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The NASDAQ OMX Group, Inc. (NDAQ)

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The NASDAQ OMX Group, Inc. (NDAQ)

Q4 2009 Earnings Call

February 8, 2010 8:00 am ET

Executives

Bob Greifeld – CEO

Adena Friedman – CFO

Ed Knight – General Counsel

Vincent Palmiere – VP IR

Analysts

Daniel Fannon - Jefferies & Co

Richard Repetto - Sandler O'Neill

Michael Vinciquerra - BMO Capital Markets

Howard Chen - Credit Suisse

Roger Freeman - Barclays Capital

David Grossman - Thomas Weisel Partners

Niamh Alexander - Keefe, Bruyette & Woods

Edward Ditmire - Macquarie Capital

Celeste Mellet Brown - Morgan Stanley

Robert Napoli - Piper Jaffray

Jonathan Casteleyn - Susquehanna Investment Group
Johannes Thormann – HSBC Global Bank


Presentation

Operator

Welcome to he NASDAQ OMX fourth 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

Good morning everyone and thanks for joining us today to discuss NASDAQ OMX’s fourth quarter and full year 2009 earnings results. Joining me are Bob Greifeld, Chief Executive Officer; Adena Friedman, Chief Financial Officer, and Ed Knight, our General Counsel.

Following our prepared remarks we will open up the line for Q&A. You can access the results press release and the presentation on our 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 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 Vincent, thank you everybody for joining us this morning to discuss our fourth quarter 2009 results. Today is a day of celebration for us at NASDAQ OMX and not certainly because the Saints won last night. Today, February 8 is the anniversary date of the date that NASDAQ was founded, so its our 39th birthday.

And we cannot think of a better way to celebrate than by announcing the launch of INET in seven of our cash equity markets in the Nordic and the Baltics. The launch of this trading platform is designed to increase liquidity, increase trading velocity, and improve operational efficiencies.

So if you’re in New York near our 1 Liberty Plaza office, please stop by for a birthday cake and a celebratory cake. Now I’d like to turn to the quarter, I will begin my remarks by spending a few minutes highlighting some key accomplishments and then update you on the progress of our initiatives. Adena Friedman, our CFO will walk you through the financials in details.

This morning we reported net income of $43 million or $0.20 per diluted share. On a non-GAAP basis we delivered a solid quarter with net income of $99 million or $0.46 per share, an increase of 11% when compared with pro forma non-GAAP net income of $89 million or $0.42 per diluted share for the third quarter of 2009.

During the quarter we witnessed growth in many of our business drivers enabling us to benefit from the scalable nature of our model. In European derivatives trading and clearing our volumes grew to more than 28 million transactions, up 18% from the third quarter of 2009 and reaching the highest levels for the year.

In January, 2010 we saw volumes grow again with average daily volume increasing another 18% from fourth quarter levels. Leading this growth in volume is the volume that transitioned from EDX during the quarter. Our contract with EDX ended in December and we were successful in moving virtually all the volume in OMX branded derivatives from EDX to our derivatives trading platform in the Nordics.

In conjunction with this transition we welcomed 34 clearing members to our European clearing house in December. This increased our total membership by 60% when compared to the prior year. Many of the new members are London-based and previously cleared with LCH.

As members of our European clearing house they now have access to all our fixed income, equity, index, and commodity derivatives products through one trading and clearing platform. Finally within European derivatives we witnessed growth in our commodities businesses where cleared energy contracts were up 14% from the fourth quarter of 2008 and 28% from the third quarter of 2009.

In cash equities we successfully introduced essential counterparty clearing in the fourth quarter and during this transition we were able to maintain market share of approximately 84%. Although value traded declined slightly from the third quarter, in January 2010 we saw activity rebound as average daily value traded increased to 2.7 billion Euros, up 23% from the fourth quarter.

Also the average number of trades in January increased 30% from the fourth quarter. So with the increase in January activity and today’s successful launch of INET we are certainly off to a good start. Now turning to the US in our options market the combined share of our two markets grew to 22% from 20% in third quarter of 2009 with volumes growing 8%.

Part of the increase in share gains was volume related to dividend capture trades, activity that yields us a lower average fee per contract. As a result total revenues declined modestly when compared to third quarter of 2009. In US cash equities while we saw industry volumes decline in the fourth quarter by 12%, when compared to the third quarter 2009 levels the combined market share of NASDAQ and BX increased reaching 24%, up from 22% in the third quarter.

In January after a slow start volumes and market share bounced back to levels consistent with those realized at the beginning of the fourth quarter and so far February is looking even better, in particular last week. Additionally consistent with the guidance we provided during our call last quarter, our average net fee per match share increased 30% from the third quarter following adjustments to our fee structure for BX in September and NASDAQ in November.

In access services, again consistent with our guidance revenues increased to $39 million, up from $36 million in the third quarter of 2009 reflecting the continued shift in our business model to one that includes increasing fee based revenues. In issuer services our business welcomed 143 new listings during 2009.

There were 67 in the fourth quarter alone. Of these new listings 33 were Chinese companies, NASDAQ now has 124 Chinese company listings, more than any other US exchange. Included in the new listings for 2009 were 34 IPOs, 31 of which came to market in the second half of the year. During the fourth quarter we witnessed a remarkable performance by our team.

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