納斯達克交易所 (NDAQ) 2009 Q2 法說會逐字稿

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

Today's conference is being recorded.

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

Vincent Palmiere.

Please go ahead, sir.

Thank you, operator and thanks, everyone for joining us this morning to discuss our second quarter 2009 earnings results.

Joining me are Bob Greifeld, our CEO, David Warren, our CFO, and Ed Knight, our General Counsel.

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

If you haven't done so already, the--- you can access the results and the presentation on our IR Web site at www.nasdaqomx.com.

We intend to use the website as a means of disclosing material, non-public information, and for complying with disclosure obligations under the SEC regulation FD, and these disclosures will be included under the Events and Presentation section of the site.

If you have any questions after the call you can give me a call at 212-401-8742.

Before we begin I'd like to remind you that certain statements in the prepared presentation and during the subsequent Q&A 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-- might differ materially from those projected in these forward-looking statements.

Information concerning factors that could cause actual results to differ from the forward-looking statements is contained in our Press Release and in our periodic reports filed with the SEC.

And with that I'll turn call over to Bob.

Thank you, Vince, and thank you, everybody for joining us this morning to discuss our second quarter 2009 results.

During my prepared comments today, I'd like to take a few minutes to highlight some key developments as well as review the many growth opportunities that we have.

After I'm done I'll turn the call over to David Warren, who in his last appearance as our CFO, will walk you through the financial results in more detail.

First I'm pleased to report that NASDAQ OMX delivered another solid quarter in a tough economic environment.

On a nonGAAP basis, we reported diluted earnings per share of $0.47 and improved our operating margins to 46%, up 40% in the year ago period-- from 40% in the year ago period.

During the quarter we also generated strong cash flow allowing us to reduce our debt obligations and lower our net debt position.

This alone speaks to the fact that we continue to execute our long stated goal of achieving operating efficiencies and reducing leverage.

When I spoke to you during the fourth quarter 2008 call in February, I told you that we had an ambitious plan that contained more initiatives than at any time during my tenure.

Let me begin my comments today with a review of those organic growth opportunities, or green chutes, and the remarkable progress we've achieved in the last six months.

Starting with the Boston Stock Exchange now known as BX.

Earlier this year we launched a second cash equities market called BX.

Launching this market was an efficient use of our existing technology and network infrastructure.

It provided us with pricing flexibility previously unavailable.

The success of this market is unparalleled as it captured 2.5% market share while being the fastest new U.S.

cash equities market to reach 200 million shares of match volume per day.

It achieved this in 124 days after launch.

The next best performing market reached 200 million shares of match volume in 235 days.

And in a development earlier this week, we announced that we will shift our pricing BX to a positive net capture rate starting September 1 thus providing the opportunity for revenue improvement in the fourth quarter.

With respect to IDCG, as our interest rate swap clearing and settlement sub, IDCG announced that BNY Mellon made a strategic minority investment in the firm representing another positive step forward in the development of this business.

First, BNY brings to us a really unique background as a provider of innovative collateral management services.

They will allow the customers of IDCG the ability to use their capital resources more efficiently by responding to the collateral demands of multiple venues.

Second, BNY will allow IDCG to expand its list of acceptable forms of initial margin by directly providing it clearing houses with market access for converting such assets on deposit.

These assets held in custody of BNY and pledged through IDCG could be readily converted to cash in the case of a default.

Having this service completely in-house with an equity partner managing the process allows the clearing house increased flexibility in margin management, exactly the types of services that legislators such as Barney Frank and Colin Peterson called for when they said that regulators should "authorize the use of noncash collateral to satisfy margin requirements." And finally BNY has a significant customer base with interest rate exposure.

These customers will now be able to access IDCG services via the BNY relationship.

To provide a quantitative example of the traction that this business is gaining, we currently have a combination of 12 sell-side, buy-side and GSC market participants that have submitted deals worth nearly $0.5 trillion of notional value outstanding into our shadow clearing environment.

Shadow clearing allows them to test the functionality and the performance of our service with their own portfolios.

With respect to NOM, in our NASDAQ options market we recently revised our fee schedule removing the incentive pricing that we had in place for the second quarter.

Beginning on July 1, we increased the net capture from what was essentially zero to approximately $0.10 per contract with only a slight decline in our market share.

With respect to the Norwegian market share, during the second quarter we began trading SOX listed on Norway on the OMX market.

In this short time since we've launched we've been able to capture more than 3% of the value traded in Norwegian shares.

Moving to NASDAQ OMX commodities, we are planning to open the UK power market, a spot market whose core objective is to establish a transparent price for UK power.

We've been working closely with the large continental power producers, many of whom are already members of NASDAQ OMX commodities to launch this market following our selection by the EK futures and options association to deliver this vehicle for transparent pricing in the UK market.

In issuer services, our corporate services businesses continue to attract new customers representing one of the fastest growing areas of our business.

Revenues for Investor Relations Surveillance Newswire and Board Member Services grew 25% this year when compared to the same period last year.

An example of this success is our pinpoint market intelligence business which was started only one year ago and now has nearly 90 corporate clients.

