納斯達克交易所 (NDAQ) 2009 Q3 法說會逐字稿

Good day everyone.

Welcome to the NASDAQ OMX Third Quarter 2009 earnings results Conference Call.

Today's conference is being recorded.

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

Vincent Palmiere.

Please go ahead sir.

Thank you Operator.

Good morning everyone and thank you for joining us today to discuss NASDAQ OMX's Third Quarter 2009 earnings results.

Joining me are Bob Greifeld, our CEO, Adena Friedman, our CFO and Ed Knight, our General Counsel.

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

You can access the results press release and presentation on our Investor Relations website 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 SEC regulation FD and these disclosures will be included under the events and presentations section of the website.

Before I turn call over to Bob, I want to remind you certain statements in the prepared presentation and during the subsequent Q & A period may relate to future events and expectations and as such constitute forward-looking statements within of the Private Securities Litigation of 1995.

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

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

Thank you, Vince and I thank everybody for joining us this morning to discuss our Third Quarter 2009 results.

I will take a few minutes to highlight some key accomplishments during the quarter and then update you on the progress of our organic growth initiatives.

Adena Friedman, our CFO, will walk you through the financial results in detail.

Today we reported net income of $60 million or $0.28 per diluted share; however on a non-GAAP basis, net income was $89 million or $0.42 per share.

These results were achieved with headwinds and our cash equity business from both a capture and volume point of view.

During the call today, I want to emphasize that we have taken actions to address these issues and as we exited the third quarter, we saw noticeable improvements in many of the drivers of our cash equity business.

Additionally, we made some changes to our trading fees that increases our capture rate which is intended to increase revenue by as much as $15 million assuming market share and volume constant with October levels in the Fourth Quarter.

Adena will walk you through the specifics of each change in more detail.

On another positive note, we do continue to see improvements in key market trends in all of our US and European marketplaces.

This quarter, we saw our US cash equity market share continue to improve and at 25% is nearing levels that we haven't seen since February.

Additionally, I've spoken with you before about how we were shifting the mix of our businesses by balancing our fee based businesses with trading services.

This shift can be seen in the growth of our access services business during the quarter, where for the first time access services was higher than our transaction revenue business.

We grew from $32 million to $36 million and we do anticipate additional growth in this business in the Fourth Quarter.

Within US equity options, the average daily volume matched by our systems is improving with October ADV at 2.8 million contracts up roughly 12% from the ADV of 2.5 million that was realized in July and August.

In Nordic cash equities, overall the market has realized a broad recovery with the OMX 30 index up 43% year-to-date.

In October, we registered the highest level of activity for the calendar year in both value traded and the number of trades, as value traded reached EUR56 million.

With the recent launch of CCP and the Nordics this past month, we will continue to drive growth while expecting increases in trading velocity, and during this activity we're pleased to report that all market share has remained around 85%.

This is the highest of any of the established European exchanges.

Finally in the Nordics, we are moving forward with the conversion of trading to the INET platform which we expect to complete in early December.

Turning to Nordic derivatives, volumes are also at the highest levels of the year reaching 12.9 million contracts up from an average of 10 million for the third quarter of 2009.

Growth from new fixed income contracts remains strong and we're continuing the steady migration of EDX contracts to a Nordic platform which is expected to be completed in the Fourth Quarter.

In our issuer business, we are beginning to have a real pick up of new listings as companies are returning to the public markets to raise capital.

The number of IPOs has increased as has the number of secondary listings.

IPOs grew to 10 in October, registering a total of 25 year-to-date and representing significant growth following the three IPOs during the first six months of 2009.

Overall new listings grew to 23 in October, registering a total of 99 year-to-date.

As many of you are aware, we continue to be highly successful with switches from markets that comprise the NYSE with seven in the third quarter alone, including are RR Donnalley, Mattel and Trimos.

Year-to-date we've captured 18 switches totaling 135 billion in global market cap with Vodafone being among the most recent.

Truly it's a milestone event when a Company with a Global Market cap over $100 billion switches to the NASDAQ Stock Market.

Our IPO wins and the success of our switch program are being driven by our corporate services program.

The value of which is increasingly the differentiating factor in Company listing decisions.

