納斯達克交易所 (NDAQ) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to the NASDAQ third quarter 2007 earnings results conference call.

Today's conference is being recorded.

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.

Thank you, Operator.

Good morning, everyone, and thanks for joining us this morning.

Joining me here are Bob Greifeld, President and Chief Executive Officer; and David Warren, our Chief Financial Officer.

We also have Ed Knight, our General Counsel, on the line.

Following our prepared remarks, we will open 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 website at NASDAQ.com.

Following the call, you can always give me a call at 212-401-8742 with any additional questions.

Before I 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 Company's Form 10-K and periodic reports filed with the SEC.

With that, I'll turn it over to Bob.

Thank you, Vince.

Good morning, everyone, and thank you for joining us to discuss our third quarter results.

Following my comments, David will review the financials in detail.

We will then be available for your questions.

The third quarter was a fantastic one for NASDAQ by virtually every metric.

Our top line, which has improved for 12 consecutive quarters, a truly impressive feat, was $210 million, its highest level since 2001 and representing the best quarter during my tenure at NASDAQ.

Match volume and market share also reached record levels, with NASDAQ matching 121.7 billion shares or 29.5% of all U.S.

equity volume.

Volume matched by our system grew by more than 50% from last year and is up more than 40 billion shares, cementing NASDAQ's leadership position as the largest single pool of liquidity in which to trade.

I am also proud to point out that our trading systems performed flawlessly while handling this historic growth.

Operating profits continue to grow, with our non-GAAP operating income reaching $110.3 million, an increase of nearly 52% from the $72.7 million in the third quarter of 2006.

These results demonstrate that our strategy to provide customers with innovative products and services with the highest quality while also focusing on operating efficiency is yielding very positive results for our shareholders.

Our strong financial performance permeated all areas of our business.

We reported record revenue growth in market services, which was up 22.8% from the prior year, as well as revenue growth in Issuer Services, which gained 22.4%.

Some of the highlights that worth noting; we are, as I said, the leader in equity market share among U.S.

exchanges.

We matched nearly 30% of all traded volume and we handled more than twice that amount, driving our market center revenues to new highs.

Subscription revenues also experienced double-digit growth from last year.

Demand for our products continues to be strong, with total viewed subscribers growing more than 66.2% from the prior year quarter and NQDS subscribers growing more than 12.7%.

During the quarter, we launched the NASDAQ Data Store, which provides investors with on-line access to innovative data tools, another example of our relentless focus on innovation.

Within the corporate client group, customer usage of our services offerings continues to grow, with revenues from these services increasing 33.7% from the prior year.

In financial products, our revenue increased as we introduced new NASDAQ indices and engaged in new licensing opportunities.

During the quarter, we also began operations of the NASDAQ ETF market.

This will further strengthen our leadership position in the U.S.

ETF sector.

In the quarter, we traded 52% of domestic ETF volume.

In the quarter, we also launched the Portal Market, NASDAQ's electronic platform for 144-A private placement securities.

This market is designed to encourage capital formation by improving the efficiency and transparency of the very significant and growing private placement market.

Turning now to strategic initiatives; it is easy to say that we kept ourselves busy on a number of fronts.

As you know, in May, we announced our intention to acquire OMX, a Nordic and Baltic exchange and technology company that will serve as a very strong strategic partner for us in our plan to create a premier global exchange and technology company.

In September, after some discussions, we announced a series of transactions with Borse Dubai that build on the original concept, adding the financial strength of Borse Dubai and its reach into the emerging Asian and Middle Eastern market places.

After closing, we will create a truly global financial marketplace with the structure and financial strength to serve our customers and achieve our global ambitions.

We also completed the sale of our investment in the LSE, where we generated a gain of $431.4 million.

This allowed us to pay down all of our INET-bank debt in less than 22 months from the closing of the transaction -- an amazing accomplishment.

David will speak more about the LSE sale in a minute.

We also announced the proposed acquisition of the Boston Stock Exchange which, when completed, would provide NASDAQ with a second exchange license and the utilization of the BSE clearing license.

In addition, NASDAQ received approval from the China Securities Regulatory Commission, the CSRC, to open a representative office in Beijing, China.

Last week, NASDAQ and the Shenzhen Stock Exchange announced the signing of a Memorandum of Understanding to develop further the relationship between the two markets.

This MOU further reflects NASDAQ's commitment to the China market and our ongoing dialogue with the mainland stock exchanges.

