納斯達克交易所 (NDAQ) 2009 Q1 法說會逐字稿

Good day and welcome to the NASDAQ first quarter 2009 earnings results conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Vice President of Investor Relations, Mr.

Vince Palmiere.

Please go ahead.

Thank you, operator.

Good morning everyone and thanks for joining us today to discuss our first quarter 2009 earnings results.

Joining me are Bob Greifeld, Chief Executive Officer; David Warren, our Chief Financial Officer; Magnus Bocker, President; and Ed Knight our General Counsel.

Following the 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 and the presentation on our website at www.NASDAQOMX.com.

We intend to use our website as a means of disclosing material nonpublic information and for complying with disclosure obligations under SEC Regulation FD.

These disclosures will be included under the events and presentation section of the site.

If you have any questions after the call please contact me at 212-401-8742.

Before we begin I'd like the 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.

The actual results may differ materially from those projected in these forward-looking statements.

Information containing the factors that could cause actual results to differ from the forward-looking statements is contained in our press release and in our reports filed with the SEC.

Did that without taking a breath.

Yes.

Your introduction gets longer every time.

Going to be longer than my comments.

I do thank everybody for joining us here this morning.

We are particularly proud of the results we are reporting today.

GAAP net income for the first quarter of 2009 was $94 million, or $0.44 per diluted share.

When excluding merger related expenses and other non-recurring items, on a non-GAAP basis our net income was $102 million or $0.48 per diluted share, an increase of 9% when compared to pro forma non-GAAP results of $0.44 in the first quarter of 2008.

In addition to growing income, our operating margins improved to 47%, up from 41% in the year-ago period, a remarkable performance in this economic climate.

We were able to achieve our year-over-year growth through the strength of our diversified business model and continued focus on operational efficiency.

By remaining true to our management philosophy, NASDAQ OMX is now in the proffered position of having global scale against a lean cost structure.

We have positioned ourselves to succeed whatever the market dynamics.

I will begin my review with a discussion of our options business.

We couldn't be more pleased with the performance of both the PHLX and the NASDAQ NOM options market which combined had 20% of the market during the first quarter and reached 21% during the month of April.

The growth in this business has been impressive.

Turning to our Nordic operations, 2009 is a transition year for our cash equity business.

By the end of 2009, we will dramatically alter many aspects of the market.

We will introduce central clearing through our partnership with the EMCF, we will consolidate trading onto our INET match engine..

We will launch order routing functionality and we'll offer colocation services for our market participants.

During this time of transition, we are focused on our customers and we have been rewarded by retaining 94% market share in the Nordic and the Baltic cash equities.

This is greater than many incumbents in Europe where we see the primary market traded around 74% of the FTSE100 the primary market trade around 75% of the CAT40 so truly 94% is outstanding.

In addition, we are starting to see encouraging signs that the markets in the Nordics are improving.

Since December we witnessed four consecutive months in growth in both the number of trades and the value traded as number of trades has grown nearly 30% since December and the value traded has grown about 50% and finally, we just recently began trading Norwegian equities on the NASDAQ OMX platform and have market makers committed to providing continuous liquidity in these securities.

Our goal through all these activities is to provide greater value by increasing liquidity and trading velocity while reducing costs for our customers.

Now turning to our MTF.

We recently witnessed significant growth in that market.

Average daily value traded on our systems has grown six-fold in the past few weeks, truly remarkable.

Total traded value yesterday reached more than $300 million, a new record.

Our share has steadily grown to the point where we now averaging more than 1% of the CAT40 trading.

As we stated on prior calls, our approach to growing this business has been to first focus on establishing connectivity with customers and then to get close the to those customers by providing the market structure, services and flexibility they need.

The launch of NEURO Dark today is a case in point.

Our records are paying dividends as our conversations remain very positive and we continue to connect new participants to our market.

The equity plan which we recently announced goes into effect at the beginning of June, and we expect this plan to result in continued increases in market share.

Turning to the US market.

The US cash equity business we have obviously disappointed with the market share during the first quarter.

Recently there have been some unique market conditions into which we witnessed a structural shift in the business.

For one driven by the supply side to one in which the demand side has become a factor in determining share.

With our recent fee changes, we positioned ourselves to be successful with both types of customers, with NASDAQ catering to participants that are liquidity supply providers while BX is targeted at participants that are natural demand takers.

We are confident in the pricing action we took on April 15.

Importantly, we're also planning to better utilize our customer relationships in the size of our liquidity pool, the largest in the US for equities.

