納斯達克交易所 (NDAQ) 2006 Q2 法說會逐字稿

Good morning, everyone, and thank you for joining the NASDAQ Stock Market's earnings teleconference. [OPERATOR INSTRUCTIONS] This conference is being recorded.

If you have any objections, please disconnect at this time.

Your host for this morning's conference is Mr. Vince Palmiere, Vice President of Investor Relations.

You may begin, sir.

Thank you, Operator.

Good morning and thank you for joining us today to discuss NASDAQ's second quarter 2006 earnings results.

Joining me are Bob Greifeld, President and Chief Executive Officer;

David Warren, Chief Financial Officer; and Ed Knight, our General Counsel.

Following our prepared remarks we'll open up the line for Q&A.

If you haven't done so already you can access the results press release on the NASDAQ Investor Relations and NASDAQ Newsroom websites at www.nasdaq.com.

If you have any questions following this call, just contact me at 212-401-8742.

Before we begin I'd like to remind you that certain statements in the prepared presentation and during 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.

I urge you to read the full disclosure statement concerning such forward-looking statements in our press release and other factors detailed in the Company's Form 10-K and periodic reports filed with the SEC.

All right, with that, I'll turn the call over to Bob.

Thank you, Vince.

Good morning, everyone.

And thank you for joining us to review our second-quarter results.

I would also like to thank you for making time for us in the morning rather than after market hours.

As usual, I will start the call by reviewing our recent performance and accomplishments and then David Warren, our CFO, will review the financials.

Afterwards, David and I will be available to take questions.

This is truly a very exciting time at NASDAQ.

We can see the goal line for both exchange status and the INET integration.

While at the same time, all aspects of the business are improving through solid execution of our growth strategy.

This morning we reported outstanding operating results for the quarter.

Net income was 16.6 million, representing an increase of 18.6% when compared to the year-ago quarter.

Additionally, gross margin grew 31% from last year to $171 million.

As in prior quarters, our results included charges associated with our ongoing cost reduction program, however, also included this quarter are additional charges tied to our strategic investment in the London Stock Exchange as well as a foreign currency gain.

When these items are excluded from our results, you can see in the non-GAAP reconciliation that we provided that NASDAQ is gaining earnings power quarter by quarter with our operating income up nearly 70% from the prior year.

A truly outstanding performance that indicates our increasing success in our core businesses.

David will discuss this in more detail.

Our recent operating performance demonstrates continued execution excellence across all aspects of our business.

The top line is growing in all our businesses and this quarter represents the seventh consecutive quarter of gross margin growth.

We are also continuing to innovate in all areas of our business.

Within Issuer Services we announced our planned acquisition of Prime Zone Media Network, a privately held news wire and multimedia services firm enhancing NASDAQ's suite of investor relations and corporate communication services.

We also expanded our corporate governance services through a strategic alliance with Equilar, which provides issuers with tools to analyze executive and Board member compensation.

In addition, we launched the Global Select Market, a new listing tier with the world's highest initial listing standards.

We also announced that Liberty Media, a $22 billion market capitalization company chose to move their listing directly from NYSE to the NASDAQ Stock market.

Their average daily volume has been around 5 million shares per day since they switched.

We also introduced three new ETFs and four new indices, including the NASDAQ Clean Edge US Index.

Within market services, we launched the IPO Cross, our new automated trading facility which has been widely praised by the investment banking community.

And earlier this week, we announced that the NASDAQ Cross network will begin operations in September.

We also introduced NASDAQ's Market Velocity product.

It's a proprietary real-time data product.

This is a great addition to our package of data products and includes -- and increases the transparency and truly differentiates NASDAQ's data products.

And finally, as a result of the rebalance of the Russell family of indices, we recorded another record closing Cross-day on June 30.

In 5.1 seconds the Cross traded roughly 690.8 million shares representing $10.5 billion in market value.

We also continued to grow market share in the trading of NYSE Equities.

During the quarter, our share increased to 8.3%, up from 3.5% in the prior year.

Now, July has been truly an outstanding month.

We recorded our three highest market share days ever.

On July 10, we matched 11.25% of NYSE trading volume.

On July 18, we matched 11.4%.

And yesterday, July 19, we established a new record of 11.84%.

Market share for the month of July is running over 10% and certainly the slope of this trend line is incredibly encouraging.

Progress continues on exchange registration with the SEC recently approving our phase implementation approach.

Our plan calls for NASDAQ to begin exchange operation in NASDAQ listed issues on August 1, and in other exchange listed issues on or after October 1.

Coupled together with the NASD's recent sale of their remaining shares in NASDAQ, we will soon be able to operate independently of the NAC without any perceived conflict of interest between market regulation and market operations.

To this end, as the final step to INET integration, we also expect to begin migrating our trading systems into a single book in NASDAQ listed stocks on August the 28th, and on NYSE and AMEX regional listed securities on or after October 1.

Our systems integration will take multiple trading platforms down to one and we will achieve the world's single largest electronic liquidity fold and bring participants faster more efficient trading and superior execution while maintaining all the quality attributes of the NASDAQ Market Center.

To update you on our investment in the London Stock Exchange, since our last earnings call, NASDAQ has increased its investment in the LSE to 25.3% of the issued capital.

That is 25.3 after taking into effect LSE's recent share buyback.

The LSE is an excellent high quality and high performing asset and we are very happy with this investment.

Moving forward, NASDAQ remains focused on innovation and value delivery to both market participants and issuers.

NASDAQ is executing a once in a lifetime opportunity to build trading share and to remain a catalyst for market structure innovation.

We have made it our priority to seek direct feedback from our issuers and market participants to learn what their priorities and needs are and we are uniquely positioned with the resources and truly the innovative spirit to provide for them.

Above all, we are focused on offering first-class services and a fair, efficient market structure that emphasizes ease, speed, and transparency.

Our competitive position remains unparalleled and we continue to execute very well as we move into the second half of the year.

I will now turn the call over to David for a review of the financials.

Thanks very much, Bob.

And good morning, everyone.

I will start by reviewing our P&L which includes results from the acquisition that is we made over the past year.

These acquisitions include Carpenter Moore, which closed on October 1, 2005, INET which closed on December 8, 2005, and shareholder.com, which closed on February 1, of this year.

Second quarter 2006 gross margin was $171.1 million compared to 130.4 million in the year-ago period and $162 million in the first quarter of 2006.

Within issuer services, second-quarter revenue was 63.4 million versus 56.1 million last year, up 13% year-over-year and up 7.6% sequentially.

In the Corporate Client group, the acquisitions of Carpenter Moore and shareholder.com drove increases in revenues both year-over-year and from prior quarter.