When we include customers added through the acquisition of Bloom Partners in fourth quarter of 2008, our total number of corporate clients approaches 150 including 24 of the Fortune 500.

In London, after a slow start, our NASDAQ OMX Europe MPF began to gain traction during the months of June and July, achieving new highs in market share.

During July, we had nine of the ten best trading days in our short history, and by month end, our market share of pan-European markets stood just below the 1% threshold while market share of many of the widely traded index stocks such as the FTSE 100 and the CAX 40 exceeded 1.5% on many days.

I would now like to spend a few minutes reviewing some developments in our core businesses driven by the operational excellence of our business.

With respect to IPOs and switches, following on the many successes that we've realized over the past few years, RR Donnelley, yes they switched their listing over to NASDAQ from the NYSE, becoming the most recent company to make their listing decision after evaluating the total value we offer as a listing venue.

And today, we're pleased to welcome Avago Technologies to the family of NASDAQ OMX listed companies.

Avago is the leading designer, developer and supplier of semiconductor devices.

They begin trading today on NASDAQ.

They are opening the market today, and they represent the largest IPO in the U.S.

year-to-date.

Also during the quarter we had tremendous success welcoming five Chinese companies to NASDAQ, including the IPO of game developer changyu.com.

This brings the total number of Chinese companies listed on NASDAQ to 104, truly a great success.

Within our U.S.

options business, we reached new market share highs during the second quarter.

The combined market share of NASDAQ OMX PHLX and the NASDAQ options market averaged 21%, up 17% in the second quarter from the second quarter 2008.

Total volume traded on these markets grew 40% in the second quarter of 2009 when compared to the same period last year.

We recently completed the migration of PHLX through a INET platform and now have both the NASDAQ options market and PHLX trading on one platform.

We completed this great effort in exactly one year through the great efforts of our technology staff.

We are proud also to mention that this was completed with practically no impact to our customers other than gaining the benefit of a faster and more scalable options platform.

During the first quarter call, I spoke to the growing demand from customers wanting to establish a presence in our data centers.

We have addressed this demand by furthering our strategic partnership with Verizon, our data center provider.

After a thorough review of the alternatives, we made the decision to lease instead of owning our data center space as it provides us with the best economic model to compete in a dynamic market.

With a payment of $35 million due early in 2010, it supports a new long-term lease facility where we will double our capacity within six months and quadrupole it by the end of next year.

Our lease also provides us with the ability to expand beyond that quadrupling of service if customer demand is there.

In the Nordics, we are taking steps to improve trading efficiencies and we plan to achieve this goal by making three modifications.

First, we are introducing centralized clearing for all cash equities using our partner CCP, EMCF, which becomes mandatory on October 9th with a second competitive CCP available in January 2010.

Second, we are migrating trading to our INET matching engine, which is scheduled to begin in November.

Following our migration of Nordic trading to our INET platform, in addition to our U.S.

options trading, we will have all cash equity volume in Europe and in the U.S.

trading on a single highly efficient and scalable platform.

And third, we are expanding our co-location business in the Nordics to allow customers simple and efficient access to our trading platform.

The broad reaching changes that we're making are designed to deliver a more liquid and efficient market, attracting new participants and higher trading volumes.

As we've said before, it will be a driver of our growth in 2010.

In our market technology business, we continue as the number one global trading technology provider, to improve the operations of that business, increasing margins and expanding our customer base through deals with markets such as the Polish Power Exchange, the Tokyo Commodity Exchange, the RACK Stock Exchange and the Swiss Exchange.

And our focus on efficiency is being realized, it's operating margins for the first six months of the year have grown to approximately 11% up from 4% in the year ago period.

With respect to our U.S.

market share, although the U.S.

cash equity market continues to be extremely competitive, we are pleased that our recent efforts have resulted in a stabilization of market share the NASDAQ market.

With respect to Flash Orders, the most important fact for this earnings call is that Flash Orders have been live since June, the volume executed as a result of flash functionality, is currently immaterial to the U.S.

transaction business, immaterial to NASDAQ OMX, and will be immaterial to the transaction business and NASDAQ OMX in the future.

We are engaged in discussions with our regulators and customers on this and other topics with respect to market structure and look forward to detailed discussions on this topic in the future.

And as I said we'll engage during this call as much as needed, but clearly this is an earnings call.

As we look back at the first half of the year, there have been many stories that have and continue to attract attention; however, despite all the noise, we remain true to the mission that we've outlined for you many times before.

And that is we're here to identify growth opportunities that lever our core strengths, we're here to drive operational efficiency through cost management and we're here to generate strong cash flow to reduce our net debt position.

I believe that this quarter results show that we remain on track to execute that plan.

Thank you, and I'll turn the call over for the last time to Mr.

Warren.

Thanks a lot, Bob good morning, everyone.

Thanks very much for joining us today.

Today, as Bob mentioned, we reported that net income for the second quarter on a GAAP basis was $69 million or $0.33 per share.

These GAAP results include the losses on sales of investments, certain merger-related expenses and other expenses and charges that are non-operational in nature.