We are introducing a number of new order types many which will allow our customers to lever our size, diversity of customer base and market structure to their advantage.

With respect to BX, we are extremely pleased with our launch of this market.

As measured by share volume traded, BX is the most successful launch ever of a US cash equity trading venue.

Where share volume reached 100 million shares traded, approximately 50 days after launch, truly impressive.

We are also pleased with the performance of our access services businesses.

This very stable revenue stream now represents nearly one-third of our US cash equity business.

The product is expected to continue to perform well as we have a backlog of customers seeking additional colocation services and access services.

Moving on to our listing business.

We continue to push forward welcoming four switches from NSE Euronext during the quarter.

And in spite of a slow IPO market, we have a strong backlog of potential deals with 98 applications currently on file and we're currently happy to see that Open Table will be coming to the market in very short order.

We continue to witness strong demand for our shareholder services products as this business is one of the fastest growing within our organization.

Moving to Market Technology.

We are working hard to improve profit margins and most importantly, lever our customer network to sell additional product.

We are realizing successes as customers such as TOCOM and the Swiss Exchange launch new technology based on NASDAQ OMX.

So in closing, we have a lot to be happy with this quarter.

The strength of our diversified model was demonstrated as we delivered solid results even though the US equity market share was a disappointment.

We remain focused on the execution of our plan, and it is yielding benefits as NASDAQ OMX is the only US based exchange to deliver year on year growth and non-GAAP profits.

And to give you more color on our financial results I now turn the call over to Mr.

David Warren.

Thanks very much, Bob, and good morning everyone.

Thanks for joining us today.

It's very good to be with you.

As Bob mentioned, when reported on a GAAP basis our net income for the first quarter was $94 million or $0.44 per diluted share.

Consistent with my prior calls with you, I will speak to our pro forma non-GAAP results from here on, unless I note otherwise.

In doing this, I want to call your attention to the schedules in our press release and to a PowerPoint presentation that is available on our Investor Relations website, at www.NASDAQOMX.com.

The non-GAAP reconciliations can be found in the presentation beginning on slide 12.

You will see that our non-GAAP net income for the first quarter as Bob mentioned was $102 million or $0.48 per diluted share.

Like our peers, our first quarter EPS is down when compared to the pro forma non-GAAP results from the fourth quarter of 2008.

However, when you compare our results year-over-year to the results of our peers who I've seen over the last few weeks, we are the only exchange reporting an increase and we are up 9% when others are down, some dramatically.

Our first quarter results were also negatively impacted by the impact of a stronger US dollar.

Please refer to slide 10 of our earnings presentation, that's the PowerPoint, for this detail.

But in summary, when compared to the first quarter of 2008, the stronger dollar resulted in a $0.03 per share negative impact on our results when compared to the fourth quarter of last year, the stronger dollar this quarter resulted in a 1% negative impact to Q1 EPS.

Now, highlighting what I see as the important points in our results, and these are captured in the PowerPoint as well, net exchanged revenues for the quarter were $369 million, a decrease of $50 million or 12% year-over-year.

But of this decline, approximately $35 million or 70% of the variance is related to changes in exchange rate of various currencies as compared to the US dollar.

Now turning to expenses, first quarter 2009 total expenses on a non-GAAP basis were $194 million, representing a decline of $55 million or 22% from $249 million pro forma non-GAAP expenses for the first quarter of 2008.

FX had the effect of reducing operating expenses by $26 million in the first quarter of 2009, when compared to Q1 '08.

Also contributing to a reduction in spending are synergies from the OMX and PHLX transactions.

Total expenses on a non-GAAP basis also declined sequentially, dropping $19 million or 9% from the fourth quarter of '08.

Non-GAAP operating income was $175 million, an increase of 3% from the year-ago period.

This represents an operating margin of 47%, up from 41% in Q1 '08 and equal to the 47% achieved in Q4 of last year.

Effective tax rate on a GAAP basis for Q1 '09 was 34%.

This reported tax rate includes the impact of the loss on the sale of our Icelandic broker service business of $2 million.

Which is non deductible for tax purposes so this loss flows directly to the bottom line.

Excluding this loss, our tax rate was 33.3%, in line with the 33.5% non-GAAP rate achieved for Q4 of last year.

Now, turning briefly to the balance sheet, cash, cash equivalents and financial instruments at quarter end were approximately $746 million.

Of this amount, approximately $413 million is reserved for regulatory requirements.

Cash flow from operations was approximately $83 million for the quarter.