Also annual fees increased from the first quarter due to an increase in the number of IPOs that came to market in the second quarter.

Financial products revenues increased primarily from higher volume activity associated with licensed products.

Within market services, gross margin was $107.7 million, up 45% from $74.3 million when compared to last year and up 4.7% sequentially.

Second quarter average daily volume was 2.14 billion shares per day, up 20.2% from the 1.78 billion recorded in the second quarter and up slightly from the first quarter.

Market center gross margin increased from last year primarily due to the inclusion of INET and increases in our market share of NYSE and AMEX listed securities.

As we discussed before, access services revenue declined from prior year due to our retirement of our legacy product.

However, customer adoption of our new access service products has increased as a result of an increase in access services revenue from the first quarter.

Market services subscription net revenue increased both sequentially and year-over-year, due to decreased sharing under the UTP Plan.

During the first quarter of this year, INET began to migrate trade reports to the NASDAQ Market Center, increasing our UTP market share.

Also, NQDS, or Level II revenue, is no longer included as shareable revenue in the UTP Plan.

This change is effective as of February 7, of this year.

Second-quarter results include approximately $1.3 million of NQDS revenue associated with the period from February 7, to March 31, that remained in the plan when our Q1 results were reported.

The increase in other market services revenue from prior year is due to the contract we have with the NASD to support operations of the OTCBB, which was effective October 1, of 2005.

Now I will turn to expenses.

Second quarter total expenses were $134.8 million, an increase of 29.5% year-over-year and up 12.1% sequentially.

Some of this year-over-year increase is due to our recent acquisitions, including INET, shareholder.com, and Carpenter Moore.

However, the primary drivers of our increase in expenses from the prior year and from the prior quarter are due to the following pre-tax charges--First, we took $17.9 million of charges associated with NASDAQ's cost reduction program and our INET integration. $15.3 million of this amount were non-cash.

This 17.9 is comprised of three parts relating to technology, real estate, and workforce reductions.

As part of our technology road map, we have recorded charges of $9.9 million in the second quarter. 9.4 million of these -- of this amount was recorded to depreciation and amortization and the remainder was recorded to computer operations and data communications.

In compensation and benefits we took 2.6 million in severance charges and outplacement costs in the second quarter.

And in other expense, we recorded $5.4 million in real estate consolidation charges in the second quarter.

Second, in second quarter we recorded charges totaling $20.9 million for the early extinguishment of debt and the refinancing and credit facility both in connection with our investment in the London Stock Exchange.

This charge was recorded to other expense.

Third, and finally, we recorded an $8.2 million gain on foreign currency and this gain was recorded in other expense.

As Bob has mentioned already, in this release we have provided a non-GAAP reconciliation.

And when you exclude these charges and similar charges taken in prior periods, our operating income has grown by an impressive 68.9% from the prior year and an equally impressive 20.8% from the first quarter, clearly demonstrating that the profitability of our core business operations is strong and growing.

This position of strength will allow us to seize upon future strategic opportunities as they present themselves.

You will notice that in the quarter we recognized $9.2 million in dividend income related to the payment of an ordinary dividend by the London Stock Exchange.

For the quarter, our investment in the LSE is recognized in accordance with Federal Accounting Standard No. 115.

Our original intent was to account for our investment using the equity method, where we would have recognized a portion of LSE income in our earnings net of corresponding amortized intangible expenses.

However, realizing the equity method of accounting for investment would have required the LSE to routinely provide us with nonpublic financial information.

At this point, this information is not available to us and as such we are required to use FAS 115 to our -- to account for our investment.

I will now turn to the balance sheet.

Cash and cash equivalents and investments available for sale, which includes our investment in the LSE at quarter end were 1.7 billion versus $596.2 million recorded last quarter and $344.6 million at the end of 2005.

During the quarter, we used $287.6 million to fund a portion of our investment in the LSE and we received $228.8 million in proceeds from the LSE through their capital return and $9.2 million from their ordinary dividend.

And it's also worth mentioning that when NASDAQ completes its systems migration to a single book, our working capital requirements will be reduced freeing up approximately 75 to $100 million in required reserves.

Our debt level at quarter end was $1.6 billion versus $1.2 billion last quarter end and at year-end.

And as we mentioned during our earnings call in the second quarter we entered into credit agreements with Bank of America to fund a portion of our investment in the London Stock Exchange.

Also during the second quarter we completed a common stock offering in which NASDAQ sold 18.5 million shares, net proceeds of $665.2 million were used to pay down a portion of the Bank of America debt.

Now I will move to our revised 2006 guidance that we are issuing today.

We have increased our anticipated 2006 gross margin to the range of 645 to 655, up from a previous range of 625 to 640, reflecting the strength of our core business.

This represents growth of approximately 24% from the -- from $526 million we recorded in 2005.

Our outlook for total 2006 expenses is now in the range of 475 to 485 million, down slightly from prior guidance which was in the range of 478 to 488 million.

Included in total expenses we anticipate recording total pre-tax charges of approximately 60 million to $70 million, approximately 47 to 57 of which relates to the INET integration and our ongoing expense reduction efforts, including 35.1 -- 35 -- $31.5 million already recorded in the first half.

To break out these full-year charges, they are as follows--5 to $6 million relating to real estate consolidation; 6 to $7 million relating to workforce reductions; 36 to $40 million relating to our technology road map; and the $20.9 million charge taken this quarter for refinancing of our credit facility and the early extinguishment of debt as well as the $8.2 million foreign currency gain.

Bringing all this down to the bottom line, we now anticipate 2006 net income available to common in the range of 68 million to 78 million revised from our prior outlook of 63 to -- 63 to $73 million.

And this outlook compares to our 2005 net income of $55.1 million.

So that wraps up my comments.

As you can imagine, we are pleased with the strong performance this quarter.

Our very strong execution on our key operating plan for 2006.

And with the momentum that we have as we enter into the second half.

That concludes our prepared remarks.

And Bob and I are now ready to take your questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll take our first question from Rich Repetto with Sandler O'Neil.

Hi, Bob.

Yes, how are you doing there, Rich?

I'm doing okay, doing okay.

Hey, I guess the first question would be on the LSE.

The dividend -- that 9.2 million, that looks like they awarded that semiannually.

I guess in the guidance, is there any expectation for you to see that in the second half?

Rich, it's David.

We have not included that in our guidance.

That's obviously a decision that would be made by the LSE as we approach that time.

Okay.

And one -- one more on the LSE, I guess, is that -- did you take the position up slightly?