In summary, the third quarter was an active one for NASDAQ, one in which we delivered outstanding operating results while progressing on a number of strategic initiatives.

As I have said before, and as we continue to demonstrate, we are maniacally focused on the execution of the business plan.

As we expand domestically and internationally, our focus and innovative approach to operating an exchange will provide numerous opportunities to create value for both our customers and our shareholders.

I look forward to speaking with you about the progress of these exciting changes as we move forward.

With that I will turn the call over to David.

Thanks, Bob.

And good morning, everyone.

Thanks again for joining us this morning to talk about a truly outstanding quarter.

During the third quarter, we again demonstrated our ability to grow revenues while leveraging our relatively fixed cost expense base to drive profits higher.

We are very pleased with our results and believe we are well-positioned to continue to grow the Business.

I'll start my review with the income statement.

During the quarter, revenues less liquidity rebates, brokerage clearance and exchange fees, which I'll refer to as net exchange revenues, increased to $210 million, up from $171.2 million in the year-ago quarter, and up from $198.7 million in the second quarter of this year.

Within Market Services, net exchange revenues were $136.7 million, up 22.8% from the $111.3 million in the year-ago quarter and up 6.9% sequentially.

NASDAQ Market Center revenues increased 30.1% from the year-ago quarter, primarily due to higher matched share volume, record market share, and higher Access Services revenues.

Access Services revenues were up 22.4% from the year-ago quarter.

Market Services subscriptions revenues increased $5.1 million, or 13.2% from the prior year quarter, driven by higher subscriber populations or both proprietary and non-proprietary data products.

Moving to Issuer Services; second quarter revenues were $73.2 million, up 22.4% from the $59.8 million recorded in the prior year.

Driving the increase in Corporate Client Group revenues are fees from Corporate Client Services, which are up nearly 34% from the prior year.

This growth reflects our successful integrations of the acquisitions of Carpenter Moore, shareholder.com, and Prime Newswire, and our continuing focus to expand the suite of services offered to our listed companies.

Also, annual renewal fees increased due to a revised fee schedule introduced earlier this year and are up about 15.7% to $31.6 million.

Within Financial Products, revenues increased $4.6 million from the prior year quarter, and a slight increase from the second quarter resulting from increased ETF licensing revenues.

Now let me turn to operating expenses.

Third quarter total operating expenses were $126.1 million, representing an increase when compared to both the prior year and prior quarter.

However, included in the current quarter results are $19.5 million in expenses associated with the sharing of tax benefits of capital loss carry-forwards generated from our Instinet acquisition with Silver Lake Partners, $5.8 million in charges associated with the pre-payment of all of our outstanding senior bank debt, and $1.1 million in severance and other charges related to workforce reductions.

When you exclude these charges and compare expenses on an operating basis, as presented in the non-GAAP reconciliation table that we distributed with our earnings release, you will see that total expenses have been pretty steady, with $99.7 million incurred this quarter, $98.5 million in the third quarter last year, and $97.3 million in the second quarter of this year.

We'll have more to say on 2008 at a later date, but I think I just want to point out today that this expense control represents the work that we started out really a couple years ago in consolidating our technology platforms and building a very strong and efficient fixed cost platform.

In '08, we will see expenses related to our acquisition of the Boston Stock Exchange and other revenue growth initiatives.

So in '08 -- and we will comment on this at later date -- certainly in '08, we would expect to see expenses higher.

Also on the non-GAAP schedule, you will notice that our operating income for the quarter was $110.3 million with operating margins, which I define as non-GAAP operating income divided by net exchange revenues, was at 52.5%.

And that's up from 42.5% in the year-ago quarter, and up from 51% in the second quarter of this year.

We've also recorded two items below the operating income line which had a material impact on our GAAP results.

And these are a $35.2 million gain on foreign currency option contracts related to our -- related to hedging our foreign currency risk associated with the OMX transaction.

This is a dollar euro hedge, which we will continue to mark to market in the fourth quarter.

We also recorded a $431.4 million pre-tax gain on the sale of our investment in the London Stock Exchange.

In addition, over the period we held the stake, we received approximately $80 million in cash, resulting from dividends and foreign currency gains, which more than offset the approximately $70 million of interest and strategic costs.

Obviously, our sale of the LSE stake had a dramatic impact on our balance sheet, which I will now cover.