Our total debt obligations at quarter end were $2.45 billion, reflecting a decline of approximately $70 million from the end of the fourth quarter of '08.

You may recall that during last quarter's call, I commented that we would continue to pay down our LIBOR based debt throughout all of 2009.

We paid down $56 million of this debt in this quarter, and we will pay down a minimum of $56 million each quarter for the balance of the year.

We also bought back approximately $24 million of our convertible notes during the quarter.

That's a reduction of $80 million, and some of you might be asking why the balance sheet shows only a drop of 70, anticipating this question let me briefly give you an answer.

The difference is due to the change in accounting treatment for convertibles that requires us to book the convert as both debt, as equity components and accrete the equity through interest expense over the term of the convert.

So $16 million of the $24 million par value bought in was recorded as a reduction in debt, and the rest as a reduction in equity.

That's probably too many words for a $9 million gap.

But no one ever said I wasn't precise.

But now let's move to some larger positive results within our Treasury operations.

In addition to our commitment to paying down debt, we have also signed a term sheet with a major Nordic bank to provide $100 million collateralized credit facility for the benefit of our Stockholm clearing company.

With this facility, we are able to free up $100 million of corporate cash, currently set aside for regulatory purposes.

While this cash is available for any corporate purpose, we expect to use this cash to pay down additional debt.

And last but by no means least, with the strong performance in expense control this quarter, we are lowering our expense outlook for the full year 2009 from what we communicated when we presented our Q4 '08 results back in February.

We expect total operating expenses to be in the range of $830 million to $850 million.

Included in these figures are approximately $30 million of non-recurring merger related expenses but also included in these figures are approximately $40 million in spending for new initiatives including IDCG, and the introduction EMCF as our central clearing couterparty in the Nordics to name but a few.

So I want to thank you for your time today.

In my brief summary I would say we are executing and doing it very well.

We are controlling expenses while making very critical investments in our future growth.

With that, I think operator, we're ready to take questions.

Thank you.

(Operator Instructions) We'll go first to Rich Repetto, Sandler O'Neill.

Good morning, Bob and good morning, David.

How you doing there, Rich?

Doing okay.

I guess the first question is David on expenses.

The run rate was definitely below -- if you divided the guidance by four and even if you annualize the expenses, the 194, 195, you're going to get well below 800.

So I guess are you seeing -- are you planning expense increases later on?

Are we just being conservative or what's the deal?

I'm taking into account in that some impact of FX.

If you take a look at the SAC, we were about 8.4 SAC to dollar in Q1.

That's dropped considerably now.

Again, nobody has a real accurate crystal ball for this, but I think you have to anticipate some additional expense given the relationship of those currencies.

And I think the other important part, Rich, is that that $40 million of investment spending does have some back-loaded component to it.

Got you.

Okay.

And then the synergies that you experience or realize in this quarter, like I think we've sort of been expecting that the OMX and PHLX technology synergies when you consolidate to INET were going to occur during the summer.

Is that still going to take place or did some of that occur already?

No, we're looking to make the major system migration starting this quarter with the completion in the early part of the third quarter.

So there will be expense reductions associated with that technology replatforming.

Okay.

So there's going to be even more expense cuts related to OMX and PHLX to come?

Yes.

Okay.

Yes, there is -- David mentioned two factors but there also is some seasonality to the numbers.

Right.

I understand.

And I guess Bob, the last question comes, you fully acknowledge the disappointment with the market share in the US.

And I guess the question is you got the two platforms.

You got some good performance out of BX initially.

But how do you balance the profitability with BX being -- pricing being much different than the INET or NASDAQ platform?

Is this suffice enough to think the battle, the two platform, is that the answer to the market share losses that you've experienced over the last five months?

No, but it's a step.

So you saw that the pricing action we took on the 15th of April has essentially what I call stopped the bleeding.

And we have to grow BX as our platform for those who are take sensitive.

And the pricing we have in place today is obviously meant to generate the enthusiasm, the excitement to give that the breath of life.

I think you'll see in time that pricing migrate the to something what I'll call on a more rational basis.

And to the extent we have greater success sooner, then that day will come sooner.

But we, with our pricing actions, want to have a clear delineation between what we'll call the NASDAQ classic with respect to its attraction to the rebate, the supply side and we want to have a clear attraction to the demand side.

All that being said, there's a lot of things happening in the market.

Some of them will be ephemeral and we don't need to focus on it but others are structural changes in the market.

We are very excited with the different order types that are coming out that allows us to have certain customers essentially scan our large liquidity pool before routing out or interacting with the general market.