Within market technology, we continue to have a healthy pipeline of orders from new clients and from existing partners.

Our most recent partners include the Osaka securities exchange and the Kuwait Stock Exchange.

These are multi-year major contracts which will significantly drive the profitability of market technology in the quarters to come and we are continuing our discussions with BMMF regarding a possible technology cooperation agreement.

I'd like to turn my attention now to our new initiatives.

At BX, the second cash equity market that we launched earlier this year, market share and volume has continued to improve.

During the third quarter, BX's market share of US cash equities was 2.7%, up 1% from the Second Quarter of 2009.

Even more impressive than that is the fact that share continued to grow in October and averaged 3.7% with volume averaging 340 million shares per day.

This growth continued following our price change as of the beginning of September where we shifted our fees to a positive capture rate and this will have a positive impact on our Fourth Quarter revenue.

With respect to NASDAQ options market, we revised fees at the beginning of the Second Quarter increasing our average capture rate per contract from $0.01 to more than $0.10 per contract and we are pleased obviously to see our market share remain stable as we moved away from the incentive pricing structure that was in place during the Second Quarter.

Given the success of BX and NOM, they now have become core to our Business Operations and will be reported as such in the future quarters.

They no longer belong in the new initiatives column.

With respect to IDCG, our interest rate swap clearing and settlement sub, interest in this initiative continues to grow and we now have over 20 sell-side, buy side, and GSC market participants that have submitted deals worth over $850 billion, a notional value into our shadow clearing environment up from 450 billion in the Second Quarter.

As I stated previously, we believe this to be a nine figure revenue opportunity and during Adena's prepared remarks she will outline the size of the market.

On the regulatory front we are pleased with the passage of bills from the House Financial Services committee and the House Agricultural Committee and are thankful to Chairman Franks and Chairman Peterson for showing leadership as they shepherd the bills through the respective committees.

With respect to our efforts in Norway, in the quarter we were able to grow our share to 2.4% on Norwegian cash equities.

A major event occurs in November when we launch CCP for Norwegian Securities.

We believe this will provide members with the benefit of lower trading cost and should result in increased trading velocity.

With respect to our efforts in the UK power market, our planned launch is proceeding towards its November date.

This market initially will be a spot market whose objective is to establish a transparent price for UK Power.

We have strong industry support and are working with 19 firms to be on board at the launch date.

These firms include major power producers such as German based producers RWE and Eon, the French utility EDF, Scottish Power, and SSE, Scottish and Southern Energy, and all of those are among the big six in UK Power.

With respect to our London based NTF, we continue to grow market share as it recently reached more than 1.5% of pan-European market share, double the average share realized during the third quarter.

Our share of the 100 and the cash 40 routinely exceeds 2.25% market share.

We're clearly pleased with that progress.

Now as we look towards 2010, we obviously will be looking at new initiatives beyond what we have in the pipeline today.

We currently have three exchange licenses with NASDAQ, BX, and fill X, and there are two ways to leverage each of these assets either by creating a listings market or launching a trading venue.

With NASDAQ, we have crossed both.

We have BX in January, we successfully launched our BX trading market and last month we announced our plans to launch a BX listing venue.

Pending SEC approval, this market is designed for small companies that aspire to list on a regulated market.

With this new market we believe that we're filling a necessary need for well regulated listing venue for companies that otherwise would transfer to or remain on an unregulated or lightly regulated platform.

Finally with our fill X license we are launching a new trading platform and are excited to be leveraging our existing technology to introduce new innovations to the marketplace.

This market will be a price size priority market and we're working with the SEC to gain approval with the intention of launching it in the second half of 2010.

So, in conclusion, we feel very good about the progress of our existing businesses.

We feel quite pleased with the fact that we are gaining market share in our US cash equity business.

We see that each and every one of our core businesses is now experiencing some macroeconomic tailwinds which we're grateful for and we like our positioning.

With respect to our new initiatives, our track record is very strong.

We're proud to have witnessed a growth of NOM and BX, and we certainly have great hope and expectations for the initiatives I previously stated.

At this point I'll turn the call over to Adena.

Thanks very much Bob and good morning everyone.