So consistent with our prior calls, I will speak to our pro forma nonGAAP results from here on unless I note otherwise.

And in doing so, I want to call your attention to the schedules in our Press Release and to a PowerPoint presentation that's available on our Investor Relations Web site at ir.nasdaq.com.

In that presentation, if you happen to have it in front of you or up, the nonGAAP reconciliations can be found beginning on Slide 12.

Now as Bob highlighted our nonGAAP net income for the second quarter of 2009 was $99 million or 47%-- $0.47 per diluted share, which was in line with our results from the prior year quarter, but importantly operating margins did increase to 46% up from 40% last year.

A couple of things that I would mention in terms of the items that we excluded in terms of computing nonGAAP.

We made-- we sold two investments during the quarter.

We sold our interest equity, interest in Orc Software and we sold our minority interest in the Oslo Bors, these are businesses that really are non-core to our ongoing operations.

Those losses were $24 million pre-tax, so those plus other exclusions get us to the nonGAAP number of $0.47.

Our current quarter results are also impacted by changing foreign currency rates.

Slide 10 of the PowerPoint earnings presentation contains the details.

But to summarize, when compared to the second quarter of 2008, the stronger dollar resulted in a $0.04 per share negative impact on our second quarter results in 2009.

However when we compare to the first quarter of 2009 of this year, a slightly weaker dollar resulted in a $0.01 per share positive impact to our Q2 2009 EPS.

Now to highlight other important points for the quarter, net exchange revenues were $367 million, a decrease of $53 million or 13% year-over-year.

Of this decline, approximately $33 million or 62% of the variance is related to changes in the exchange rates of various currencies as compared to the dollar.

Total expenses on a nonGAAP basis were $199 million representing a decline of $52 million or 21% from the $251 million in pro forma nonGAAP expenses for the second quarter of last year.

The primary driver of our expense reductions are synergies resulting from the successful integrations of OMX and PHLX.

And also contributing to the expense decline is the favorable impact of FX, which had the effect of reducing operating expenses by $22 million in the second quarter of this year when compared to the prior year quarter.

Compared to the first quarter of this year, total expenses on a nonGAAP basis increased $5 million less than 3% due to compensation accruals and an unfavorable FX impact which were partially offset by operating expense reductions.

Net interest expense for the quarter was $23 million, largely unchanged from both the prior and prior year quarters.

Interest income has declined as short-term rates have continued to decline; however, interest expense has also benefited as we reduced our total debt outstanding and continue to benefit from a very favorable LIBOR plus 200 basis point interest rate on the bank debt we secured in 2007.

And finally on the income statement, the reported effective tax rate for the second quarter was 40%.

Second quarter earnings included non-recurring adjustments such as the losses on the sales of our investments in Orc and Oslo, as I mentioned.

These losses are non-deductible for tax purposes thus causing a significant increase to our effective tax rate.

If I normalize those, the Q2 2009 effective tax rate was 33% which was in line with the prior quarter.

Now, turning briefly to the balance sheet.

Cash, cash equivalents and financial investments at quarter end were approximately $857 million.

Of this amount, approximately $363 million is reserved for regulatory requirements.

Cash flow from operations was approximately $224 million for the first six months of this year.

Our total debt obligations at the end of the quarter were $2.315 billion reflecting a decline of $209 million from the end of 2008.

Consistent with our plan to pay down our LIBOR based debt during the second quarter of 2009, we paid $56 million of that debt, bringing us to a total repayment of $113 million of this debt in 2009 to date.

Also during the quarter, we reduced the principal amount of our 2.5% convertible senior notes by $23 million bringing the total year-to-date reduction to $47 million.

And finally, we paid down $63 million net of FX in debt obligations related to a Nord Pool vendor note assumed in connection with our acquisition of certain businesses of Nord Pool last year.

Now, looking forward.

We are affirming our 2009 full year expense guidance and 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 expenses.

Also included in these figures are approximately $40 million in spending for new initiatives.

Now I've been doing these calls long enough with all of you to anticipate that you might be thinking that based on our spending to date, full year spending might likely be below our guidance range.

Well, I'll just say this and certainly take more questions if you have them.

Obviously we will continue to stay focused on expenses.

However in affirming our expense guidance today, I am very mindful of the sharp decline in the dollar since the beginning of the year and the continued unfavorable impacts this could have on expenses for the second half of the year.

I know I mentioned this risk during our Q1 call and I remain concerned.

So finally a few final words from me on this, my last earnings call as CFO of NASDAQ OMX.

Certainly it has been quite a ride.

When I started here we were still part of the NASD, the NASD wasn't even (inaudible) yet.

Now we are a global Company that has made significant progress and has truly a fantastic potential going forward.

I have definitely enjoyed getting to know you and the friendships that we've developed and I certainly have appreciated your support and your very good questions over the years.

I am very pleased that Adena Friedman will be stepping in as our new CFO.

She is very knowledgeable in the business, has been a very active partner with me in all the acquisitions that we have done and has been working very closely with me really since we announced this, my decision back in the beginning of the year on our transition and that has been going very very well.

