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The NASDAQ OMX Group, Inc. (NDAQ)

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NASDAQ OMX Group (NDAQ)

Q3 2009 Earnings Call

November 5, 2009 8:00 am ET

Executives

Vincent Palmiere - Vice President Investor Relations

Bob Greifeld – CEO

Adena Friedman - Chief Financial Officer

Ed Knight - General Counsel

Analysts

Rich Repetto - Sandler O'Neill

Dan Fannon - Jefferies

Roger Freeman – Barclays Capital

Howard Chen – Credit Suisse

Mike Vinciquerra - BMO Capital Markets

Rob Rutschow – CLSA

David Grossman - Thomas Weisel Partners

Edward Ditmire – Fox-Pitt Kelton

Robert Napoli – Piper Jaffray

Mike Carrier - Deutsche Bank

Jonathan Casteleyn – Susquehanna Financial Group

Justin Schack – Rosenblatt Securities

Presentation

Operator

Welcome to the NASDAQ OMX third quarter 2009 earnings results conference call. At this time I would like to turn the conference over to the Vice President of Investor Relations, Mr. Vincent Palmiere. Please go ahead, Sir.

Vincent Palmiere

Thanks everyone for joining us this morning to discuss NASDAQ OMX’s our third quarter 2009 earnings results. Joining me are Bob Greifeld, CEO; Adena Friedman, Chief Financial Officer, and Ed Knight, our General Counsel.

Following our prepared remarks, as always, we will open up the line for Q&A. You can access the results and the presentation on our Investor Relations website at www.nasdaqomx.com. We intend to use the website as a means of disclosing material, non-public information and for complying with disclosure obligations under the SEC regulation FD and these disclosures will be included under the Events & Presentations section of the website.

Before I turn the call over to Bob I would like to remind you that certain statements in the prepared presentation and during the subsequent Q&A period may relate to future events and expectations and as such constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The actual results might differ materially from those projected in these forward looking statements. Information concerning factors that could cause actual results to differ from the forward looking statements is contained in our press release and in our periodic reports filed with the SEC.

With that I will turn it over to Bob.

Bob Greifeld

Thank you Vince. I thank everybody for joining us this morning to discuss our third quarter 2009 results. I will take a few minutes to highlight some key accomplishments during the quarter and then update you on the progress of our organic growth initiatives. Adena Friedman, our CFO, will then walk you through the financial results in detail.

Today we reported net income of $60 million or $0.28 per diluted share. However, on a non-GAAP basis, net income was $89 million or $0.42 per share. These results were achieved with headwinds in our cash equity business from both a capture and volume point of view. During the call today I want to emphasize we have taken actions to address these issues and as we exited the third quarter we saw a noticeable improvements in many of the drivers of our cash equity business.

Additionally, we made some changes to our trading fees that increases our capture rate which is intended to increase revenue by as much as $15 million assuming market share and volume constant with October levels in the fourth quarter. Adena will walk you through the specifics of each change in more detail.

On another positive note, we do continue to see improvements in key market trends in all of our U.S. and European marketplaces. This quarter we saw our U.S. cash equity market share continue to improve and at 25% it is nearing levels we haven’t seen since February. Additionally, I have spoken with you before about how we were shifting the mix of our businesses by balancing our fee based businesses with trading services. This shift can be seen in the growth of our access services business during the quarter where for the first time access services was higher than our transaction revenue business. We grew from $32 million to $36 million and we do anticipate additional growth in this business in the fourth quarter.

Within U.S. equity options the average daily volume managed by our systems is improving with October ADV at 2.8 million contracts, up roughly 12% from the ADV of 2.5 that was realized in July and August. In Nordic cash equities overall the market has realized a broad recovery with the OMX 30 index up 43% year-to-date. In October we registered the highest level of activity for the calendar year in both value traded and the number of trades as value traded reached 56 million Euros.

With the recent launch of CCP and the Nordics this past month we will continue to drive growth while expecting increases in trading velocity. During this activity we are pleased to report that our market share has remained around 85%. This is the highest of any of the established European exchanges.

Finally, in the Nordics we are moving forward with the conversion of trading through the INET platform which we expect to complete in early December. Turning to Nordic derivatives, volumes are also at the highest levels of the year reaching 12.9 million contracts up from an average of 10 million for the third quarter of 2009. Growth from new fixed income contracts remains strong and we are continuing the steady migration of EDX contracts to our Nordic platform which is expected to be completed in the fourth quarter.

In our issuer business we are beginning to have a real pick up of new listings as companies are returning to the public markets to raise capital. The number of IPOs has increased as has the number of secondary listings. IPOs grew to 10 in October. We are registering a total of 25 year-to-date and representing significant growth following the 3 IPOs during the first six months of 2009.

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