It was 25.1% and now it's 25.3 so we bought more shares since May 19?

No, Rich.

I think I mentioned in my comments that LSE was doing a share buyback, so as a result of that we picked up, you know, 2/10ths of a percent.

Got you, got you.

Again then I guess probably the bigger picture is -- looking at the core earnings run rate, how do you -- there's a lot of moving parts, I know we have the reconciliation in the back.

But how would you suggest we look at -- to try to get at what we -- what the real -- the earnings power given the moving parts that we have here?

Well, I'll turn it over to David in a second, but, Rich, I would definitely direct you to what we said, that our earnings -- operating earnings year on year is up 69% and we are in a transition year, as you know, getting the INET integration behind us.

So I think that's incredibly powerful to have that kind of growth during a transition year.

Rich, it's David.

What I would add to that obviously is that the fundamentals -- the fundamentals really don't change with -- based on how we're accounting for the investment.

We've had a very strong quarter in terms of operating performance and the INET integration is very much on plan.

In fact, last quarter we announced that it was -- that we were able to bring it ahead of schedule from what we had announced at the beginning of the year.

So we're feeling very good about how we're operating on all aspects of our 2006 operating plan, the momentum we're carrying into the second half.

And as we go into the second half of this year and complete the technology road map, we're feeling very good about where all that comes out.

Okay.

Understood.

I'll get back in queue.

Thanks.

Thank you.

We'll go next to Patrick Pinschmidt with Merrill Lynch.

Good morning, guys.

How are you doing there, Patrick?

Good, how are you?

Pretty good.

Okay.

A quick question, I guess, just following up on the New York's pricing changes at the end of June and then your reaction to that.

I realize it's early days here, but you have seen a good pick up in your matched market share.

How are you feeling about kind of the trade-offs maybe with revenue versus market-share gains in the listed market and kind of your look at -- your outlook for pricing there?

Well, I don't know that we made a trade-off for revenue for market share.

We responded quite rapidly to the NYSE pricing proposal, the early returns are obviously quite -- quite positive.

We were about 9% before we -- they announced it before we responded and now we're higher than that.

So we're very pleased.

It's early days but we're very pleased.

Okay, okay.

Great.

And then in terms of the increase to the gross margin guidance for '06.

I realize you don't get too granular with your guidance, but can we understand maybe what's going on in the corporate client services line?

I mean, that came in higher and I understand now you had a full quarter with shareholder.com and should we look at that as a run rate and contributing to some of the upside in gross margin?

Well, I wouldn't -- it is definitely a business that we have -- what we have -- we have two things going in.

We have Carpenter Moore and shareholder.com.

Yes.

Both of those are businesses that we acquired and both of those businesses are growing.

So I don't think I would think about that as a run rate, but certainly they're contributing to the revenue in that area for this year.

The other thing that is contributing in a smaller way, but still contributing is the fact that IPOs in the second quarter were up over what we had in the first quarter.

Patrick, I don't know if you saw our ad in the Wall Street Journal yesterday, but we showed the 80 additions to our market in the second quarter and that was on top of a strong first quarter, which saw 65 additions.

So that -- those additions are clearly running ahead of our plan.

Okay.

Okay.

Great.

And then, finally, a question for you, Bob.

To the extent you can address this.

I mean, maybe give us an update as to how you're looking at the LSE and your stake there, the six-month cooling off period expires at the end of September.

And then the one-year anniversary is obviously in March of '07.

I mean sort of your kind of how you look at the playing field and timing in terms of potential moves.

Well, Patrick, I think you know this answer but I'll repeat it.

Had to ask.

Due to the constraints of the UK takeover code, there is essentially nothing I can say at the LSE at this point in time that I haven't said already.

I will just mention that the LSE continues to perform very well.

We think they are very well managed under Claire's leadership.

They had strong trading results for the last quarter.

They are the crown jewel of the European equity marketplace.

And I think our investment today looks stronger than it did three months ago.

Okay.

Fair enough.

Thank you very much.

We'll take our next question from Daniel Goldberg with Bear Stearns.

Good morning.

Good morning, Daniel.

How are you doing there, Daniel?

All right, thanks.

Can you just discuss with the SEC exchange status approval and you gave us the dates of August 1, and October 1, or so.

How should we think about that, as it impacts the financials?

One, I would say, there's no direct impact per se in that the Level II market data became part of the NASDAQ upon exchange approval as opposed to exchange effectiveness date.

So there's no direct benefit.

What you'll see as we go to a single book and we're shooting for that on August the 28th, we'll introduce into the U.S. the single largest pool of liquidity that really has ever been seen on the planet.

In addition, as we go to a single book, our technology operation will obviously be streamlined and there will be expense savings as a result of that.

David, do you want to add anything?

No.

Okay.

In terms of your non-U.S. growth opportunities, obviously LSE is probably the largest and foremost.

Any other opportunity that you see outside the U.S., whether it's partnerships, what regions might be most interesting to you?

Well, I would just say this.

I would direct you to the core business, and that is the vast majority of our focus.

And we are hitting on all cylinders at this point in time.

And the fact we do that then makes us that much more attractive to any number of international partners.

As I think I've said on previous calls, there's a whole wide range of opportunities available to NASDAQ.

I think our market model is recognized around the planet as the preferred market model.

It makes it fairly straightforward to do different things.

So we look, we listen, and we learn.

But we are focused on this core business mission and we're quite proud of the performance that we just had in this second quarter.

Okay.

And then just lastly on your push to take listings from the New York Stock Exchange.

Can you just give us a sense how that's going and maybe what might be in the pipeline?

I can't speak to the pipeline but I'll just direct you back to the success we had with Liberty Media in the second quarter.

That was the very first time that we had a company of such size do a direct switch from NYSE to the NASDAQ Stock Market.

They're a $24 billion market cap company.

And I think it's important to highlight that a company that size brings with it a substantial stream of revenue beyond the listing fee.

And that they're averaging about 5 million shares per day.

And obviously those 5 million shares now, almost 80% of it are transacted by NASDAQ systems.

So it's a positive economic value to us there.

And it then has a third lever with respect to market data.

So we have been focused.

We are quite proud of the companies that have switched and -- beyond bragging rights represented significant revenue to us.

With Schwab, Liberty, and Cadence, these are very actively traded stocks.

Okay.

Great.

Thank you.

We'll take our next question from Roger Freeman with Lehman Brothers.

Hi.

Good morning, Bob, Dave Vince.

Hi, Roger.

I guess -- just to follow up on the New York issue.