Cash and cash equivalents at quarter end were $1.3 billion versus the $300 million recorded at the end of 2006, while available for sale investments were a scant $9 million versus the $1.6 billion we recorded at year-end 2006.

Proceeds from the sale of the LSE stake, net of taxes and fees, were nearly $1.7 billion.

We used approximately $1.1 billion of proceeds to pay down outstanding debt obligations, retiring all of our INET related debt in less than two years from completing this transaction.

NASDAQ is now in its strongest financial position since becoming a public company, reporting a record string of growing revenues, record profits, and we now have zero outstanding senior debt.

We will put our cash to good use for the benefit of our shareholders.

And we continue to evaluate a number of strategic options, including a buyback of our stock and further acquisitions.

And now -- finally, turning to guidance for 2007.

Our outlook for 2007 gross margin -- or net exchange revenues, is in the range of $800 million to $810 million.

2007 total operating expenses are expected to be in the range of $435 million to $445 million.

And net income is expected to be in the range of $501 million to $507 million, including the charges that we've discussed today.

Now to reconcile this guidance back to the guidance that we reported earlier; if you adjust for the approximately $26 million of Q3 charges related to the LSE stake sale and other factors, expenses are $409 to $419, and that's against $400 to $415 in our prior guidance.

Net income is $199 to $205, and that's against $171 to $181 in our prior guidance.

Revenue is not affected by any of these adjustments, and is, as we stated in the release, $800 to $810, and that's up from $775 to $790, reflecting primarily the strong results of the third quarter.

So we've adjusted the midpoint of our revenue guidance upwards by $22 million and the midpoint of our expense guidance upwards by $6 million.

The increase in expenses reflect a more robust marketing effort for the balance of the year.

They reflect increased regulatory charges related with the roll-out of our options exchange.

And they reflect service costs associated with lump sum distributions of pension benefits to employees who have left the Company.

The expense guidance does not reflect any impact, positive or negative, from the mark to market on our foreign currency contracts.

And finally, our net income guidance includes the benefit of the pay-down of our senior debt and then having no debt for the fourth quarter.

I wanted to go through that reconciliation, anticipating that I might get some questions on that.

But again, let me finish by saying that we -- Bob and I are extremely pleased with both our financial and operating performance this quarter, our string of twelve consecutive quarters of sequential revenue growth, growing market share, expanding profits, and a very strong balance sheet provide us with a lot to be proud about and we are.

And at this point, Operator, we will turn it back over to you and take questions, please.

Thank you, sir.

(OPERATOR INSTRUCTIONS)

We'll take our first question from Rich Repetto from Sandler O'Neill.

Good morning, guys.

How you doing there, Rich?

Doing okay.

Hey, Bob, my first question is, in the press release, you talk about 33 1/3% interest in the DIFX.

Just trying to see approximately what the investment is -- how you valued that -- the cash that you put into it?

Rich, we haven't been that explicit with respect to the valuation metrics.

We could be tin future.

I would just guide you to the general comments that clearly is an asset that's uniquely positioned in that part of the world.

They've adopted international governance standard model primarily on the U.K., FSA.

And I think if you read D.P.

World, will be coming public in November.

So we're optimistic between our technology, our know-how and our branding, we'll be able to make that into quite an attractive asset.

Yes, Rich, it's David.

We are in the final stages of working out the final agreements with Borse Dubai.

So when we have that, obviously, we'll have more to disclose on the specifics.

Okay.

Then the next question is, we are in the fourth quarter, and the option strategy, I guess, is upon us.

And, David, you did say you're going to have some regulatory costs for options.

I guess my question, Bob, is; can you elaborate on which direction we're going?

Any updates?

There's rumors about the [FILIX] being in the market, et cetera.

Independent of any rumors with FILIX and others, we're committed to the organic options growth strategy.

Our approach into this market as player number seven is to be distinctly different, as we covered at the price time matching engine that represents a very small percent of the overall option volume.

It's our prediction that that percent will increase, and at times increase quite rapidly.

So we see great opportunity where the market structure we're adopting will increase as a percentage of the overall market.

And we also have the market itself expanding.

So we got a double driver to our effort.

So we're committed to it.

We're looking for a fourth quarter launch, hopefully, in early December.

And right now, everything is moving towards that date.

Great.

And the last two things, both, I think, financial questions for David -- but I'm just trying to back into the net income for the fourth quarter.