Thanks for joining us today.

Today we reported that net income for the third quarter on a GAAP basis was $60 million or $0.28 per diluted share.

The GAAP results include a debt conversion charge, merger related expenses, and other expenses and charges that are non-operational in nature.

Excluding these items are non-GAAP net income for the third quarter was of 2009 was $89 million or $0.42 per diluted share.

This is a decrease when compared to pro forma non-GAAP net income of $108 million or $0.51 per diluted share for the third quarter of 2008.

A reconciliation of GAAP to non-GAAP results can be found in the attachment to our Press Release and in the presentation available on our website at ir.nasdaq.com

Throughout my remarks I will refer to several slides in the presentation so you may want to have it open to follow along.

Consistent with our prior calls, the remainder of my comments will address our non-GAAP results unless I note otherwise.

The GAAP to non-GAAP reconciliation can be found starting on Slide 17 of the presentation.

Since much of the detail regarding our results is included in the Press Release, I'll quickly highlight a few important points for the quarter before moving on to other developments.

Net exchange revenues were $349 million, a decrease of $62 million or 15% year-over-year.

Of this decline, approximately $14 million or 23% of the variance is related to changes in the exchange rates of the various currencies as compared to the US dollar.

The remainder of the decline is primarily due to fee reductions for US cash equity trading and lower matched share volume.

As Bob mentioned, our market share has been improving and we've also taken steps to address the decline in fees which I'll discuss in more detail later in my remarks.

Total expenses were $197 million representing a decline of $25 million or 11% from $222 million in the third quarter of 2008.

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

Also contributing to the expense decline is the favorable impact of FX, which has the effect of reducing operating expenses by $10 million in the third quarter of 2009 when compared to the Third Quarter last year.

For a more complete bridge of our expenses from Q3 '08 to Q3 '09 please refer to Slide 13 in the presentation.

Operating income was $152 million for the quarter with operating margins coming in at 44%.

Net interest expense in Q3 ,'09 was $23 million consistent with net interest expense for the third quarter of 2008 and the Second Quarter of 2009.

And finally on the Income Statement, the effective tax rate for Q3 2008 was 32%, slightly below our normalized rate of 33%.

Now turning briefly to the Balance Sheet, I would like to direct you to Slide 14 in the presentation.

Cash, cash equivalents and financial investments at quarter end were approximately $781 million.

Of this amount, approximately $405 million is a reserve for regulatory requirements down from $618 million at year-end 2008.

Year-to-date, cash flow from operations was approximately $219 million and year-to-date capital spending was $46 million of which $15 million came in the third quarter.

Our total debt obligations at the end of the quarter were $2.089 billion reflecting a decline in the total principal amount of our debt obligations of $452 million from 2008 year-end.

Consistent with our plan to reduce debt, we paid down $112 million of our term loan during the quarter bringing us to a total repayment of $225 million for 2009 year-to-date.

Also at the end of the Third Quarter, silver lake converted all of their 3.75% convertible notes into common equity reducing our outstanding debt obligations by $119 million.

As I think about what we have demonstrated to you through our actions in 2009, we continue to take prudent steps to manage our Balance Sheet.

Our progress is evidenced by the fact that we now have a very respectable net debt to LTM EBITDA ratio of 2.17 times which is consistent with other peers in the industry.

Now, looking forward, there are a number of recent developments that will result for the Fourth Quarter and I'll review these in detail to insure that you understand the impact to each of our financial statements.

As I mentioned earlier we've taken steps that we believe will have a positive impact on revenues in Q4 and on a going forward basis in the US cash equities business.

They include a change in our BX pricing at the beginning of September to move the capture rate from a negative net capture of $0.06 per hundred shares to a positive capture of $0.02 per hundred shares.

Since the positive capture rate was in place for only one month in the quarter, there will be a positive impact to revenues for Q4 and based on October activity levels, this will result in approximately $9 million of additional revenues over Q3.

Secondly, earlier this week on November 2nd, we introduced a revised fee structure for trading on NASDAQ.

The new rate raise that takes fee for high volume customers to $0.28 per hundred shares up from $0.27 while routing fees were increased to $0.29 from $0.26.