So we expect some of these order types to come online very soon and as I said we're optimistic.

Okay.

That's all I had.

Nice quarter.

Thank you.

We'll go next to Howard Chen, Credit Suisse.

Good morning.

How we doing, Howard?

I'm well, how are you?

Pretty good.

Good.

Thanks for taking my questions, Bob, I know you're probably sad and the rest of the management team to see Chris' departure.

I was hoping you could discuss a bit how the process of finding his replacement is going and broadly how you think about the management succession planning here with the franchise?

One is I would say that it's a good time to be looking for talent in the external marketplace.

And there are no lack of strong external candidates and we also have very strong internal candidates.

As I've said, I will be deliberate in my considerations of who is going to take on this role.

My expected time frame is for two to three months.

So as we stand here today, I'm comfortable that the professional knowledge that Chris brings, had brought to the NASDAQ OMX business will be replaced.

Certainly Chris had unique personal skills and we're not looking to replace those, but the practical knowledge out there, those who can help us lead us along will be good, we will be well served.

Okay.

Thanks.

And then my follow-up, Bob, historically you and the management team have averaged doing one to two acquisitions a year, deal integration has been a real hallmark for the management team.

I know you've got a lot of bulbs in the air in terms of organic growth, but can you discuss your appetite to do a deal here?

What's the landscape look like?

I know you touched a little bit on the human capital landscape.

What's the deal environment look like?

Thanks.

Well, first, as always, we focus on executing the operational business plan.

As you reference, we do have more organic growth opportunities on our plate than at any time during my tenure here at NASDAQ OMX so that demands its own level of attention.

We have, as NASDAQ OMX, I think a responsibility to understand the global competitive landscape and where there may or may not be opportunities for us.

It's obviously a episodic event, when a transaction happens and I would say that the climate is not so different than other climates, but that doesn't mean we are interested and/or positioned or desiring to do anything.

Okay.

Thanks.

We'll go next to Daniel Harris, Goldman Sachs.

Hi, good morning, guys.

Hi, Dan.

I was hoping you could give us some more maybe quantitative or qualitative numbers around how the MTF in Europe is going, how many clients are on it, how many are in sort of the pipeline to sign up and what the trajectory of the client uptake has been over the last couple months?

Well, it's been a remarkable progress.

I was there at the end of March and we were matching or really trading about $50 million a day and as I referenced in the call, it's grown three-fold so we set a new record yesterday where we exceeded $300 million.

So it's a period of time of exhilaration for the team there to have that kind of rapid growth in a month and-a-half and the good news is that we're just really getting started.

So we still have a large number of customers who are working very actively to be hooked up to us by June 1, when we start the equity jump ball.

So we have I think at least 10 committed participants to the jump ball and we certainly hope to dramatically increase that number as the month waxes on.

Okay.

Great.

Thanks a lot for that.

And then just a follow-up.

Here in the US you spoke about the BX platform and the success you've had in the early stages.

But are you seeing most of those clients transitioning from, say, NYSE classic, that raise their rates and you guys snuck in underneath them or is this just new share that is coming from different parts of the market?

I think it's all of the above.

It's impossible for us to directly quantify where each share is coming from, but we can theorize based upon how we're positioning our pricing what the result will be and we're clearly segmenting the BX platform to be attractive to those people who are sensitive to the take rate and that's the one comment I can make with complete confidence.

Okay.

Thank you.

We'll go next to David Grossman, Thomas Weisel Partners.

Thanks very much.

Bob, as you think about some of these structural changes that have happened in the market in the last several months, some of the pricing actions, or several pricing actions that have been taken, independent of kind of tiering of the pricing, how should we think of net capture going forward?

Do you think we're at a baseline?

Do you think on a net basis it goes up?

Do you think it goes down?

Well, I would say this.

We've obviously had a lot of discussions in the last several weeks with respect to the competitive positioning of our US transaction business.

And the discussions are centered not so much about reduction in capture rate, but the structural shifts in the market where the demand side is controlling the debate more so than the supply side.

So if you looked at the last six years, you didn't go wrong by catering to the supply side.

That's no longer one size fits all answer.

So on the good news side, I think we see structural discussions more so than compression discussions but we live in a competitive landscape and it's our job to lever what we call massive scale against extreme efficiency, then we'll be able to deliver to our customers very attractive capture rates while also delivering superior returns to our investors.