And I know you gave us a it lot more color.

I just couldn't keep up with you.

Because I was backing into a much lower number and thought that you might be incorporating charges -- but the net income that would be implied for the -- say at the midpoint of low and high end, seeing that you reported three-quarters so far.

Well, without being specific as to the amount, the -- most of the delta, in terms of the increase in net income that wouldn't flow from the subtraction of operating expenses for revenues, really relates to the benefit we expect to have from paying down our debt.

Okay.

We can reconcile off-line.

There's nothing really -- not much else in it.

So it's really those factors driving it.

And my very last question -- you got the strongest balance sheet that I can certainly remember.

I agree with you.

The cash on hand -- when will you actually make a decision -- I know, as you said in the prepared remarks, acquisition versus buyback and creating some shareholder value; but is this something that we'd expect to see before year end?

Or is this going to be an ongoing thing?

How should we think about -- what should investors expect in regards to putting that capital to use?

Well, first of all, I think what you can expect from us going forward is an ongoing focus on our balance sheet.

With respect to the cash that we certainly have, we would expect to be making some decisions on that in the fourth quarter.

Okay.

Fair enough.

Thanks, guys.

Great quarter.

Thank you, Rich.

We'll take our next question from Dan Fannon of Jefferies.

Good morning and thanks for taking my questions.

Just to elaborate on that, the potential share buyback -- so it's safe to assume that you guys haven't been in the market subsequent -- thus far into the fourth quarter in buying back shares?

Yes.

I think that -- yes.

But for -- also for some legal reasons with respect to needing to get past this date.

We have not.

And then in terms of the OMX transaction, what is the next step, whether that's in terms of regulatory approvals and their timing, that we should hear from you publicly -- either from OMX or from you guys to see how that transaction is going forward?

Well, it's proceeding.

You basically have three main tracks to run on.

One is the [siphius] review.

Two is our shareholder vote.

And the third is to have the OMX shareholders tender into the offering.

So I think you can go by the fact that we have an expectation that the transaction will be positioned to close sometime in the first half of the first quarter.

Okay.

That's helpful.

And then also the timing on when the Boston Stock Exchange would close?

I think the same time frame, early first quarter.

And then subsequent to that, how quickly do you think you will be able to put -- to add on the second quote?

And then also potentially begin the clearing process on the cost savings side?

Well, I think with respect to the second quote, that's easier to respond to.

It would be our expectation that we would have that within a quarter of close, and hopefully on the shorter end of that.

With respect to clearing, it's really not possible to give out dates, because we do to have get SEC approval and work with them to get that operation set up.

So it's too soon for us to be giving out dates.

Great.

Thank you very much.

Thank you.

And we'll take our next question from Niamh Alexander with KBW.

Good morning, thanks for taking my questions.

Can I go back to the organic growth in U.S.?

How should I think about market data, revenue opportunities, particularly in terms of proprietary products?

Is there an opportunity to better package market data revenue to maybe some of those on-line brokerage services or the retail brokers?

It's a good question.

I'd say this much that we have a great opportunity to provide real-time data to web-based portals.

And we have the customers wanting to pay us for these services.

And right now, one of the few things that have not gone the way we wanted this year was to get the approval from the commission to provide those services.

So we're cautiously optimistic that we'll get approval sometime in the fourth quarter and that will have a positive impact on our financial performance and market data for 2007.

That's clear and present -- the Googles, the Yahoos of the world want the services.

It obviously represents a business opportunity for them, and it's a good opportunity for us.

That sounds very interesting.

Thanks.

Any kind of metrics you can share with us on that?

Not as of yet, but certainly the ability to have real-time data on the web, I think, will become pervasive.

Once one of the portals have it, I think it will be hard for any of the other portals not to have it.

And I would say this, that NASDAQ.com will certainly be one of the early adopters of real-time data.

That's helpful.

Thanks, Bob.

Sticking with organic growth -- and just looking at the market share gain, you've done a wonderful job of taking share from Tape A this year.

But just looking at the pace of share gain, that's kind of easing from here, and I'm just wondering what -- in the U.S.

business, is it backed more to be a volume growth driven story for the revenue, rather than market share gain, allowing you to outgrow the market?

Certainly 2008, we expect to hit on both levers -- both drivers.

We expect to gain share and we expect the volume to increase.

So the U.S.

equity space is still going through a period of transition.

