on short notice. I'd like to refer everyone to our press release and presentation on the NASDAQ OMX IR website for the customary disclosures and disclaimers.

And with that, I'd like to turn the call over to NASDAQ OMX's CEO, Bob Greifeld.

Robert Greifeld

Thank you, Ed. Good afternoon, everyone, and thank you for joining us today on short notice. We're here to discuss what we believe is a very exciting development for our transaction business and for NASDAQ OMX. Let me start with our strategic rationale and why we believe the eSpeed acquisition is so compelling. Now as some of you know, when it comes to evaluating strategic opportunities, we recognize that we have a responsibility for understanding all the pieces on the chessboard. We look for adjacent opportunities in our core business areas, but we are careful not to cast our nets too wide. It is important that these opportunities be strategically significant, and in some material way, lever the expertise of our organization. We have applied this approach in diversifying our European and U.S. transaction businesses to expand capabilities and derivatives, fixed income, commodities and clearing, as well as our original diversification efforts in Corporate Solutions, which recently announced the Thomson IR acquisition. The soundness of this approach, over time, has proven successful and allowed NASDAQ OMX to create a diverse, customer-centric portfolio of corporate trading technology and information solutions which have delivered value for our customers and for our shareholders.

When we look at the transaction space in particular, it is obviously something very near and dear to us and something that we do exceptionally well. So while we are extremely proud of the diversity of our business model, it has never stopped us from recognizing a fundamental opportunity to lever our technology and scale across multiple asset classes to improve the efficiency of our markets.

eSpeed is a high quality business that operates central limit order books for U.S. Treasuries, the world's largest government bond market. They are a market leader. The parallels between the U.S. Treasury market and the equities market are significant. Both are highly electronic, efficient marketplaces. Our scale entry into fixed income execution business is a true game changer for our Transaction business and fits with NASDAQ OMX's broader strategic vision. In addition, this asset allows us to take advantage of the current market dynamics and growth opportunities while further diversifying our revenue base.

The U.S. Treasury market is one of the largest cash markets, with over $500 billion traded daily. On-The-Run Treasury trading is one of the most active liquid global financial instruments trading today with about $200 billion traded of the total U.S. Treasury market. This compares to a roughly $150 billion of cash equities traded per day. So clearly, it is a tremendous opportunity. As I mentioned, this transaction will allow NASDAQ OMX to take advantage of the growth in the treasury market, which has been buoyed by current market trends, trends we anticipate will continue.

Government intervention through quantitative easing and other market operations have artificially depressed the natural volatility in the U.S. Treasury market. And while we cannot predict when, we know that the government intervention will, at a time, cease, and this will have a positive impact on volumes.

In addition to delivering strong returns on capital and being accretive to our earnings within 12 months, critical filters for doing any transaction, the acquisition supports our commitment to delivering consistent and stable returns to shareholders. The eSpeed platform is a compelling extension of our strategic direction. It is a major platform for trading U.S. Treasuries, it has a significant percent of revenue coming from fixed contracts, it has a long-standing presence on the trading desk all across the globe. On the NASDAQ OMX's independent ownership, independent of any voice brokerage affiliation, we will be in a position to maximize the true potential of this platform. We will also provide -- be provided the opportunity to cross-sell eSpeed's fixed income trading to NASDAQ OMX's existing customer base, many of whom already trade across multiple asset classes.

Today, we trade just about every asset class on the planet across all markets in the U.S. and Europe. Entering the U.S. Treasury market represents a significant milestone for our U.S. Transaction business and one that uniquely enhances our trading offering for and positions us for future growth. We are dedicated to providing market participants with transparency, opportunities for price improvement and robust two-sided liquidity. We are extremely enthusiastic about this asset and what it represents for NASDAQ OMX, and look forward to incorporating eSpeed in our platform in the months to come.

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