So if you look at our actions here, moving the PHLX platform to the INET platform from the second quarter going to the third, moving the Nordics into the INET platform in the fourth quarter, seeing increases uptake in the NEURO platform, that just gives us a fundamentally different business model than our competitors.

So we have that as our driving philosophy.

Just kind of looking at that last point that you just made, do those system migrations, I think I understand the cost advantages, are there any reasons to think that your share or there's some revenue opportunity that makes you more competitive from that standpoint other than on the cost side?

Well, I mean, we obviously are focused on market structure advantages, enhancements that will give us advantage they the market but let's understand, to the extent that we have a fixed cost base that then is spread across a large number of transactions, what we call massive scale, then we're in a position to deliver what our customers first demand and that's an attractive capture rate, an attractive transaction rate.

We want to do that.

We're here to listen to our customers, to deliver value to our customers while servicing our shareholders so it's a clear mission.

We will continue to look at the price to make sure we're delivering the best value to our customers.

We've said it from six years ago.

We intend to be a price leader in this marketplace.

We're going to do that, not as a loss leader, as some of upstarts ECNs or MTFs might do but as part of an overall business plan to make sure we have the proper lever in place that we can serve two masters.

Got it.

Great.

Thanks very much, Bob.

We'll go next to [Alex Crem], Barclays Capital.

Sorry to come back one more time to the whole pricing and market share discussion, but maybe asking this a little different, do you think this whole pricing trend that's been really a lot of changes here by all the exchanges, and ECN, will just continue, everybody is just tweaking pricing all the time?

Or do you think that you actually have an opportunity to maybe do some wholesale changes that make trends in terms of how businesses price?

Maybe lever some of your non-transaction businesses and your dominant market share right now to maybe lock clients in by I don't know, using feed caps or all you can eat trading, something along along those lines before things just seem to trickle down further?

I think you raise some very good points and everything that you're mentioning is things that we think about and consider and I would say we're intensely thinking about it as we go through this period of time.

I think the important point here is in this first quarter, we were disappointed by market share in the US transactions business.

So we're not saying anything different than that.

We clearly have to do a better job there.

But we're extremely proud of the overall performance of the corporation.

So again, in my mind, we're spending too much time on the US transaction business, we are a diversified business.

We delivered $0.48 per share of earnings.

We grew our business year on year, while obviously suffering a headwind in US transactions.

It just points to the strength of this business model and we are not the NASDAQ we were three years ago.

It's a different set of drivers that gets us to this result.

We're not here to minimize the importance of US transactions but we're not also here to say that's the only thing we should be talking about.

Okay.

Then to talk about something else, you mentioned recently that the most time you spent these days actually on the interest rate swaps opportunity and I don't know how much there is to say yet but talking to some dealers out there it seems like the one that already had a grasp on the business which is LCH actually does a lot of business already with the dealers and when you think about the others that are looking to get into the business, it seems that they might have a match in terms of cross-margining with existing product set and so forth.

Where are you coming in and what kind of edge do you bring to the table that you can really have a value proposition here?

Sure.

One is we are happy with the progress that IDCG made in the first quarter.

This progress is obviously something that does not show up on any of the financial statements as of yet.

But let's understand very clearly that what we're offering to the marketplace is unique.

We're bringing to the marketplace an all to all clearing model that will essentially, if you read some of the publicity that came out yesterday, will allow a broader participation in this market.

I think it will help mitigate risk in this market and it will fundamentally help this market grow.

So it's a unique product offering at this point in time.

It's one that its logic I think is compelling to certainly GSEs, to the natural buy side and to a large part of the dealer community and it offers as part of this model advantages that you cannot get in other environments where we have certainly segregation and margin advantages.

So we're working hard at it right now.

We understand, we're trying to change the world.

We understand that there are other efforts to do different things, but we try to say they're similar but we're having fun with it and as I said we made tremendous progress in the first quarter and we hope to continue with it in the second quarter.

And then just a very quick one for David.

I notice on the market services side, I think some line items shifted a little bit.

Can you just talk about what you guys did there in terms of restatements?

Yes.

We did -- we moved $11 million from other market services.

And that went into, just to give the geography on it, market technology, $3 million went there, that's due to the -- some technology contracts we had with [Sinra], access services took up 3 which would be primarily related to the European access services.

European listing fees was 2.

Corporate services was 1.

And then there were some other ones of about $2 million.

Very good.

Thank you.

We'll go next to Mike Vinciquerra with BMO Capital Markets.

Thank you.

Good morning.

Bob, you mentioned the access services now being a third of your US cash business, essentially.