We think we have the proper plans in place to take advantage of that transition and we look forward to continuing our progress.

We have said all along that our progress, with respect to market share growth, would never be a pure straight line -- it would go in fits and starts.

And you need to look at the overall trend line.

And that's the way it has played out, and that's the way it will play out through '08.

Okay, that's helpful.

And last question, sticking with the domestic business; listings, with Tape A now -- New York floored in less than 40% of Tape A, is that a better opportunity for your pitch for your listings business now?

Because I guess it's harder for New York to argue for higher pricings on that premise of managing the volatility on the floor.

Are you having different conversations with your customers now for listings business?

I notices you've upped your renewal fees.

Is maybe the pipeline getting a little bit more different this time around?

It's definitely a positive for us.

And beyond the fact that less than 40% of the volume is done on the floor, you see the specialist participation rate is in the very low single digits.

So these are all important things and important aspects of the listing opportunities.

So I would say that our listing business is in very good shape.

And I think our pipeline is really at record levels.

Okay, that's helpful.

Thanks so much.

I'll get back in queue.

We'll go next to Roger Freeman of Lehman Brothers.

Hey, guys.

It's actually [Alex Kramm] for Roger.

David for you, on the financial side, first off; if I back off these one-timers and I look at your tax rate, I'm getting to a tax rate of something like 35.5%, which is a lot lower than the usual 40%.

Am I doing the math right?

And is there anything else that you didn't call out in there this quarter?

Yes, you're doing the math right.

What is in our tax rate for the third quarter, and therefore in our full-year guidance, represents something that was in our numbers.

And it is the release -- it is about a $3 million benefit associated with the release of a reserve that we took in connection with the shutdown of NASDAQ Life back in 2003.

And that was part of our 2003 return.

Obviously, that return is now closed, and is no longer subject to review, so we've released the research.

We had had anticipated that -- obviously, we anticipated that the return would close.

We had also anticipated in our guidance that we would not need to use the reserve.

Okay.

Thanks.

And then on pricing -- I know what the pricing was at the beginning of this quarter, since then it looks like your market share on NASDAQ listed has come down a couple of percentage points.

Anything we can expect in terms of a response?

When you think you would have to respond, if you -- if your market share declines further?

And then related to that, I think you're the only guy out there with tiered pricing right now.

Are you still committed to your tiered pricing?

Or could we expect you moving to more of a flat pricing like most other exchanges out there?

One, I would say we are definitively committed to tier pricing.

We think it properly matches the customer's experience, with respect to the impact on our operation and the way our business model works.

And I would just make the broad statement that we remain committed to represent the highest value out there with respect to transaction services.

And we have always looked to address pricing on a regular and continuous basis.

And I think you'll see that as our operating philosophy.

But I'd also say there's no pricing action planned for the fourth quarter of 2007.

Great.

Lastly, I think David, in his prepared remarks, alluded a little bit to the Corporate Client Group and perhaps more offerings coming in the future.

Is there anything specific that you can point out already?

Any holes that you have in your offering that are easy to fill, perhaps through niche acquisitions, things like that?

There's nothing specific that I can refer to.

I think if you just look at what we've accomplished, we continue to look for opportunities that would be value-added products and services for our listed companies.

Very good.

Thanks.

And we'll go next to David Grossman of Thomas Weisel Partners.

Thanks and good morning.

As I recall, Bob, the OMX integration process had already begun.

Can you give us an update on what you're seeing and what the progress has been to date?

One, let me make clear that the integration planning between OMX has progressed and has progressed exceedingly well.

The teams are working together.

We actually have a major team in Stockholm this week.

So we feel very good about that.

And what it nets down to is, at this point, we stand behind the guidance that we gave, with respect to both revenue and expense synergies when we announced the transaction.

And we remain confident.

And as I said the last time, our confidence continues to grow that we'll achieve what we've promised.

And I think our collective organizations have a shared cultural trait of wanting to underpromise and overdeliver.

And I think I'll leave it at that.

And should we we expect, based on the progress to date, that we would start seeing the expenses coming out -- the process of the expenses coming out almost immediately after the transaction closes?

Well, again, we're two separate organizations.

We're allowed to do planning.

And it's, I think, impossible for us to make any further predictions than what we've said previously.

David, do you want to -- ?

And I think what we've said previously is that we expect that we will achieve a number of expense synergies in the first year -- in the first full year.