So, as for me, I know off surface again somewhere, someplace, and I hope that our paths will cross again but for now, it's so long.

Well David, they still have questions for you.

You're not going to get away easy.

I was hoping with that statement--

Yes.

They would continue to--

Be kind.

All right, good.

So we're-- operator, we're ready for questions.

Thank you.

(Operator Instructions) And we'll go first to Dan Fannon with Jefferies.

Please go ahead, sir.

Good morning.

How we doing today?

Good, thank you.

In terms of the new initiatives and revenue opportunities, Bob you obviously outlined a lot going on.

Can you highlight what you think is the greatest or what you think is the best opportunity in the short-term?

And then really where you think your positioned or where you're spending most of your efforts and time at this point?

Well the first thing I would say Dan is we love all our children and we love them all equally, and I think it is remarkable the progress we've made in the last six months.

I would say in terms of sheer revenue opportunity, it would be IDCG in terms of shortness of driving the revenue number.

I think the pricing we put in place for BX is clearly going to impact us in the short term.

And as I mentioned during the call, the NOM pricing went in place already, and that has helped us as we look at the third quarter.

So that's how I'd break it down.

Okay and just in terms of the IDCG I mean investment, I mean how actively are you guys out looking to sign up additional partners and really what has been the level of interest?

You kind of gave a few numbers in terms of people you've signed up, but I assume that's an ongoing process?

That it is.

And it's a big effort to change the world and it doesn't happen overnight.

I would say that the tides of change work in our favor, but again, it's a difficult slog.

We're working hard on it.

We are spending significant time on it.

The management team at IDCG is superb.

They come from the industry, they know exactly what they have to do to move this world and so we're optimistic.

The other thing I would say again in terms of making sure that, I love all the children here, when you look at it business by business, there are great opportunities in each one of them, so I really shouldn't single out any of them.

For example, our Norwegian market 3% in a couple scant months we think is remarkable.

We have a lot of new participants lined up ready to come in.

I think once the summer holiday is over, our co-lo services we will double the capacity in and around the end of the year but we have incremental capacity coming on onstream right now.

So as I said in the last call, we had too much supply-- too much demand, not enough supply.

We're back to a traditional supply/demand equation so that will certainly drive our revenue on an incremental basis as time goes on.

Corporate services 25% year-on-year growth.

I think corporations are having a difficult tim,e so in light of the economic conditions, that's an outstanding performance and we see that growth continuing as we go further in the year.

NASDAQ OMX commodities, with respect to UK power, is a large opportunity for us.

We don't see it being material in 2009 but have great optimism for it in 2010.

Great.

Thank you.

Thank you.

(Operator Instructions) We'll go next to Roger Freeman with Barclays Capital.

Hi, good morning.

How we doing there, Roger?

Good.

David you forgot to mention that when you started NASDAQ was still trading on a pink sheet so you've come a pretty long way.

Roger I was leaving, I was leaving that little detail for you to remind me of, okay?

Well regardless, I hope you get some of the Obama money for your alternative energy pursuits.

All right, on to the fun stuff.

Okay.

So I've got a question on Boston.

So you got up to about 2% market share with some pretty attractive pricing.

Now you're going to what's economically more favorable to you.

Can you just sort of talk around the logic at sort of 2%?

That seems like a pretty low number.

Do you have the critical mass there to not lose-- have that reversed ultimately?

Yes, and we went as high as 250 million shares in a day and as I said in my prepared remarks, it was remarkable how quickly we got to 200.

So we have been in close coordination with our customers so we're comfortable that Boston under this positive capture regime will continue to thrive and it will represent a win-win for our customers and for us.

So it's a considered decision, it's the right time to do it.

And it was interesting in talking to our customers they said they preferred us not to make incremental changes to the pricing but they wanted to make us the one price that would hold for a while so they could have it solidified into their routing engines and we respected that input.

So the price move in September clearly represents close collaboration with our customers.

We have as I said in my prepared remarks kind of a good example of how it can work in that NOM went to a, from a slightly positive capture to a reasonably positive capture in July and we retained about 80% of the market share, so we were very happy with that transformation.

Okay, great.

And then I guess my second question, I don't know, is Eric Noll there, because we haven't had a chance to hear from him.

But I guess what I'd be interested in is Chris was sort of your pricing guru before.

I'm curious how Eric is looking at the pricing environment and cash equities in general and any changes he thinks are necessary.

Right.

Well one is Eric is out with customers.

We have him doing very productive work, not to mean that this isn't productive, but he's out on the road.

But certainly Eric brings a different dimension to the Management team here and he's a vocal individual who will, I think, contribute greatly to our pricing discussions.

It's important to recognize that the pricing here goes through iterations, there's many people involved with the discussions before a final decision is made, but Eric will put his unique stamp on it in the time to come.

Okay, all right, thanks and good luck, David.

Thank you.

We'll go next to Rich Repetto with Sandler O'Neill.

Please go ahead, sir.

Yes, good morning, guys.

How you doing, Rich?

Doing good.