This reflects a modest change to fees introduced on July 1 and assuming volume and market share remain consistent with October levels, the expected two month impact is $3.5 million and full quarter net impact is approximately $5 million.

And in the third quarter we recognized revenue of $36 million in access services up $4 million from the Second Quarter of 2009.

This increase is primarily driven by revised fees that we introduced during the third quarter.

When combining the full quarter impact of the Q3 change with increased demand for co-location services, we expect access services revenues to continue to grow by $2 million to $3 million during the Fourth Quarter to approximately $38 million to $39 million.

In other parts of our business, we are also experiencing strong business metrics in the Fourth Quarter.

Specifically, in our market technology business we currently have nearly 100% of our Fourth Quarter revenues fully committed under contract and therefore we can expect revenues to be consistent with our Q3 performance.

Now turning to one of our growth initiatives, Bob referred to our investment in interest rate swaps market.

Slide 11 of the presentation contains specific industry information regarding the total size and average turnover in the market.

As of December 2008, it was estimated that the total notional all value of US dollar denominated interest rate swaps was $328 trillion.

Using April 2007 data, the most recent data that is available through the bank for international settlements website.

The average daily turnover is 0.44% of notional value.

If you assume that the average clearing fee per contract is $1 per side for every $100,000 in notional value, then $1 trillion in notional value cleared assuming average turnover yields total revenue of approximately $1.8 million per month.

When doing the math you can see why this opportunity has our interest, even as a small percentage of market share can yield significant revenue opportunity.

Now, turning to some divestitures that were recently announced.

We sold two businesses at the end of October.

Our Carpenter Moore Brokerage Insurance business and our UK Broker Services business.

These asset divestitures will not have a material impact on our bottom line in the Fourth Quarter; however, you should note that there will be a slight loss of revenue and offsetting expenses of approximately $7 million on a full quarter basis.

And finally let me touch on our expense guidance.

We're updating our 2009 full year expense guidance and now expect total operating expenses to be in the range of $840 million to $850 million.

Including in these figures are approximately $50 million of non-recurring expenses up from $30 million in our prior guidance.

Thus leading to recurring expenses of $790 million to $800 million for 2009.

This guidance reflects the partial quarter impact of the sale of Carpenter Moore and UK Broker Services.

Overall, we feel that we are finishing the year in a stronger position in our US trading business as well as in the Nordics with the transformation of the market structure and trading system and we continue to have tremendous performance in our Market Technology business.

As I wrap up, I would just like to say that it is a true privilege to take on the responsibilities of CFO at NASDAQ OMX and I'm looking forward to getting to know you in the coming months now that I'm getting settled in the position.

Thank you very much.

Thank you, Adena.

We're ready for questions now.

Thank you, (Operator Instructions).

We'll go first to Rich Repetto of Sandler O'Neill.

Good morning, Bob.

Good morning Adena.

How we doing Rich?

Doing okay.

I guess just on the incremental revenues that you're seeing of that you expect in Q4, the only one that I want to ask the question was on BX.

Is there any share, we're seeing a little bit of share deterioration even from October so what's your view that the sensitivity on the customers to the price change?

Well, I would direct you back to what we'll call NASDAQ classic because that pricing change went in effect November 1 and we have had a slight uptick in market share in the three or four days we've had here, but our comments with respect to the BX revenue we feel very comfortable with.

Okay, and I guess I think I get a follow-up, right?

Yes, you do.

The one follow-up would be more of Bob, on the regulatory front, you get the SEC looking at dark pools and putting the limits on how much you can the dark pools can trade and the deeper look into IOIs.

I guess I can't see, is this all incrementally positive?

Is there a negative way that some of the stuff could impact you?

Well, I certainly think that it's impossible to predict exactly how regulation will come out but we're comfortable that the regulatory discussions are ongoing right now and will certainly be a significant net positive to NASDAQ OMX.

Okay, thanks.

Our next question today comes from Dan Fannon of Jefferies.

Good morning.

How we doing?

Good, thanks.

IDCG continues to appear to be at the top end of your kind of initiatives and I was just wondering, could you help us understand what the next step is going to be as these customers move from kind of shadow or test clearing to real participants?