So if it does close in early '08, then we would definitely be on that course.

Okay.

And then a question just about the net capture rate.

And we just do a back of the envelope calculation on this, but it looks like sequentially it went down a little more than we would have thought based on some of the pricing changes.

A, does that math sound right to you?

And if so, do you think it's stabilizing at the current levels, based on what you're seeing in the marketplace?

With, what we've said before, and it's important to point out, is that when the volume is high, we have more customers hit the tiers, so the capture rate will tend to go lower.

Obviously, when the volume rate is down, people will tend to miss the tiers.

So it's really an effect where people overestimate on high volume and underestimate on lower volume.

So it's what we expected based upon the extraordinary volume we had.

Clearly, the tiers were of great benefits to our customers in the third quarter.

I see.

And then one last thing, I think for David.

On the OpEx, you talked about what would drive operating expenses higher next year.

Is the current run rate that you're at now, is that -- ex the extraordinary items or non-recurring items -- is that the right number, at least, to use for the base, given where the business is now?

And then would you build on top of that?

Yes, what's the I was trying to say.

I think we've done a good job getting the base down to that level.

It's a fast, very efficient and scalable platform.

And we definitely have been leveraging off that, but there are certainly acquisitions and some investments we would make in growth that would be adding to that base.

So does X charges and non-recurring items of $100 million sound about right for total expenses?

For the third quarter?

Right.

So we're at like a $400 million-ish kind of run rate.

We're right around $100.

And we've been running around that level, $98, $99.

But I think, as I was saying, I think that reflects essentially accomplishing what we set out to accomplish.

But I might want to caution people that that's not a good number to use as an ongoing number for '08.

Okay.

And then just one last thing.

Do you happen to have the cash flow numbers -- the operating cash flow and the CapEx for the quarter?

Yes, our cash flow from operations was about $117 million.

CapEx was about $5 million.

I think it's $5, they tell me $6.

Six?

$6 million.

And just in case anybody's comparing that, that cash flow from operations was down from the second quarter, which was about $180.

But the cash flow for the second quarter, that included obviously a buildup of section 31-A fees, about $125 million we paid in the beginning of the third quarter.

And lastly, a lot of this activity -- a lot of this strong activity that's reflected in our net income for the third quarter is really on the balance sheet, and you see about a $40 million increase in receivables from the beginning of the year.

Great, thanks very much.

And nice quarter.

Thank you.

And we'll go next to Josh Elving of Piper Jaffray.

Hey, good morning.

How are you doing, Josh?

Good.

Just getting back to the balance sheet for a minute.

I just wanted to touch base on the amount of cash on the balance sheet.

Is that all free cash -- or how much of that is restricted?

And how much of that could be put towards, say, a buyback or acquisitions?

We tend to hold, right now, about $200 million in terms of what we need for regulatory purposes and working capital.

Okay.

And then just with regards to acquisition opportunities, obviously, there's been a lot of talk about a buyback.

With the share price moving up, does that change your thoughts a little bit on the buyback?

And perhaps maybe has you looking at acquisitions more?

And if so, where do you see some of those opportunities?

Do you see those more domestically, in building out other asset classes?

Or do you see any opportunities overseas that are attractive to you?

I think it might take two of us to answer this.

This I'll give you the dollars and cents part of this.

It's an ongoing analysis, in terms of what will return the best for our shareholders.

Certainly, with respect to -- so it's just an analysis that keeps going.

I'll go to Bob in terms of any comments about what he particularly wants to say.

I'll tie back to what I said in the beginning of 2007, that we will do acquisitions and obviously we have.

And that environment remains constant.

There are numerous opportunities available to NASDAQ.

We approach each and every one of these opportunities with our discipline -- our two disciplines.

One is it obviously has to accrete to our shareholders.

And we say for a normal acquisition we want that accretion to come by the end of the first year.

For a larger acquisition, we might extend the time frame out, but not so far that you really are guessing at the future.

The second is the acquisitions have to be strategically significant.

And we define that significance as primarily leveraging core strengths of the mothership.

So with those disciplines and that direction, there are lots of opportunities for us and we'll evaluate them.

And you should just be assured that we'll stick to those disciplines with anything we do.

Okay.

And then can you give us an update on Portal?

Is there any kind of a volume number we can see or any kind of metric -- kind of gauge how that business is coming along?

Right.

