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3 Key Trends for Nasdaq OMX

By: Trefis
Posted: 5/9/2011 9:16:00 AM
Referenced Stocks: CME;GS;MS;NDAQ;NYX

Nasdaq OMX Group ( NDAQ ) is a leading global exchange group that delivers trading, exchange technology, securities listing, and public company services across six continents. It is the largest cash equities securities market in the U.S. in terms of listed companies and in the world in terms of share value traded. As of December 31st, the NASDAQ Stock Market was home to 2,778 listed companies with a combined market capitalization of approximately $4.6 trillion. Nasdaq competes with NYSE Euronext ( NYX ), CME Group ( CME ), BATS Global and other regional exchanges.

We have a price estimate of $28.80 on Nasdaq's stock which is about 5% above the current market price. Below we look at 3 industry trends impacting Nasdaq currently.

1) Rapid Growth in U.S. Listed Options Contracts Traded

There has been a steady increase in the number of equity options contracts traded in the U.S. It increased from 13 million in 2008 to 14.3 million in 2010 but the volumes of options contracts traded in the U.S. remains significantly lower than Europe though we expected options volumes to grow rapidly in the coming years. We expect the daily number of U.S. listed option contract to touch 26 million by the end of our forecast period fueled by factors such as improvements in trading tools, shift towards electronic and computer based trading and an increase in algorithmic trading.

2) Growth in Nasdaq's Market Share of U.S. Listed Option Contracts

Nasdaq OMX PHLX and the Nasdaq Options market have a combined market share of 27% of the U.S. options market in 2010, which increased from 17% in 2008. Nasdaq OMX PHLX alone comprised 23% market share of the same. Launch of new exchanges helped Nasdaq to capture some market share in 2010. We expect Nasdaq to capture 40% of the market by the end of our forecast period supported by the launch of new exchanges by Nasdaq which lets customers choose between price/time or price/size models.

3) Decline in Nasdaq's Market Share of U.S. Cash Equity Trading

Nasdaq market share has stagnaged from 2006 to 2008 as new stock markets like BATS Global Markets and Direct Edge have been able to capture 20% share of the total U.S. cash equities market. Nasdaq's market share declined from about 30% in 2008 to 20% in 2010 due to stiff competition.

Going forward, we expect that Nasdaq will find it difficult to regain its lost market share unless it acquires another stock exchange. However, any further drop in Nasdaq's market share is unlikely because Nasdaq has one of the best trading platforms which provide an edge over competition.

Scroll through our slideshow to modify the above mentioned drivers and you can view addition Nasdaq articles here .

See our full analysis of Nasadaq OMX here.