I guess in all due respect to David's last call and his retirement, the direct question, are you sand bagging the expenses here again?

Because you-- so let's focus on the expenses more seriously though.

If you get savings from the consolidation of the technology platforms coming in the back half if, you're integrating both OMX and PHLX, so before you retire, David, why aren't we seeing the run rate, because I know you're going to invest in EMCF as well as IDCG?

Well you-- I think you've framed the answer right there.

First of all on our full year expense guidance we-- the consolidation of the platforms both with respect to the benefit we get on PHLX and some small small benefit perhaps on the migration to the Nordic platforms, all that was cooked in, none of that was part of our full year spending analysis.

And we also had $40 million of investments which ramp up as the year goes on as opposed to flat-- as opposed to be a steady state.

But what I'm just really concerned about Rich is the dollar.

I mean, it really has bounced around a lot both with respect to SEC as well as to the euro and to the pound, and if you could tell me where you think that we would be in terms of those relationships, I mean I could tell you.

I mean I think as I said we'll hold the line on spending so we can continue to find efficiencies but those could easily be offset if the dollar continues to weaken.

I mean it's weakened so much already just since the end of the quarter.

It's a conservatism around the currency risk more than anything else.

Got it.

I'm really only teasing, David has done a great job managing the expenses.

So in other words you couldn't find anything to come back with on that answer, right?

Well, I still want to know where those savings are coming from but anyway.

So moving on to the subject that we really aren't supposed to talk about but we need to is, Bob, in your letter to the SEC, it went beyond Flash Orders.

In fact I have the letter right here, it talked about internalized orders, enhanced liquidity providers, block talk and dark pools.

So I guess the question is, why-- just your thinking behind opening up sort of Pandora's Box to these other issues other than the Flash, just trying to see what your rationale was there?

Well, the first point, we wanted to make and hopefully we made it, is that Flash Orders are a form of a dark liquidity in the market, and we can certainly debate the merits or demerits of Flash but it should not be taken in isolation.

As we go into a period of time will it be renewed market structure discussions, it'll be Reg NMS 2, we have to make sure that we take a comprehensive look at what's transpiring in the market.

Okay.

Fair enough.

I'll leave it at that.

Thanks, guys and good luck, David.

Thank you Rich.

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

Please go ahead.

Thank you, good morning.

And David just so you know we can golf almost year around down here in Atlanta so just keep that in mind if you ever travel at all.

But at any rate, I want to ask, you're doing some interesting stuff, Bob, in your MTF pricing.

I noticed that you guys are going to be routing to the LSC for an all-in charge of 30 basis points, which if I'm not mistaken, unless you're a really high volume player will mean that you guys are going to be taking a loss on those.

Can you talk about the strategy there in terms of driving more volume to the MTF and how long do you think you need to have this I'll call it inverted pricing to really gain some more traction?

Sure.

The first thing I would say if you've ever played golf with David you'd not want to do it again.

Maybe he'll make me look good, Bob you know.

Well I've never seen a person actually hit the ball at a 90-degree angle.

I didn't think it was possible.

But all that being said, when you think you got to-- can take all our initiatives in context and they all go through a different stage of evolution and we certainly feel that NOM and BX were at the stage of evolution where we went to a positive capture.

NOM did it first and we were pleased with results.

We believe we'll be pleased with the BX results.

But you can read into that pricing, I think you're correctly identifying it, that we don't believe that NURO it's at that stage of evolution so at this point in time, share is more important than capture.

We are business people, so we understand that is a short-term philosophy.

I think it's a valid short-term philosophy is the right approach at this particular point in time.

And then at some time in the future, hopefully the not too distant future, we can follow the lead of NOM and BX and go to a positive capture.

And just to follow-up on that if I look at LSC's pricing they have different tiers of course and if you trade enough you get down to 30 basis points.

Do you guys, as a router to them, do you actually get to participate in the tiers as you send more and more volume from your customers, should it be necessary?

Yes, we would and certainly that will be an advantage for us as we build scale.

But I would also point out, for our purposes and for all participants in the market, their tiering is different than what we have in the states.

In the states when you hit a tier, the benefit of the tier downs back to share number one.

Here it's a pure step function, so each tier stands by itself.

And I think that makes our overall pricing that much more attractive and as the market participants have been evaluating, the September 1 pricing of the LSC, they're coming to understand the attractiveness of our approach.

I would agree.

Thanks very much, guys.

Thanks David.

Thank you.

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

Please go ahead, sir.

Good morning, Bob, good morning, David.

Hello.

How are we doing?

Well, how are you?

Good.

Bob, my first question on the regulatory front there's continuing discussion on some movement of products between the CFTC and the SEC, just curious on your views on that and how you think about positioning the business for any potential movements along that way?

Well I'd start by saying that we're currently regulated by both the SEC and the CFTC, and I believe that we have very strong relationships with each of these regulatory bodies.

I think they respect the fact that NASDAQ takes with a high degree of seriousness its regulatory mission that we recognize our fundamental responsibilities as an SRL.

And in my tenure here at NASDAQ OMX, I am most proud of the fact that we've run this operation in a clean and pristine way and have never approached any line.