I don't have the metric handy, but I'll tell you what we we're managing to right now.

We're looking at the number of QIBs that sign up, qualified institutional buyers, and we look at both on the dealer side and sell side.

And those numbers have increased quite rapidly.

We'll provide them to you subsequent to this call.

Thanks.

We'll take our next question from Daniel Harris of Goldman Sachs.

Good morning, guys.

How are you doing, Daniel?

Good.

I was wondering if you would give us an update, with MiFID just around the corner, and how you're thinking about the various European markets?

And maybe just on how you see the market evolving over there with additional competition?

And what may ultimately happen in London?

it's certainly not just a London story.

It's a European story.

We think MiFID will have a pervasive and profound impact on European equity trading.

We think it will not be instantaneous.

But just because of that, you have to realize that in time it will change everything.

And it will mirror what has happened here in the U.S.

They will do it in a different fashion than we've had in the U.S., but in the end, they'll get to the same place.

And I thought it was very interesting to see the Reuters announcement that they're going to give essentially a best execution feed out to customers.

And that's certainly an enabling technology that will start to bring MiFID to life.

It varies greatly to the U.S.

approach, where we have a prescribed system by the SEC, known as the SEP.

The bottom line is, it's going to get to look like the U.S.

in time.

It won't be as quick as people will think, but it will come.

It will be pervasive and profound and it will represent great opportunity for us.

Great, thanks for that.

Appreciate it.

This is David Warren.

Let me had, if I could, the statistics on the Portal.

I did grab them.

We've got about -- since our launch, we've had about -- approximately 100 users signed up for the system.

In terms of market activity, the third quarter to date has had about a 30% increase in capital rate as compared to third quarter last year.

But I think as a lot of people know, obviously, there was a significant drop-off in market -- in the amount of market activity in this quarter as compared to the second quarter 2007, about a 60% drop for regions of the market that everybody is familiar with.

Okay.

Just lastly, with them -- with Direct Edge gaining some strategic investors this quarter who manage obviously, a significant amount of volume -- and there appears to be at least four significant sources of liquidity in both NASDAQ and New York shares.

It almost seems as if we're moving back to a more distributed model volume, after you in New York consolidated that market share over the last two years.

Do you think that it's sort of in a cycle of an increasing number of trading locales now, given different technology?

Or do you think the market is sort of comfortable with where we stand and volume was sort of slow as in May?

First and foremost, we have to listen to our customers and make sure we're serving their needs.

And so I don't think there's any predetermined number of equity volume venues out there.

It's a question of, are we doing the job?

And I would definitely direct you back to the fact that we matched 121 billion shares in the third quarter and our volume grew by over 50%.

So by all measures, we have become the leading marketplace.

There's more people trading on NASDAQ than at any time.

So we're very happy with our progress there.

And we continue to execute.

We're 40 billion shares higher, quarter-on-quarter, than a year ago.

Yes.

You're absolutely right.

I was just wondering if you thought about the total number, whether or not that was of any sort of trend?

But I hear you.

Thanks a lot -- very much.

And we'll go next to Don Fandetti of Citigroup.

Bob, one quick question.

As you look out over the next three to five years, does your -- how do you view the Dubai partnership?

Do you view that as enhancing sort of your ability to be a global consolidator, like an NYX?

I would definitely say so.

And let me speak first about our investment in the DIFX.

As I mentioned before, we think that's a great opportunity.

They clearly have relationships in that part of the world that we do not have.

And between our brand name, our technology, their relationships, their know-how, and obviously, the legal and the regulatory structure they have set up in DIFX, in addition to basically the quality of life in Dubai, we think we have a great opportunity -- just right then and there.

They clearly, in the completion of this transaction, will become our largest shareholder.

And an important, I think, long-term strategic investor to NASDAQ, as we go to execute our business plan.

Thank you.

And we'll go next to Mike Vinciquerra of BMO Capital Markets.

Thank you, good morning.

A couple questions on the periphery.

New announcements this quarter -- you guys announced the Select Market Maker program.

It looks to me, if I'm reading it right, it's designed to match basically how data revenues are going to be earned on a go-forward basis.

It looks very similar in that regard to the NYC incentive program for specialists.

Can you compare and contrast the two?

Am I looking at it correctly?

I think the primary purpose of the Select Market program is to allow our market makers to have a closer relationship with our issuers.

So that's the primary approach, and that's the way I would look at it.

