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NYSE Euronext (NYX)

Q3 2009 Earnings Call Transcript

October 30, 2009 8:00 am ET

Executives

Stephen Davidson – VP, IR

Duncan Niederauer – Chief Executive Officer

Michael Geltzeiler – Group EVP and CFO

Larry Leibowitz – Group EVP & Head of U.S. Execution & Global Technology

Analysts

Howard Chen – Credit Suisse

Mike Vinciquerra – BMO Capital

Don Fandetti – Citigroup

Rich Repetto – Sandler O'Neill

Daniel Harris – Goldman Sachs

Roger Freeman – Barclays Capital

Mike Carrier – Deutsche Bank

Presentation

Operator

Good day ladies and gentlemen, and welcome to the third quarter 2009 NYSE Euronext earnings conference call. My name is Josh, and I will be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. For the Q&A session, we ask that callers limit their questions to one to allow for broader participation.

I would now like to turn the call over to Stephen Davidson, Head of Investor Relations at NYSE Euronext. Please go ahead, sir.

Stephen Davidson

Thank you Josh. Good morning and welcome to the NYSE Euronext third quarter 2009 earnings conference call. Before I introduce today's speakers, let me remind you that comments on the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These statements are based on NYSE Euronext’s current expectations and involve risks and uncertainties that could cause NYSE Euronext’s actual results to differ materially from those in the statements. These forward-looking statements speak as of today and you should not rely on them as representing our views in the future. Please refer to our SEC filings for a full discussion of the risk factors that may affect any forward-looking statements.

Except for any obligation to disclose material information under the federal securities laws, NYSE Euronext undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after this conference call. We will discuss non-GAAP financial measures during this call. These non-GAAP measures are fully reconciled in the tables attached to the text of the earnings press release that were issued earlier today. We believe that these tables provide investors useful information about our business trends. However, our non-GAAP measures do not replace and are not superior to GAAP measures.

For the call today, Duncan Niederauer, Chief Executive Officer, will review our third quarter financial highlights, comment on market conditions and the regulatory landscape and provide you with an update on our core equities franchise and new initiatives. Michael Geltzeiler, Group Executive Vice President and Chief Financial Officer will then review the financial results for the quarter and update you on our financial position. We will then open the line for your questions.

When we go to the Q&A session, please limit your questions to one to allow for broader participation. Also on the call today for the Q&A session are Larry Leibowitz, Group Executive Vice President & Head of U.S. Markets; and Stephane Biehler, Chief Accounting Officer and Corporate Controller. We are incorporating slides for the call today, which are available for viewing on our Website, and Duncan and Mike will refer to the slides during the remarks.

With that, let me now turn it over to Duncan.

Duncan Niederauer

Thanks Stephen. Good morning everyone and thanks for joining today’s call. I am going to start my remarks for those of you who are watching on the Web, we are going to start on slide 3. As you have seen from our press release this morning, we had another solid quarter. Overall, I am very pleased with the progress we made this quarter in stabilizing our core businesses, advancing our strategic initiatives to further diversify our business model and drive future growth and expanding our technology services businesses.

Our third quarter results are highlighted by a meaningful contribution from one of our key new initiatives, NYSE Liffe Clearing. Pro forma non-GAAP EPS for the third quarter was $0.53, up from $0.51 in the second quarter, but down from $0.72 in the third quarter of 2008. The $0.53 includes a $0.03 per diluted share benefit related to the chewing up of our first half effective tax rate for fiscal 2009 from 29% to 27%, as a result of the mix of profits from our global subsidiaries.

Net revenues were $624 million in the quarter versus $611 million in the second quarter of 2009, and $724 million a year ago. On the cost side, we reported $431 million in fixed costs in the third quarter, higher than the $398 million and $422 million recorded in the second and first quarters respectively, attributable in part to the delayed phasing in of expenses related to our new initiatives and some timing issues. Mike will provide you with more detail on these expenses in his report.

As I look at our core businesses, we have achieved a level of stabilization and in some cases improvement that I find encouraging. NYSE Classic US cash market share of 25% in September was above the 24% recorded in September of the prior year. Overall, NYSE grew market share in Tape A remains in the high-30s, lower than last year, but that’s almost entirely attributable to the growth in internalization. While the competitive environment in Europe is still dynamic, our market share and our regulated cash markets have stabilized at around 76% to 77%.

And in our NYSE Amex options business, our share in September increased to 8.8%, well above the 6% share that Amex had when we closed that transaction. Together with the Arca options platform, we now have consistently over 20% market share in the US equities options market, and in fact, have average closer to 22% to 23% throughout the month of October. Our goal remains at a minimum to get to 25% in that business, and our ultimate goal is to be Number 1.

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