We take great pride in that.

So that being said, whichever way the geography settles out between the different agencies in a real sense, it does not matter that much to us.

We know how to work in both environments.

On a philosophical note, I've said publicly, that we should use this time of think with respect to regulatory structure to combine these two enterprises.

I think everybody realizes that if they were starting again, they would start with one enterprise, we could never start again but we're coming as close to that as we can.

So that is the position that we would advocate on a philosophical basis, on a pragmatic basis it doesn't impact us, our operation.

Great thanks, Bob.

And then, David given it's your last call I guess I'll ask one more time about capital management.

You've highlighted the Company's continuing efforts to pay down debt, the investment spending we know about.

You're still throwing off a good amount of free cash, so any thoughts on share repurchase and just laying the landscape of future acquisitions?

Well, I think at this point in time, our current focus, and we obviously have put I think the right amount of capital toward our data center expansion as well, but I think at this point in time as I've said before, we really do need to bring the debt, the outstanding debt down on the bank debt to a lower level so that we're able to strengthen our credit.

And also as I've said before, the covenants within that agreement, obviously we're benefiting from a very favorable interest rate, but there are some restrictions in that agreement with respect to how we could use cash for other purposes including a share repurchase.

So again, I think that the focus has been to get that debt paid down so that we would have the ability to be in a position to argue for the potential to use our cash in alternative ways as well.

Great.

And then just a quick housekeeping question, David, could you tell us the after-tax benefit of the interest impact at the convertible notes?

Do you have that run?

Well we can probably get it on this call.

Okay, thanks and, David congratulations and all the best.

Thank you very much.

Our next question is from Mike Carrier with Deutsche Bank.

Please go ahead, sir.

Thanks.

Just a quick question.

The core business when you look at the pressures that all the, at least the cash businesses and options businesses where you have on pricing and competition feeding with private firms, when you look at some of the new opportunities, everyone is looking at the over-the-counter market and you guys with the IDCG, I guess when you look at the other products that are out there and when you're talking to your potential clients, how do you see that playing out and what differentiates NASDAQ's approach?

And then probably more importantly, when you look at some of the economics from the clearing business recently, in the OTC Markets, the economics aren't that great, so is there a longer term transaction benefit as well that you see developing over the years?

Okay, that's a I think a wide ranging question.

Let me speak to IDCG.

First, I would again repeat the fact that we have $450 billion approaching $0.5 trillion in shadow clearing I think is remarkable progress.

Understand that we are endeavoring to change the world and you don't get complete progress in one meeting and you also then have to deal with technical issues for people to send your portfolios to do the shadow clearing.

So we have some motivated participants who want to see this work and we're running the shadow clearing service every day.

I think the economics on the clearing business for swaps is quite attractive, I've identified in this call that it's the largest revenue growth opportunity.

We have, and in previous times I identified it as a nine figure per year opportunity, so it's one we're excited about, we understand the challenges and we understand some of the interest, but we think we bring a unique product set to the market.

I think our relationship with Bank of New York is strategic and fundamental to our success so we're happy to have that one consummated.

With respect to other opportunities, when we spoke briefly about the UK power market understand the platform we're building upon is our strong success with what was known as Nord Pool in the Nordics where we have the technology, we have the clearing expertise in-house to extend that into the UK market.

At this point in time we're receiving broad encouragement support from what I call the naturals and then the financial players in the market, so it has all of the ingredients to be successful.

That market is roughly the size of the Nordic market, so we're excited about that.

And also excited about that is a launch pad for other efforts that we might endeavor to undertake in gas in/or carbon as we hook to these players.

So those building blocks are definitely in place, as I spoke to on the call.

The fact that we made great progress treating Norwegian shares in a really record period of time, we hit 5% in one day and we're over 3% on a regular basis, speaks to I think the strength of our offering.

That offering will be improved dramatically in the fourth quarter of 2009 as we convert to CCP and also into the INET platform.

I think the fact that we'll offer the pan-European CCP solution will make it that much more difficult for the individual participants in the Norwegian market to not engage with us in the trading of the Norwegian shares.

So we love our positioning there.

I mean I think the theme of this call is the organic growth efforts that we put in place are showing green chutes, and I definitely caution that green chutes doesn't mean they produce but certainly the early days are typically the hardest, and by all metrics that we have in place today, so far they are all working.

Okay, thanks.

And then, David on the tax rate, there's a lot of noise in the quarter and you gave the adjusted.

When you talk about the benefits going forward for the foreseeable future, is that the rest of the year or should that be through next year?

And then I guess just the $0.02 benefit this quarter, it doesn't look like it but there could be just noise that I don't see, but I'm just wondering is that included in that $0.47?

Yes, absolutely.

No we've included it in the calculation of EPS and then-- and expect that benefit is a benefit that goes on basically as a benefit that continues.

It's the foreseeable future, just keeps on going and it is a tax benefit that stays in place.

And as I-- as we said in the-- so it's really a permanent benefit and as we said in the release, we're just expecting a favorable response to the filing that we have made before the Swedish tax console and that's really to confirm that the interest is still deductible following that legislative change at the first of the year.