Is that just waiting for regulatory and what they're pushing for or is there something else we should be looking for?

I think there's a multitude of factors driving the different participants in the shadow clearing environment.

I believe certainly at the extreme people wait for the actual legislation to be put into law but I think the vast majority of folks will move when they see the contours of how the legislation will play out and feel that there's a high degree of certainty around that, so the fact that the bills have moved through committee and now will go to the full House, I think the plan right now is the first week of December is positive for us.

What we seen within the shadow of clearing environment is the next step where people are meeting each other, where they're putting in contracts against each other and making sure that it then meets in the shadow clearing system and it's integrated into their back office systems and the books and records are checking out, so beyond the dollar growth in the third quarter that was I think the substance growth they've taken it to the next level of operational readiness.

Okay, thank you, and then Adena, in the slides they break out for market technology discuss segment margins of about 14%.

Can you remind us what they've been as I do believe that's an improvement and then where you think they can go?

Sure.

I believe in the Second Quarter we had margins of 12% and when we first closed on the OMX transaction it was essentially a breakeven business so we do continue to show progress in our margins and we do believe as we continue to the business as well as continue to drive operational efficiency in the business that it can very well be a 30% margin business for us and that is certainly what we were driving to.

Okay, thank you.

Sure.

I think there was a committment of it will be a 30% margin business and I'm looking at Anna as I say that.

Not the first time we've said it.

Our next question today comes from Roger Freeman of Barclays Capital.

Oh,, good morning.

How we doing Roger?

Good.

I hear you in the background there, Dave?

You did.

Well, Adena is taking all of the work, the whole top line has been sold out, it's fantastic so my two questions.

I guess just broadly, the market share trend, so across total US equities you're up now obviously it's early in November but three months in a row and so is NYSE and you're looking at sort of where that share is coming from and it's coming out of direct edge, out a little bit of decline in internalization, I'm wondering are you seeing change in behavior on the part of customers maybe around anticipation of changes with respect to Flash Orders, any change in focus on the part of some of those competitors and is there anything changing in the competitive environment that makes it more of a trend than one off?

Well, I certainly believe that the coming demise of Flash Orders has changed some behavior in the market.

I don't think that's been the biggest contributor of the factor there.

Roger ,as you know we also seen a decline in trading in that limited subset of stocks which was a head wind that we face for a period of time, so we have those factors but I also believe that when you look at the technology enhancements that we made, especially with the INET 2.0 launch and rollout, it's been a positive impact to us and to our customers in terms of them interacting with the market and clearly BX has given our customers a different venue to trade in a different way with a different set of sensitivities and that's I think an enduring value in the market.

Okay and then I guess my second question would be on this new initiative, can you just give us a sense on how many given whatever standards you're considering, what kind of market cap on the bulletin boards that you think would potentially qualify and then sneak a quick one in on IDCG, do you have a top five dealer shadow clearing there yet?

Let me take the first question.

I can't give you an exact number but let me position the product.

The product will be positioned somewhere between the OTCBB/pinks and NASDAQ Capital Markets so it will be for those companies who want to submit to the regular of a listing standard, these listing standards will obviously be lower but they will be standards, so as we have canvassed the marketplace to establish the need, we've certainly seen it as a market that numbers in the hundreds of companies that can qualify for this but that's as far as I want to go.

With respect to your second question, I'm not sure of exactly whose in the top five but I would say this.

We definitely have several dealers in the top 10 who are shadow clearing with us.

Okay, thanks.

Our next question today comes from Mike Carrier of Deutsche Bank.

How we doing, Mike?

Mike your line is open.

Please check your mute button or pick up your handset.

Okay, we'll move to the next question.

The next question comes from Howard Chen of Credit Suisse.

Good morning Bob.

How we doing Howard?

Well, how are you?

Good.

Good.

Bob, we seen a major competitor go down the route of semi mutualizing some of their exchange businesses an selling stakes to the dealers, somewhat different than what we list or being seen in the industry.

You've always been close to the customer base.

I'm curious if you think this has any impact on the competitive landscape.

Well, I think there's a time and a place for it and you can see it in our endeavors with IDCG.