So it doesn't really have to -- it's not really an encouragement for them to try to keep the NASDAQ at the inside quote for market data purposes or anything like that?

No.

Obviously, to become a Select Market Maker, you have to meet certain performance standards, with some of those performance standards being around the -- being on the inside.

But as a result of that, than we will further establish that Select Market Maker -- that firm's relationship with our issuers.

I see.

Okay.

Thank you.

I'll follow up with you after the call, as well.

The ETF market, what is the real value add that you think that's going to bring to the market and differentiate your offering versus trading elsewhere in those products?

Well, the first point is, obviously, we're coming at this ETF market from an incredibly strong position, as the leading trader of ETF shares.

I think, in particular, the ETF market is structured to serve as a proper incubator for ETFs that come to the market that need sponsorship.

So we've certainly set up a structure and pricing plan that encourages that initial sponsorship.

So it's really on the listing side, not so much on the trader side?

Well, it ties together.

We think the initial trading will improve, based upon the ETF market structure since we do record -- reward people to be active in the space, and that will then have a positive reinforcement back into the listing side.

Okay.

Very good.

Then finally, I think you mentioned your total view subscriber growth -- did I hear it right, it was 66% sequentially?

If that's true, what was the impact on revenues?

And do we see the full impact this quarter?

Will that bleed into the fourth as well?

It was 66.2%, it was from the prior year quarter.

And it certainly has contributed in a very handsome way to our revenue growth in data products and obviously to our profitability.

If we don't break it out further than that.

What was the number on a sequential basis?

Do you have that data?

We'll have to get back to you on the quarter-on-quarter.

Okay.

Very good.

Thanks very much, guys.

And we'll go next to Chris Allen of Banc of America Securities.

Hey, guys, nice quarter.

Thank you, Chris.

Just a couple of questions.

First, how do you guys perceive a (inaudible) moving to exchange that?

How has that impacted the competitive landscape, in your perception?

One is -- obviously, we have space competition in the space for a long period of time.

We'll point you back to the fact that our market share in U.S.

equities grown, and we're obviously processing record shares.

I think with respect to exchange status, that becomes less meaningful as you have regional exchanges that share the vast majority of the market data already.

And you can definitely posit the argument that you're better off taking a high share of market data without some of the heavy demands that come from being an exchange.

But we don't study that issue because it's not our issue.

So I think the competitors that we have today who are not exchanges are definitely beneficiaries of aggressive market data sharing plans.

And that sharing is without the costs associated with running an exchange, so I don't think it's a big move one way or the other, whether you are an exchange or not.

Okay.

And then just on the market share, I think someone asked before about NASDAQ listed share dipping a little bit in October after the pricing plan.

I'm not sure if I heard the answer.

Can you give us some color on that, in terms of pull-back since (inaudible) change pricing?

We've seen some small movement in market share.

We think we have an opportunity to gain that back.

So we're clearly messaging and fighting to gain some of that share back.

And just the last question.

There's been a bunch of questions on share repurchases and acquisitions, because of the balance sheet flexibility.

Are there going to be any limitations, just given the cash payment that you're going to have to make to OMX as part of the deal closing?

Limitations on using our cash?

I'm just thinking -- there's a pretty decent size cash component.

So do you need to save cash on hand for that?

Well, you can have cash on hand that we have -- we have committed financing from the debt markets for that.

We also have, as we've said, other opportunities, including buying back shares and other acquisitions.

So we are -- I think the point here is that there's a lot going on.

There's certainly a decent amount of turmoil in the credit markets.

And there's an opportunity here to do a careful analysis of this, to really focus on our balance sheet.

And as we said, we will invest this cash to the benefit of our shareholders.

But we're considering all the range of things that we have in front of us.

Great.

Thanks a lot, guys.

Thank you.

I want to come back to Mike Vinciquerra, if I could.

This is David Warren.

Mike, I calculated -- I didn't have it on my fingertips.

But the sequential increase in subscribers was 14.3%.

Mike is probably not live, but I'm sure you heard it.

Good.

And gentlemen, we have no further questions at this time.

I will turn the call back over to you.

Good.

This is Bob.

I thank you for your time and look forward to talking to you during the quarter -- or if not, to report our full-year results.

David, any comments?

No.

Thank you very much.

Thank you.

And for members of the media that are on the line, we're going to pause for a moment, and we'll be back on in just a few minutes.