Okay.

That benefit will-- assuming that it's confirmed, that benefit continues.

Okay, thanks a lot.

We'll go next to David Grossman with Thomas Weisel.

Please go ahead, sir.

Sure.

Good morning, guys.

I apologize, I joined the call a little bit late, so I am sorry if this has been addressed.

But we've talked a lot about pricing on the call and I'm just curious it sounds like with NOM and with Boston we would expect some improvement perhaps in pricing, everything else being equal with where we are right now, in the second half of the year.

And I'm just curious how should we think about the U.S.

cash equities business on NASDAQ given kind of the various changes that have been made in the last several months?

Well, I agree with your first comment that clearly in the second half of the year both NOM and Boston will contribute positively, and relative to the performance in the first half of the year, will show strong economic growth to us.

With respect to the question on U.S.

cash equities, I think that it's not too difficult to discern what the future will look like because it will continue as it has for the last couple of years.

It's a competitive environment.

It represents I think a good environment for investors and we are competitive organization that will continue to adjust and make moves to improve our relative positioning in this marketplace.

We certainly are guided by profitability, not by market share, we're mindful of market share, we certainly want it to be at a level but we also want to deliver to our shareholders real economic returns.

Clearly, some of our competitors who are owned by broker dealers might not have the same motivation but we can't let that sway us from our fundamental mission.

I would also say that the broad operating theme that we have here at NASDAQ OMX, as I've said before, is to bring massive scale against extreme efficiency and you see us quarter-by-quarter making progress towards that.

The big announcement for this quarter is that the Philadelphia conversion to the INET platform is complete.

In many ways this is the most complex of our technical underpinnings.

We believe it was fundamentally more complex then our triple book integration with the INET, Brut and NASDAQ environment.

I think it's remarkable that this team completed that one year to the day after the closing of the Philadelphia acquisition.

So that now leaves us in a position where both NOM, BX, the main NASDAQ matching engine, NURO and PHLX are on a single platform.

As we said in this call it's our goal to move the Nordics to that single platform and that creates the lever effect that allows us to compete in a competitive world while delivering superior returns to our shareholders.

That's great, thanks for that.

And just expanding on your point about the options market, if I'm understanding it right, the pilots up to 300 or 400 stocks but it's been extended.

Do you have any thoughts on that and what the timing is that we would move kind of much more broadly in terms of expanding that into kind of the broader market?

I missed the latter part or the first part of your question.

Could you repeat that?

Sure.

In terms of the options pilot for trading at penny increments.

Right.

Well, we certainly see that penny increments in the option world is coming.

It's a fact of life, and it's our job to make sure that we thrive in both the PHLX environment and the NOM environment.

I think it represents opportunities for us and you'll see us introduce different capabilities in both platforms that'll allow us to I think gain share in the new environment.

Okay.

Thank you.

We'll go next to Rob Rutschow with CLSA.

Please go ahead, sir.

Hey, good morning.

How we doing today?

Good.

First question was on you mentioned the OMX technology margins have improved a little bit from I guess 4% to 11%.

What's driving that and what can you do to get that towards 20%?

Great question.

I think at the time of the merger, we announced that our goal was to drive this business to something approaching a 30% margin.

It remains our goal.

We clearly have made great progress and the progress will come.

Now, when we look at margin improvement in this business, there's multiple dimensions to it.

One, as we consolidate platforms, we clearly have the ability to reduce our expense base.

Now, that ability is mitigated somewhat by the fact that we have customer contracts and as we look at this business, unlike other businesses within NASDAQ, there clearly are customer contracts that can be detrimental to your financial health.

So we have several of those contracts and we're in the process of working through them, and as we work through them, our margin will obviously improve.

So we are executing operationally on both the technology side making sure that we consolidate platforms and run the platforms that we have in a focused and efficient way.

That is in what I say is the middle innings of a nine inning game so we've got work to do there.

And with respect to customer contracts that are not profitable, we're again probably in the middle innings of that and we'll be working that through.

So you'll see I think continued margin improvement in that business in the quarters to come.

Is it primarily-- I guess so the customer contracts would be more revenue creative as well?

And what are you doing to drive sort of more of their revenue growth going forward?

Well as I mentioned earlier in the call, we had really a great quarter and we had a great quarter in these difficult economic times.

So we're proud of the fact that TOCOM went live and the live event is significant for us because we want to have customers contracts.

We're aligned with our customers where there's a pay off for us and for them in going live.

So the fact that TOCOM went live in this quarter is a great economic outcome for us and we've mentioned the other transaction.

So market technology had a very strong quarter, the best certainly as the time we've come together.

And I would also state that the pipeline in market technology is stronger than certainly I've seen it.

The GENIUM product is resonating within the customer base, we have strong demand for it, so we are very optimistic about their prospects in the balance of 2009 and certainly into 2010.

If I could ask one more.

And separately on the power products, I'm moving into UK power, you mentioned looking at also gas and carbon.

Would that be more in the spot market or are you considering maybe getting into OTC or futures there?