I mean, the growth that -- you have seen substantial pickup in the last say three weeks or so and I -- would you -- would you characterize that as a fallout of the pricing change even though the New York pricing hasn't actually gone into effect yet?

I'm just wondering, are there a couple of customers in particular that are driving this, or has it been broad-based growth?

One, it has been broad based from the customer point of view and also from the stock point of view, which I think you highlighted in your recent update.

So we're quite happy about that.

We also think the pricing in New York clearly had some contributing factor to our success, but I would just say it's building momentum from basically all quarters in that you have an increasing number of participants who want to deal with us for their NYSE-listed stocks in an increasing manner.

So there is a tremendous momentum behind what we're doing and we are focused and encouraged.

So -- okay.

So -- as -- when you look at the -- sort of the nature of the pricing change, it clearly benefits customers that are just outside of the monthly caps at New York and can you characterize -- I assume you've been in discussions with those customers and can you talk about sort of what that early reception's been?

Around your pricing.

I think the early reception shows up in our market-share gains, Roger.

I don't think it's any more complicated than that.

And I would say that for the customers who were able to respond very quickly to our pricing moves and New York's pricing moves and our increased liquidity, there's probably in order of magnitude a larger number of customers who are preparing to respond.

Okay.

So we just feel very good about our positioning.

There's not too much more I can say.

In your revised guidance, do you -- are you forecasting any additional growth in New York-listed share than where you're at right now?

Is it safe to assume you're just going off of current levels?

Well, I -- Roger, you probably know.

As I have been habitually wrong with predicting what is the outer limit of our market share that we can gain in NYSE listed prior to Hybrid or Reg NMS and I think that mentality still holds today in spite of being wrong all these months.

So that being said, we're probably -- you can assume that we're quite conservative with respect to where this market share should go.

We do have to again highlight that Reg NMS and Hybrid will be an accelerant to our progress in that we are making this success, achieving this success essentially with a headwind based upon our current structure of the trade approval.

So we're quite excited about what's going to transpire in the future.

Okay, thanks.

And then just lastly, around Interday Crosses.

You've obviously -- have your service coming in in September, New York announced the acquisition of MatchPoint yesterday.

What are your thoughts around crossing -- Interday Crosses.

Do you think that's a -- that's something that's going to migrate more to the exchanges from the -- some of the third-party offerings that are out there?

And I guess can you compare and contrast what yours versus the MatchPoint?

I can't do that certainly on this call.

But I would just say this.

That I think there's a natural limit to what can happen in a Cross environment and the only way to get past that natural limit is to have a more successful integration of a Cross-market with a continuous market and that is certainly a focus here at NASDAQ.

Okay.

Thanks a lot.

We'll take our next question from Josh Elving with Piper Jaffray.

Good morning, guys, thanks for taking my call.

How are we doing today?

Very well, thanks.

A couple more questions about the London Stock Exchange.

If you could kind of refresh my memory just regarding the FASB requirements.

Was it correct to assume that you're not going to be consolidating any portion of the earnings on a run rate basis, but it is possible or likely that you would be recording the ordinary dividends that would likely continue to be paid?

Is that the correct way to think about it?

And is that included -- you said that was not included in your guidance for the remaining 2006?

Yes.

It's David.

Under FAS 115, ordinary dividends are included, run -- do run through the P&L.

The London declared and paid dividend we received $9.2 million, which we have recorded in the second quarter and we have not made any assumption -- we have not included any further dividends for the balance of the year in our guidance.

Okay.

But is it fair to assume that -- and I think it was Richard who pointed out that it's a semiannual dividend.

Is it fair to assume that that could be a possibility in the second half?

I think that's an assumption that people just need to make.

I think the point I'm making is absent it being declared, we're not going to -- we're not going to say anything about it in our guidance.

Yes, we don't control whether or not the dividend's paid.

That's fair.

No, I understand.

And then what are you carrying the investment at on the balance sheet?

I know it's in the available in the available for sale line.

Can you break--.

We're carrying it at roughly $1.2 billion.

Okay.

And then just a question.

The AOCI account.

That picked up.

Does that have anything to do with like a mark-to-market on the investment analyzes?

Yes, that is it.

It includes that.

That's -- that's FAS 115.

You mark the investment to market.

Got you.

Run that through stockholders' equity.

All right.

And then kind of a bigger picture question I guess is you -- Bob, I think you kind of discussed briefly with regard to your appetite for some kind of global combinations.

But what about trading various asset classes?

Do you have any appetite for looking at that?

I know you've mentioned it, the core business, the cash equities business is your focus.

It certainly is.

And let me just repeat that.

I -- we're here at a critical juncture in time where we have this unique opportunity to gain dramatic trading share, which we're doing.

That ties into our ability to gain listings, which we're doing, and that ties into our data and financial products.

So there's no other activity that we can look at that will be as rewarding to our investors or to management as our opportunity just here in the U.S. in the equity marketplace.

In this release, we spoke about the fact that we grew our listed market share, NYSE listed market share to 8% and we're already up to 11.

That has a dramatic increase on our financial performance when you consider that we are going to a single technology platform that is a relatively fixed cost and incremental revenue goes to the bottom line.

We spoke to the fact that we won Liberty Media.

It's trading 5 million shares a day.

So we've got a wonderful listing fee.

We get wonderful transaction revenue, we get wonderful data revenue.

So there are other opportunities out there.

We certainly recognize it as our responsibility to understand what that means to us, but we also know our best opportunity is right here.

Terrific.

Okay.

And then one numbers question.

Regarding -- what was the total number of listings outstanding at quarter end?

Do you have that offhand?

We'll get that to you in one second.

Great.

Thank you very much.

Actually -- I actually have it right now, I'm sorry. 3,205.

Great.

Thank you for answering the questions.

Thank you.

We'll take our next question from Mike Vinciquerra with Raymond James.

David, on the NASDAQ subscription revenues, is the run rate, the right run rate to look at now, just the 39.9 minus the 1.3 catch up that you mentioned?

So something in the 38.5 range for Q3?

Assuming nothing else changes as far as market share, of course.

Yes.

I mean if you phrase it that way, yes.

Okay.

No.

That's -- just want to make sure I'm looking at the right numbers apples to apples.

And then with the integration of your books you mentioned the NASDAQ stocks on the INET will start on the 28th of August, how long does the integration process take?

I assume you're going to do it in groups of stocks at a time.

We'll start slow and then rapidly pick up pace.

I think you could use 30 days as a target.

Don't hold me to that exact number, but somewhere in and around there.

Okay.

Thank you.

And then just in approximating your transaction revenue from NYSE trading, I'm in the range of 13.5 to 14 million for the second quarter based on what we've -- what your stated pricing is as well as your market share and then that's on a gross basis.