Can you talk a little bit more about the continued growth there, what other types of clients still haven't co-located with you at this point and is that a business that's kind of a high fixed cost, low incremental cost type of business?

First is that we have pent-up demand.

We have demand greatly exceeding supply at this point in time so we are working very hard to increase the supply.

We expect that we'll have a lot more capacity coming on-stream in July, following through the rest of the year.

So we do expect some healthy revenue growth in that business in the second half of the year.

I think the profitability of that business is relatively consistent.

It doesn't descale, nor does it scale.

It is what it is.

So we're very pleased with how we're running it and the margins we're getting from it, but we don't see benefits of scale.

Okay.

And your comments are for both Europe and the US?

Well, it's primarily here in the US.

And one of the exciting growth areas we'll have in 2010 as we introduce the INET platform in the Nordics in the fourth quarter, we will for the first time offer colocation services there and we have data center capacity.

We have supply available.

So when you look at our opportunities into 2010, you see that in the Nordics we expect that to be a driver of growth for us in that you'll have increased velocity as a new set of players are able to transact in that market as we have the platform they want to trade on and we have central counterparty clearing which will greatly reduce the post trade cost.

So we have a triple win.

We'll have a win on the clearing side with our interest in EMCF, a minority interest in EMCF.

We'll have increased velocity of the trading and we'll be able to offer access services of co-lo and connectivity.

So wonderful opportunities for us.

Excellent.

Okay.

And then just one question for David.

David, where do the Nord Pool revenues shake out in your revenue detail page?

Where are they included?

They would be in European derivatives.

Very good.

Okay.

That's all I needed.

Thank you.

We'll go next to Niamh Alexander, KBW.

If I could shift over to the issuer services, we started to see some very, very early activity in IPOs and the core secondaries picking up as well.

How are you conversations with issuers going?

How do you think about NASDAQ's competitive positioning, especially in the US now, maybe even versus a year ago?

Well, I think our positioning in the issuer services increases or improves on a weekly or monthly basis.

I think we're getting to a point where we can fairly compete for the vast majority of issues or companies that are listed on competing exchanges and that's dramatically different than three years ago and that's all we ask for.

If we have a fair chance to compete then the odds that we win are quite strong.

In terms of the conversations with issuers, are you getting a sense that you're expecting to see a pick up in filings, are your conversations picked up recently?

I think the point I would direct you to is the fact that we have 98 companies on the backlog.

People do not file with the SEC to go public because they've got nothing else to do.

It's a laborious task.

It means that they have a fundamental belief in their business model and are looking for a window to open.

We're here obviously hoping for some parting of the clouds as we march on in the year and these companies are ready to go.

Okay.

Fair enough.

Thanks, Bob.

And then I guess with respect to the issuer services and I know you're kind of frustrated that we keep coming back to cash equities because it is only one part of your business.

From our perspective it's the part where we've just seen more extreme price pressure recently and some market share declines.

So how do you view the market share of the trading with respect to the listings in the issuer services businesses?

Is there a level of market share where you feel like it might hurt the competitiveness there, there's a level of market share where you would rather not get to?

Well, as I've said in previous calls, it's our job to make sure we're balancing market share against profitability.

Right now, we are not comfortable with our market share performance and it's our job to address it.

Okay.

Thanks.

And then if I could just follow back on Howard's question earlier on acquisitions.

You're fairly broadly diversified.

Maybe help me understand what product areas might be of interest to you, kind of inorganic, because I know you're already kind of looking at the clearing initiative on an organic basis.

What should we think about there?

I can't be too precise with this, as you might guess, but I would say what I've said before.

Our acquisition discipline is well developed here.

First, if we do a transaction, it has to be something that leverages the mother ship, has to be strategically significant.

We always talk about one bowling pin to the left or right.

So you'll not see us do something that comes out out of left field.

It has to leverage.

It also then has to deliver results to our shareholders where we want it to accrete within one year of closing of the transaction.

And as we've said for a larger transaction, we might wait a little bit longer, but if you wait too much longer, implicit in that is some you view of the future, which we know we don't really have a consider crystal ball.

So the quicker the accretion, the more sure we are about it.

So we have a great strategy team led by Adena Friedman.

We're aware of all the different assets on a global basis.

We have a viewpoint of the attractiveness of these assets to NASDAQ OMX either today, tomorrow or sometime in the future and that guides us through the day.

Okay.

Thanks for taking my questions.

We'll go next to Ed Ditmire, Fox-Pitt Kelton.