And I'll drop off and say good luck, David, also.

Great.

All right, so that's your third question but there'll be no penalty.

Yes, so the answer is yes in that we'd be interested in both the spot and the future market.

I think our particular value-added is more in the future market.

But again in terms of how we run things here we always want to build upon a solid platform so we need to deliver in the UK power market.

We delivered in the Nordic power market, we need to deliver there.

We deliver from that point of view we built on a solid platform, and then, then and only then do we let our horizons expand, our vision expand.

Okay, thanks a lot.

We'll go next to Justin Schack with Rosenblatt Securities.

Good morning.

How we doing, Justin?

Very good, thanks.

You?

Pretty good.

Good, so just to follow-up I guess to Rich's question about the regulatory environment, how concerned are you with a lot of the noise that we've had recently about high frequency trading and whether the action on Flash, not only goes beyond that to look at the things that you cited in your letter, but also potentially high frequency trading.

And what kind of affect would any restrictions on that have on your business?

Well first let me make a very clear statement.

We have to recognize that we have Flash Orders dark pools are being wrongly conflated with high-volume algo trading.

And our position is very clear.

Electronic trading is the foundation of electronic markets.

I mean these electronic market makers they provide critical liquidity to us during both good markets and bad markets and their activities benefit all investors.

So in the fullness of time, I think they'll be recognized.

I think you see some of the printed press starting to be wise to that factor.

So the fact that people compete on speed in the marketplace is nothing new.

We want to have competitive markets.

We want people to compete on a number of dimensions and as I said these electronic market makers are critical and fundamental to modern market structure.

Great.

And just a quick follow-up on the European business, when we talked a little bit about the pricing there and accessing the LSC at a discounted rate.

Beyond that, I mean is that basically the weapon that you're going to try to use to gain some more traction there, because even though you've been doing a lot better in the last couple of months, NURO is still well behind some of the other MTFs and it feels like in the past couple weeks we might be reaching a tipping point where the MTFs are really starting to take away some substantial business there.

Yes.

Well, we're again measuring our progress very closely.

We're proud as we said to have nine of our top ten trading days in the last month, and we still are in a state of affairs where we have more people-- more participants wanting to hook up to us, so we believe very strongly that our future is in front of us in this marketplace and we're investing in the market.

And as I said to previous questions, we have a standard playbook, we'll invest as we have done with NOM and BX, and at a point in time it will be time to change, but we like the dynamics of the marketplace.

We're happy with our structure and our progress, we're glad to see ourselves approaching 1% of pan-European.

We're over 2% on FTSE 100, over 1.5% on CAX 40 on regular days here.

So good things are happening and a lot of good things are coming.

Thanks, Bob.

Thank you.

We have a follow-up question from Roger Freeman with Barclays Capital.

Please go ahead sir.

Oh, hi.

Yes I just wanted to come back on the IDCG--

Yes.

Offering.

So just-- can you just sort of maybe more specifically, I just want to understand what your angle is, so if you can kind of think about CME, you've got the potential to cross margin between interest rate, futures and swaps.

NYSEs sort of pitching this through cross margin in cash through DTCC and in derivatives on their platform.

So it sounds like your advantage is being able to put it noncash collateral, is that sort of the angle?

Well we certainly believe the relationship with BNY is fundamental to their success and their innovation-- innovative use of collateral management will give us a I think a competitive advantage, a real competitive advantage in the marketplace.

I would also definitely highlight that our product structure really works in a way that mirrors what happens in the over-the-counter world today.

So I think you'll see the users understand and appreciate that.

And, Roger I would definitely say to you that you don't have $0.5 trillion in a shadow clearing environment without a very strong interest from the user community.

It represents a fair degree of work for customers who get to that point in time.

So we are pleased with the progress of this venture at this stage of its development.

So I mean that's certainly encouraging and given discussions we've had with dealers it sounds like the decisions are very close to being made on actually platforms that are going to use live, so I would assume that we're going to see announcements from you probably within the next quarter?

We continue to work the mission here, Roger and we're not going to make any predictions in terms of announcements, but you knew that before you asked the question.

I did.

Thanks.

Okay.

One sec, I've got to answer Roger's-- Let me come back in, it's David.

Let me just quickly answer Howard's question, I'm assuming he's still on the line.

Howard obviously if you're not we'll follow-up with you, but I think you asked about the after tax gains on the buybacks of the converts.

To date, year-to-date it's $2.6 million is the after tax gain and that breaks out about $2.2 million in the first quarter and $400,000 in the second quarter, that's at a tax rate of 39.55% which is really our U.S.

tax rate.

And your mic's not live, so if you heard it you can't answer anyway.

All right good, so Vince, we're done with questions.

So just as a follow-- as a last comment, we've had a remarkable journey, David and I for the past six years.

If we could have thought of where we'd be today, we never would have thought we'd be here.

So David, your contributions have been unique, you'll be missed by not just the analysts but myself and we look forward to staying in touch as time goes on.

So thank you for your time today.

That does conclude today's conference.

Thank you for your participation.