Is that about right, David, am I modeling that correctly?

Mike, that's not something I can comment on.

Okay.

Thought I'd try.

Thanks, guys.

We'll take our next question from Ken Worthington with JP Morgan.

Hi, good morning.

How are you doing there, Ken?

This morning, Zurich Financial announced that it is delisting from the LSE, I think earlier in the quarter Mitsubishi UFJ announced something similar.

These companies are citing lack of liquidity.

Do you feel that this is the beginning of a paradigm shift in the listing business?

And as a global consolidator, will Cross-border mergers address the liquidity concerns here that these multinationals are citing?

That's a great question.

I would say this.

That it has to be one of the objectives of a Cross-border transaction.

You clearly have a clearing and present opportunity for technology synergies and that motivates you.

But the longer term benefit is to bring additional liquidity to the marketplace.

So that would be our goal -- our core goal on anything we would do in that endeavor.

Okay.

And the first part of the question.

Do you feel there's a paradigm shift starting to occur here?

I'm not sure what you mean by paradigm shift but I just want to make clear, that we have said anything and everything we'll say with respect to the LSE and my previous comment was a completely generic comment regarding any Cross-border transaction that might happen between any participants.

Okay.

Fair enough.

My other questions were asked and answered.

Thank you.

Okay.

We'll take our next question from David Grossman, Thomas Weisel Partners.

Thanks and good morning.

There's a lot of moving parts of your guidance and I realize that, but I just tried to reconcile net income guidance sequentially from where you were at the end of the first quarter to where you are today and excluding the LSE-related items, it seems like you're relatively flattish on higher revenue.

A, is that the right way to look at it?

And if so, where is the incremental level of investment going?

Not sure I -- state your question again.

What do you mean by relatively flattish?

No, not flattish, but the guidance -- the net income guidance looks like it stayed relatively consistent with the first quarter if I back out the items related to the LSE being the dividend.

Okay.

And I may be wrong, by the way.

Just doing the back of the envelope, I tried to make a comparison.

Right.

I -- well, obviously what you have between the first quarter and the second quarter is additional interest expense.

You probably have about $6 million for interest expense to be taxed between those two quarters.

So you've got that contributing to the revised outlook for 2006.

But I think on the revenue side you clearly see what we've done with our gross margin, which is to bring that up.

So I think you've got to look at both factors when you come down to that conclusion, the conclusion -- the premise -- the assumption or the opinion you're stating.

Okay.

And what kind of tax rate should I use on the dividend and is it just the full corporate tax rate?

Yes, you use 40%.

Okay.

And then just looking at -- obviously the recent volume trends.

I'm wondering, Bob, can you give us any -- updated insights on -- I know this is a tough question but just based on Hybrid coming up and how should we -- any insights you can provide on how we should think about volume growth over the next several months and maybe on a more secular basis?

One is certainly our NASDAQ-listed volume year to date has been higher than we had planned and we continue to enjoy those higher volumes so far into July.

We clearly expect a slowdown and it could be fairly dramatic in August going into September.

With respect to Hybrid and the volume that might transpire as a result -- as a result of Hybrid and/or NMS.

As I've said previously, we are really not in that prediction business.

The furthest you're going to get me is to predict that the volume will be higher than it is now as a result of Hybrid and/or MNS, but to qualify it I am just not privy to that crystal ball.

Okay.

And just one last question on the listing fees.

If -- I think you said earlier that the number of new listings was up sequentially and if I'm understanding the numbers right, it looks like the initial listing fees went down sequentially.

Is that just a timing issue in terms of when the listing happens, or is there something else there?

In the initial listing fees you have two things going on.

First of all, this year is the first year that we really feel the impact.

Last year -- well, coming into this year when we begin to feel the impact of the final amortization recovery of the IPO activity that occurred in the boom years.

As you know, we have to take this revenue into the balance sheet and then book it over six years.

So in terms of what we -- in terms of what we recognize from prior years, that is down for this year, but that's being offset to some degree by the increase in IPOs we've seen from the first quarter to the second quarter.

All right.

Got it.

Thank you.

We'll take our next question from Don Fandetti with Citigroup.

Hi.

A quick question.

In terms of your outlook, what should we assume in terms of Match market share and NASDAQ listed execution.

Have you budgeted in sort of flat or an increase or potential decrease?

Well, I would just say this, that we have seen positive trend lines with respect to our Match market share and NASDAQ listed in July so far.

We don't break out a guidance on what that Match market share will be.

I'll just point you to the fact that as we go to single book in the end of August going into September, we'll represent a very deep and liquid liquidity pool.

In fact, the deepest and most liquid electronic liquidity pool on the planet.

And we're optimistic that that will be a benefit to us and to the market participants who choose to access it.

Okay.

So you don't think the move to a single book will cause some volatility in your statistics, nothing too material?

We're optimistic that investors will get a positive outcome by having this deep liquidity pool.

Okay.

Thank you.

We'll go next to Richard Herr with Keefe, Bruyette & Woods.

Hi, good morning guys.

Hello.

Just a quick question to start off with at least on the proposal to remove the bid test.

That has -- that's been something that has benefited market share of NASDAQ trading for quite some time.

How much do you think you could pick up in terms of market share if the proposal's approved?

Well, we're optimistic that we will get the proposal approved and we're optimistic it will help our market share.

Beyond that, it's hard for me to predict.

It will be a positive.

Obviously, it's been an ARC advantage up to this point in time and it would be nice to level the playing field.

Okay.

And in terms of the -- sorry.

In terms of the debt.

Any kind of uptick you can give us on how -- the time frame you expect to pay it off, pay it down and whether you're going to use any of the money received from the return on capital?

On the second part of that, is that we -- we have -- we are evaluating different options for that cash, including paying down the debt.

We -- and we just have not arrived at a decision at this point.

And in terms of accounting for the LSE stake.

I can understand why you chose the route that you did.

But is there any possibility that we would see a retroactive adjustment to earnings when the London Stock Exchange does report its earnings?

As I said, in order for us to account for this under the equity accounting method, we needed to have the LSE provide to us nonpublic information.

We don't have that information, so that we are going to stay on FAS 115.

And I think on your question, if we had that information, then we would account for it under the equity method.

If we changed the equity method, then we would change our financial statements to reflect our investment under the equity method.

Okay.

And then I guess bigger picture.

With the options market moving to decimals and your foray into the options market with the routing, Bob, how do you think about -- does this make the options market more accessible to NASDAQ, more attractive with decimalization and if you could kind of give us any idea of what the reaction's been -- what the use has been on the options routing?