Hey, guys, I had one question on equity clearing and then I wanted to move on to US options.

Can you give an update on what's going on in the US equity clearing initiative?

Yes, I can.

One is we have been a direct beneficiary of our announcement of our move into clearing and as the largest single customer of DTCC, we welcome the price decreases that they've given to us and that certainly has helped us in this quarter and in quarters in 2008.

That being said, we're in active dialogue with the commission, with respect to a clearing model that we'll be bringing to the marketplace which I think has some unique advantages and some clear differentiators to how things are processed today and as soon as we get further along with the commission, we'll shed more light on that and I would say our development team is hard at work on this effort right now.

Okay.

And then can you talk about some of the things that are driving the good growth in US option share?

Yes.

One, we're -- as you know, we're situated like we are in equities now on basically both sides of the philosophical divide.

So with our Philadelphia options market, we have a dealer centric model that is, I think more attuned to the customer requirements of that model and I think it's been very careful execution of the business plan that has allowed that organization to grow its share.

So led by Adam Nunez and Todd Whitman, we've done incredibly well.

What's exciting is that as we complete the migration to the new system, we do have a number of initiatives that we've kept on the shelf, waiting for the new system to come into place.

So you'll see from us in the months after the conversion a number of different steps to help increase that market share that much further.

Now, on the other side of the aisle with NOM, we are pleased with the fact that we made tremendous progress in the quarter.

We certainly have a belief that a price time model will have an increasing share in the options marketplace, especially in the pending issues and we're happy to be positioned there.

We're happy with the growth and we expect that to continue to come.

We also benefited by the fact that you have basic organic growth in the segment and we're pleased to ride that wave.

Okay.

Thank you.

We'll go next to [Dustin Shack], [Rose and Black Securities].

Good morning, guys, thanks for taking my questions.

I was disconnected briefly.

I apologize if any of this was asked in advance.

I'm wondering on the M&A front it seems like you guys are challenged right now on the top line with some of the core businesses.

And a lot of the new initiatives are long-term in nature and given your outstanding track record in identifying and integrating acquisitions, can we expect you guys to return to or consider returning to the M&A market any time soon?

Well, we covered that but it's a topic of internal fascination.

I would say this, Dustin.

You can't predict M&A activity.

It's episodic.

It's our job to understand the different assets that are available on a global basis and have some preconceived knowledge of whether or not they are, one, strategically significant to us and if there's a transaction that can be done that accretes to our shareholders in a reasonable period of time.

So that's the radar we use as we go through the waters here and that's probably all I can say.

Sure.

Understood.

Sorry for repeating that.

The other thing goes back to your response to the question about colocation services.

I'm curious, you mentioned that there's much greater demand than supply right now and you're working to increase supply.

Given the nature of folks who ask for that type of service that they're very high frequency in nature, what might that mean for volumes tore the rest of the year?

Because clearly we're in a position now where volumes are a lot higher so far this year.

The increases year on year are not what most people would have expected last year and the worry is that the comps get more difficult in the second half of the year.

Any thoughts you have on that front would be appreciated.

Well, certainly the comps in the second half of the year are tough.

But I would say this.

I mean, we failed to execute properly in that we did not anticipate really remarkable demand for colocation services.

So as I meet our customers today, that's generally the first thing they ask for is we need more space in your data center.

We've been on it in an aggressive way for the last number of months and as I said, we have increased capacity coming on in July and that capacity increase will continue through the balance of the year into 2010.

So hopefully we'll start meeting some of that demand.

The interesting exciting thing is as you put this capacity in, beyond the direct revenue increase from colo, which we do very profitably what does that mean to transaction volume?

I would say this.

It's not going to hurt it.

We're not going to predict how much it's going to grow but it will certainly be a benefit.

We'll go next to [Shane Fenimore] [Manique Partners].

Shane, how are you?

Fine.

Can you just explain to me again what have been the drivers that have allowed you to take your market share in the Nordic market high relative to the competitors in the other European countries?

Yes.

That's a great question and one we're very happy to answer, Shane.

I think led by, (inaudible), the team has done a remarkable job listening to the customers.

We have come up with I think creative pricing which represented a net reduction to them but still allowed us to operate very profitably.

So it's, again, at the end of the day, focus on the customers, making sure you understand what they're asking for and delivering that.

Okay.

Thank you.

We'll go next to Alex Crem, Barclays Capital.

Thank you.

Just a couple of quick follow-ups.

You might have answered some of those already.