That would be great.

I don't have available separate information on the options routing.

We haven't provided that.

We could in the future.

Decimalization coming to options is a profound change and represents I'm sure challenges and opportunities.

As we have said, we have a wonderful opportunity here in cash equities.

We love our positioning.

It has the ability to provide a tremendous return to our shareholders if we execute this plan.

And that's what we're intending to do.

Okay.

Thank you very much.

We'll take our next question from Jennifer Nettisime, Wellington Management.

Hi, guys, I just had three quick questions.

The first one I was just wondering, maybe David on the Instanet cost savings, how much of that might be in the run rate already in the second quarter?

I know the integration doesn't take place until -- this is the third quarter, so are we to assume most of that is still to come.

And then the next question is probably for Bob.

When it comes to the listings business, you talk about these great successes in moving over some of the New York listed stocks onto NASDAQ and I applaud your success there but New York hasn't had the same success in pulling listings away from NASDAQ and I just wonder is there an opportunity there to reprice your existing options?

I mean New York can't get Microsoft, so does it make sense that you can raise the price to Microsoft given the huge differential between the two exchanges?

And then my final question comes down to the matched market share on NASDAQ.

Right now it's running obviously around the 11% range, but I wonder if you have some sort of sense of what the match market share is in the most list -- the most liquid stock, which obviously would be the one time to move more electronic post Hybrid.

Jennifer, welcome back.

Thanks.

David, do you want to take the first question?

Yes, I'll take the first question.

Jennifer, I think what I can say is that while we don't disclose it -- while we don't disclose the expenses that way, we are obviously ahead of plan on the INET integration.

But that was an integration plan that had the savings coming more toward -- more toward the end once you get the single book -- once you get onto a single platform, then you're able to really realize the savings that are part of your plan.

So I would just say that we're on or slightly ahead of that.

And feel good about the trajectory that we've already talked about.

Okay.

Great.

Jennifer, your second question was with regard to listing fees.

I think you see in all our endeavors, Jennifer, we tried to provide -- try to provide true value to our customers.

So at this point, we are comfortable with our listing fees being a proper fee relative to the services rended.

It's something that we will obviously consider on a regular basis going forward.

So whatever I say today doesn't mean it might not change sometime in the future, but as we stand here today, I think it's a fair price for the services rendered.

On the matching of stocks on NYSE, I don't have the breakout of the numbers but what I would point out to you, Jennifer, is that there is a completely different economic profile to an actively traded stock versus a less actively traded stock in the business that we're in.

So the fact that the more actively traded stocks are more inclined to go electronic could not be a better set of circumstances for us.

So while we are seeing broad-based participation, we certainly structure our plans and our efforts around those stocks that trade more actively.

So we're just happy with our overall share and we're very happy with the distribution of the share.

Thank you.

We may have lost you.

Still there?

I'm still here.

Thanks.

That helps.

All right.

Thank you.

We'll go next to Larry Vitale with Moore Capital.

Hi, can you hear me okay.

Yes, we can.

How are you doing there, Larry?

I'm doing okay.

On the capital return.

How did you account for that in the second quarter?

We accounted for it as a reduction in basis.

All right.

And is it appropriate or do you even spend any time thinking about this internally to look at LSE's results on a look-through basis, so they aren't about $130 million net after tax, after everything in their recently completed fiscal year, you've got a 25% stake economically you can put that up against the debt and the interest expense and so on.

Does that make any sense at all?

Larry, we really cannot comment.

We have serious constraints based upon the UK takeover code.

There's nothing that we can say on any topic related to the LSE.

That's fine, Bob.

I was just asking about how you think about your position internally.

So I don't mean to make you uncomfortable.

It doesn't take much in this topic to make us uncomfortable, Larry, I'm sorry to say, so I just -- if -- I'd like to answer the question, I just really don't have that option.

Okay.

No worries.

Thanks very much.

Okay.

We'll go next to Scott Appleby with Deutsche Bank.

How are you doing there, Scott?

Hey, Bob.

I'm doing well.

Nice job.

I wanted to actually follow up on Jennifer's questions on market share of listed stocks.

And that is, if you could maybe provide a little bit more color on the profile of those -- of your customers that represent that market share.

Yes.

I will.

I think with respect to the change in trading characteristics, clearly the early days were led by the Black Box algorithmic traders.

I think the second stage was a pickup from the retail investors, the on-line retail investors.

And third stage is more the traditional bulge bracket-type firms.

So we have different levels of penetration in the different segments.

The first segment is the highest level of penetration, but the key fact is that we are successful now in every segment and every segment that we look at has plans to increase their participation in our electronic marketplace for the trading of NYSE stocks.

And does it represent -- so does -- is it safe to say that customer representation in your listed business is nearing that of the regular business?

Definitely.

Thanks.

The other question I have is just more of an update on Reg NMS.

Do you have any sense on when that will be put in place?

I just keep hearing that the date gets pushed back time and again.

Yes.

It's hard for me to speculate on any rumors that you may or may not have heard.

My feeling is that the dates that the Commission put out are real dates and they're not likely to move.

Okay.

The revised dates, I'm sorry, not the original dates, obviously.

Right.

Fair enough.

And lastly, I had more of a strategy question.

And following up on other questioners about where to potentially go if the LSE wasn't an option going forward.

And you've gone towards providing services to the issuer, which I think is a great idea and you're seeing benefits from that already.

Would you consider moving towards the broker dealer more with respect to networked -- more technology, other services that aren't necessarily execution oriented?

One thing we will not do is to become a competitor -- competitor to our broker-dealer customer.

So that's a firm and absolute answer.

With respect to services that lever existing businesses that we are involved with, that is something that would be of interest to us.

Anything that levers something that we currently do is under consideration by this team.

Okay.

And thanks a lot, Bob.

Thank you.

We'll take our next question from Shane Sinmore with UBS.

Good day, Bob.

How are you doing there, Shane.

Not bad, mate.

I was going to ask a question about the NSA safe deposit to ban the trade compression.

Does that affect us in any way?

And does it sort of change your thinking with respect to what we could do business-wise to potentially replace DTCC and NSCC in the longer term?

That's a lot of question you just gave me, Shane.

I would just say this as a general comment any time there's changes in sets of circumstances, it represents opportunities and challenges.

I think that, you know, we're a large customer of NSCC.

We understand the value they provide to the marketplace.

We have a sense of what that value is worth on a charge basis and we pay close attention to the situation.

Back on New York market share.

How many of the big broker-dealers do you think are considering seriously retuning their routers to take advantage of the crossing arbitrage that exists between New York's current caps and your pricing schedule?

Shane, what I'll direct you to is the fact that we have built very successfully a unique liquidity pool that is at this point I think for any firm impossible to ignore as any firm recognizes their best execution obligation.

So I think we've hit a critical period of time.

I think the stats that you see with respect to how often we are on the inside of an NYSE-listed stock is truly outstanding.

So we've hit critical mass and I think independent of any pricing action that takes place, we are an execution venue that has to be routed to.

Okay.

Thanks.

But I mean if people really changed their behavior there you might see another uptick in market share, yes?

We believe it's possible and certainly it's our job to make sure it happens.

Good.

Good quarter.

Thank you,, Shane.

We'll take our next question a follow-up from Mike Vinciquerra with Raymond James.

I have one more question on NYSE here.

Have you seen a pickup in routed volumes since you changed your pricing on the 3rd, like volume that comes to you that you end up routing to the NYSE, I should say.

We have had an increase.

I just don't have it at my fingertip whether that increase was proportional to our match market share or was it a lower rate.

But, yes, we've increased both routed volume and also match volume.

And then one last thing you mentioned last call Bob was that a couple of big customers I guess had lowered their activity with you after the pricing changes and you guys were working hard to try to bring those back onboard.

It looks like your market share in OTC is roughly the same as where it was in the month of March and maybe slightly higher.

But have you had any success with those two and does that provide any upside in returning market share?

Yes.

We've had a very successful July so far, we haven't broken out the numbers, though, but the trendline is positive at this point.

Good enough.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] And we'll go now to a follow-up from Rich Repetto, Sandler O'Neil.

Hi, Bob.

Just one last thing.

There was questions about these other -- the Crossing systems and your launch as well as the NYSE purchase.

I'm just trying to see is there any way -- what it appears that your advantage is, your price discovery.

All these other Crossing systems are leveraging, are you -- for the -- most of it, the majority, leveraging your price discovery.

Is there any way that you can take advantage of that phenomena or that think that you do -- that exchanges do best, I guess?

Yes.

Well, what I said early in the call Rich is that I believe there's a natural ceiling to Crossing networks when they have to use us as a reference point and the breakthrough is how do you marry the Cross-market with a continuous market.

And that is something that we are focused on and hopefully we can deliver meaningful product to the industry.

Okay.

And then one last follow-up is--If the equity method of accounting were -- was to be used, any just sense of be it accretive to -- dilutive to the FAS 115 that you used this quarter, David?

There's no sense I can provide you on that.

Yes.

Rich, we're just truly constrained by the UK takeover code so there's nothing we can say.

Understood.

Thank you.

Okay.

I think Rich had the first and the last call.

One more.

One more.

We'll take our final analyst question from Christopher Allen, Banc of America Securities.

Hey, guys, how are you doing?

All right.

Just a quick question.

On New York's new pricing, they're not going to be able to -- rebating for liquidity.

And just a lot of people when they move to Hybrid are expecting the algorithmic trader to drive a lot of the volume and some of these guys business model relies on the liquidity rebates so any thoughts around where the algo's impact on -- in a Hybrid world and where their volume might go?

I really can't speculate on that particular question.

I would just say that we have built a unique liquidity pool independent of New York at this point in time.

I think we understand the needs of the various trading communities, market participants, and it's our job to make sure that we come out with the products and prices that make sense for them and that's what we intend to do.

Got you.

Thanks a lot, guys.

Thank you.

Okay.

Operator, I think we're going to stop the analyst portion of the call and move to the media so let's hold the line for a minute and allow the queue to build for some media questions.

Thanks, everyone, for joining us.

Thanks everyone for joining us today.

We appreciate your time.

[OPERATOR INSTRUCTIONS] We'll take our first question from Megan Davies with Reuters.

Hi, Bob.

Can you hear me?

Yes.

Hang on just -- yes, we can hear you.

Hi.

Now, I know you've said that you're limited what you can say about the LSE.

But--.

Only about a dozen times.

I have to ask the question.

Are you still happy strategically with a stake of just over 25%?

Would it benefit you to increase that any more?

And I know you said before you're not concentrating selling up stake, is that still your position?

First, I really -- UK takeover code says that there's essentially nothing I can say about the LSE.

I would direct you to the outstanding quarter that we had, our earnings grew 70%, 69% year on year and by all metrics we're just doing incredibly well.

Could you say maybe if you've -- when your last meeting was with LSE.

No.

The only thing I will say, which I said earlier, is I think the LSE is a well-managed operation led by Clara.

I think their trading results, which they released, were very strong.

And it is the leading market place in Europe.

It is a crown jewel of the European equity exchanges.

And I think since we've made the original investment, their performance has done nothing but improve and our investment looks nothing but wiser.

Okay.

Thank you.

Thank you.

We'll go now to Isabelle Clara, Financial News.

Hi, how are you?

All right.

Yourself, Isabelle?

So I just have a question regarding your guidance.

I think that I heard when you were talking to the analysts that you are not including the LSE -- I mean your investment in the LSE as part of the reasons why you are raising your guidance?

No.

I -- what I said on the -- it's David, Isabelle.

What I said on the guidance update was that we were increasing our gross margin guidance, because of our confidence -- our results today and our confidence as we go to the second half of the year.

We were decreasing our expense guidance slightly.

And all of that came down to an increase in net income guidance.

What I said with respect to the LSE is that we are recording this investment under FAS 115, which means that we would recognize any ordinary dividend that they would pay into our P&L.

They paid a dividend, which we record -- which was $9.2 million that we received and we recorded that in the second quarter and then the final point on it is that we are -- we did not include any additional dividend that might be paid by the LSE during our fiscal year through the end of this calendar year in any -- in the guidance that we updated on.

Oh.

Okay.

But the dividend that you have received.

Yes.

Of $9.2 million, that's included in the various sectors that have led you to raise your guidance, right?

Well, it's included in our actuals -- it is included in our actual results.

And therefore -- I mean your first-half results contribute to your guidance to your overall outlook for 2006.

Well, the guidance is essentially the outlook for -- you know where you are now, the guidance is your outlook for the second part of the year.

And as I said, we have not included a dividend in looking at the second half of the year.

Right.

I mean, a dividend that they would pay later, that they may or they may not pay later, right?

Right.

Great.

Thank you so much and anyway congratulations for raising the guidance.

Thank you, Isabelle.

Thanks, bye bye.

We'll take our next question from Edgar Ortega with Bloomberg News.

Good afternoon, how are you?

Great.