On the cost side, did you actually talk about how much was merger synergies and related or if there was actually a component this quarter of tightening the belt in this environment and if that -- or if all of what we've seen is basically persistent, ex any sort of new initiatives.

I didn't break it out.

I think that the -- but clearly, the drop in our expenses comes from both, it comes from continuing to drive and deliver on the efficiencies that we are -- that we get from the acquisitions and from the successful implementation of those.

But a lot of it also comes from just general good cost control.

All right.

And then just lastly, on the M&A front, again, not to get too specific but there's certainly some regional smaller exchanges in Europe, maybe in the Eastern European countries for example.

How do you view those exchanges going forward?

Is this something that's actually an opportunity because maybe they have more protective markets, even because the MTS might not be as interested in those smaller markets and there's actually an opportunity to align yourself with them or what's going to happen to those?

Well, I would say possibly it's an opportunity but possibly it's not.

We don't know.

But as I've said in this call and it's about as far as I can go, it's our job as NASDAQ OMX to understand the different assets, the different institutions that are out there and have a point of view before any asset would come into play.

And so we do have our point of view.

We're not going to share it on this call.

But we know what's going on in our space on a global basis.

All right.

Thanks for taking the follow-ups.

We'll go next to [Chris Allen] Pali Capital.

Good morning, guys.

Thanks for taking my question.

Was just wondering if you could comment on any potential regulatory change maybe coming either in the US or over in Europe, obviously there's a lot of discussion on short selling, some of the major risk there seems to have abated.

Just any commentary on how to think about new regulation, how it might impact any of your businesses going forward?

Well, when you look at the cash equity market on a global basis and the list of derivatives market, they are regulated and you can argue the wellness of the regulation but they are regulated.

So when you see the reregulations going to develop on a global basis, it's going to be primarily focused on systemic risk and the over-the-counter derivatives marketplace.

So we clearly see opportunity in the developing landscape and we have staked our claim to the new world that will develop through our IDCG effort and as I said we're very pleased with the progress we've made in the first quarter and that progress continues in the second.

Great.

Thanks a lot, guys.

We'll go flex to Dan Fannon with Jefferies.

Good morning.

Can you guys address the visibility within the technology side, how much of that you kind of think is subscription based and how we think about that going forward?

Are you speaking to the Market technology business?

Correct.

Okay.

I'll let Magnus answer that question.

Hey and good morning.

I think you should see that part as we normally go forward and as we also disclosed, it's three different kind of revenues.

It's the license and support business, it's the project business and it's what we normally refer to, other.

And when you look into that, you should see that the support and also some of the projects is very stable and comes in on a very regular basis.

And that's why we also have less shift quarter on quarter on that revenue.

And over time, we're also shifting over to US GAAP accounting for it, you will see even less changes, hopefully stable growth.

So the long answer is probably -- the shorter answer is that it's very stable revenues coming out of that business.

Is there any -- when you think about the pipeline for new licenses or new transactions, is that something that's more later on or the dialogue there is -- there isn't I should say a lot of new RFPs or action there today?

Two parts of it, I think we have, as Bob mentioned, we have an interesting pipeline coming up for that business which we're working with.

We had a very positive announcement earlier this morning where TOCOM, which is the first non-Japanese technology platform going live in Japan with our technology, they went live Japanese yesterday.

Which is something we're very proud of.

When you look into what we do, seeing a contract on the technology side, think about it as a five-year contract time so when you add that value to it you should see it over five years, that's the importance of seeing why it's so stable.

The one thing I would add is, and I think I mentioned this previously, we signed a Memorandum of Understanding with Osaka and I have been a critic of exchanges signing these, meeting those MOUs but I would direct you to the fact that this is a meaningful one and we expect it to result in a very long and I think fruitful partnership between us and the Osaka Exchange.

This is David here.

If some of that question is prompted by the decline in revenues from Q4, just obviously there are foreign currency impacts, but one of the things we had last year was revenues coming in from Nord Pool, but following the acquisition of that obviously we don't get the benefit of that technology revenue but we get the benefit of the revenue from Nord Pool now owning it but that obviously appeared in other parts of the income statement.

Great.

Thank you.

And with no further questions in the queue I would like to turn the conference back over to our speakers for any additional or closing remarks.

I don't have any closing remarks beyond the fact that we had a very strong quarter in a challenging economic climate.

We're proud of it and I look forward to getting to your questions later in the day.

And also to reconvening in three months' time.

So thank you.

This concludes today's conference.

We appreciate your participation.

You may now disconnect.