A couple questions, in your release you highlight some charges for real estate and severance, wondering if you might be able to help us understand a little bit more of exactly what's behind that, I think INET had offices in New York, did those get closed down?

Or how exactly on the real estate charges are we talking about as well as head count in terms of what you're lining out for severance?

Yes.

I'll speak to the real estate first.

This is part of our tech -- our overall technology road map plan and in this plan one of the -- one of the components of this plan is that we have -- are looking at ways to get a better, more efficient result in the operation of our data centers.

And so what we have been doing as a practice of colocating or outsourcing our data center requirements which allow us to sell the data centers that we currently own.

So what we have in that charge is a one-time charge that results from that sale where we had to take certain losses on that sale against the value that we had on books.

The important part of this activity is that the operation of our data center on an outsource basis is far -- the operating expense of that on a going-forward basis is far more compelling to us in terms of lower expenses and efficiencies as compared to owning and operating data centers, which has been our practice to date.

Okay.

Any comments--.

The other part on your severance was we have planned workforce reductions that are part of our technology road map as we get on to a single book and as we make our technology not just faster, but more efficient and less complicated.

It -- we just do not simply need that many people to run it so we have certainly planned reductions in our workforce and clearly would have severance associated with those.

Headcount projections is not something that we have given in the past.

Could you say just changes from the previous quarter to this -- to June 30?

Why don't we get back to you on that.

Okay.

And just two more quick ones in terms of integrating INET with Brut and Market Center.

Trying to understand the benefits in that from kind of a user's perspective.

I'm wondering if you might be able to elaborate.

Does that make it faster for you to execute trades?

Does it make it -- is there a chance that there's a higher matching percent?

I'm just trying to understand what the benefits are for a user, as you -- as you integrate those three different books?

Well, I think you answered the question for me.

You have a higher match rate, you have faster executions, and you have a deeper pool of liquidity.

So these are the three main issues that any user is concerned about.

To improve the user experience in each and every count.

Okay.

And, finally, on the debt question, I think an analyst posed this earlier.

I just want to make sure I understand that right.

You have not decided yet on whether you'd pay down debt.

Did I understand that answer right?

Yes.

Yes.

That's correct.

Okay.

And I think on the headcount question, the reduction from the first quarter to the second quarter were 25 positions, the headcount that we ended the second quarter at was 887 positions.

Okay.

Thank you very much.

Thank you.

We'll take our next question from Michael Martinez with Associated Press.

Hello, everyone.

How are you doing there, Michael?

I'm doing well, thank you.

I have a follow-up question to something that happened on the analyst call.

Bob, you had said that Reg NMS and Hybrid would be an accelerant to your progress.

I can certainly understand Reg NMS.

Can you elaborate a little bit on why Hybrid would be an accelerant to you gaining share?

If it's kind of designed for the NYSE to maintain theirs?

Definitely.

One, it will create a fair and level playing field in that they will be electronically accessible while we have been for a period of -- a long period of time.

To allow market participants to use NYSE's Hybrid market when they think it can add value as opposed to when it might add value.

So today you have a chance of going to the floor of NYSE, taking time to do that, and not getting a fill because the price was in fact just an advertised price, it was not electronically accessible.

So if it's in the Hybrid, it will be electronically accessible and you have a greater certainty of outcome.

Okay.

All right.

That sounds good.

Thank you.

Thank you.

We'll take our next question from Gastone Cerrone with Dow Jones.

How are you doing there?

I'm all right.

Listen, I have a quick question.

Just to clarify what this whole issue of how you account for the LSE in your books.

It's purely an accounting question.

It's not about your intentions to marry the LSE or divorce them or anything like that.

I guess my question is--So -- somebody asked you during the analyst call, David, if in the future what you could do if you got the information that now you don't have?

Right.

Regarding the earnings.

I guess I sort of lost you because I thought the person asking the question was asking you like if you got the information sort of after the fact, I guess when -- whenever the LSE reports earnings.

Can you then go back to the second quarter and sort of update it, I guess do a restatement or something and say here's our 25.3% of whatever, you know?

Yes.

The answer is that we would if we had the information, receive the information, we would be able to account for the investment under the equity method so that we would go back and reflect that investment back to the date of our first purchase, which was back in April.

So yes, we would recast prior periods to reflect that.

Okay.

But as far as -- okay.

That's fine.

Hold on one second.

We want to clarify this?

Okay.

Hello?

Please remain on-line, you have not been disconnected.

All right.

Okay.

So the question -- hello.

I think the important point here, Gastone, is just to add one more thing, is we don't have any expectation we're going to get this information.

But what -- but what happens when the LSE just reports its actual earnings?

Oh.

I understand your question.

No.

Now I get it.

Okay.

Sorry.

In order for us to -- in order for us to report our investment under the equity accounting method, we need certain information from the LSE that is not available in their public filings.

Okay.

So not even--.

I'm sorry, I missed your question entirely.

It is not available to us.

And so therefore we are not able to account for our investment under the equity method.

Okay.

So not even when they report earnings is that information contained in their public--?

That's correct.

Thank you.

I'm glad we stayed with that so I could clarify the answer.

So you need stuff beyond their public press release or whatever?

As I -- yes.

As I said in my remarks, we need -- we need the LSE to provide for us nonpublic information.

Right, okay.

And as a result, you haven't included any of your share of their earnings in this last quarter?

Under the FAS 115, that is correct.

Okay.

All right.

And the -- and then the other thing was.

Maybe I lost something here but I see the 9 points and maybe I just misheard something, but I obviously see the $9.2 million in dividend payments from them.

Right.

What happened to that capital return thing?

Capital return under the accounting rules basically gets -- you record that as a reduction in basis.

You lower the cost of your investment.

Okay.

That's -- see, that was an extraordinary dividend, the return of capital as compared to an ordinary dividend.

Which is -- which is the 9 points -- which is what the 9.2 million or whatever?

9.2 and under FAS 115 you'd recognize that in your P&L and not on your balance sheet.

Oh.

Okay.

I see.

So the extraordinary capital return, that doesn't flow through the income statement then?

Yes.

Because it's a return of capital so it's adjusting your investment.

Right.

And so again like all these -- the actual profits that you guys reported, the only part that comes from the LSE is the dividend because you're not including as you said under the equity accounting method the -- a portion of their earnings?

That is correct.

Okay.

Great.

Thank you.

You're an accounting expert now, Gastone.

Not really, but thanks.

Thanks, Gastone.

I think that concludes the questions.

I don't think we have any more.

Thanks again for joining us this morning.

Thank you.

And once again, ladies and gentlemen, that concludes today's call.

Thank you for your participation.

You may disconnect at this time.