We're trying to do something that has not been done before.

We're trying to change a fundamental market structure and we need to do that in partnership with the customers.

As we look to establish Markets where we currently have 100% equity ownership, it's a more I think nuance and/or interesting discussion.

I think that our fundamental viewpoint is if we bring the products to market that allows our customers to trade, to trade for their customers and trade for their proprietary accounts and it's effective, then the mutual it station question really recedes, so we focus on insuring that we're delivering the proper product, we think we do that and we're well served.

Okay, thanks and my follow-up.

On the market technology business, I guess I've always thought of that business as seasonally stronger in the second and Fourth Quarters and the results this quarters results were quite stable so not to get too near term focused but is that sequential quarter stability primarily driven by the installation of the two wins you spoke about and are they at full run rate?

I'll say one thing and Adena will handle it.

I think it's important to recognize with the market technology business you can not get too strong a belief in the seasonality.

The contracts that we announce tend to be large contracts so we announce contracts that could have a 40-$50 million contract value to us over a period of time and there's natural lumpiness to that so while there is some broad seasonality I would not be too focused on that.

It's really how are we doing customer by customer.

And I would say specifically looking at one of your questions was some of the revenue coming from the two wins and the answer is no.

Those essentially the revenue comes in once we deliver and then it starts to essentially O crew to our benefit over the life of the contract, so we assign those contracts, we then now have to deliver against them and then we'll be able to enjoy the revenues that come from those contracts over time, but with specific to the Third Quarter, this year in general, we've had a lot of what I would call shorter term development work that we've been able to accomplish with our clients, we've had a lot of clients who have asked for upgrades enhancements and small things that they want to achieve in order to continue to improve on their platforms and make it faster, more flexible and so there for, those types of customer requests tend to be a little bit more stable and a little bit less chunky in nature, so I think this year has really been a big year for enhancements from our clients and that's what you're really seeing.

Great.

Thanks for the color and good to hear from you again, Adena.

Thank you.

Our next question comes from Mike Vinciquerra of BMO Capital Markets.

Good morning.

First question just on the expenses as you mentioned kind of you're looking for $790 million to $800 million for 2009.

Is that a decent run rate to think about for 2010 less maybe I think you said it was $7 million for the quarter as the business you just sold?

Mike thanks for the question.

Generally we have done I think an excellent job of achieving the synergies from the fill X and OMX deals and we brought down our expenses very aggressively over the last two years and we've essentially achieved the majority of those at this stage so we are entering a steady State on expenses.

We'll provide guidance on 2010 expenses on our Q4 call but I can say that we're comfortable with that as our guidance for this year and I think you can assume that you're going to see a steady State from us in 2010.

Very good and then just back on the cash equities in the US, can you talk about what is driving the pricing changes I guess calling it NASDAQ Classic, what gives you confidence that it's a good time to actually be raising prices, I'm assuming you think the competitive environment is moving more in your favor?

Well I think as you saw 2009 develop, we were obviously losing market share.

We took certain pricing actions, many of them were affected but on others we were essentially giving away money that wasn't having any impact on customer behavior so this was a process of fine tuning the pricing actions that we've taken through 2009.

It was done in consultation with our customers and as I said, so far, in November you can see that the results have been quite positive.

Fair enough.

Thank you guys.

Our next question today comes from Rob Rutschow of CLSA.

Hi, good morning.

How we doing Rob?

Good.

First question is on the options market you completed the fill ex transition to new technology so I'm wondering if you seen any sort of changes in market participation and spreads there and secondly how should we think about any cost saves from quarter to quarter and how that flowed through the quarter?

Well one is we're quite proud that the team got that major project completed within 12 months.

It was actually exactly 12 months and I think I've said on a previous call that that effort while very positive did have a side effect and the side effect was that we had new enhancements we wanted to make to the product set that had to go necessarily behind the integration project, so the team right now is hard at work at bringing new functionality to the market which we think will be well received and we expect to see some coming on Board in the Fourth Quarter of 2009 with a major impact in the First Quarter of 2010, so we feel very good about that, so that's the process.

Obviously, we are completing the retirement of the old Philadelphia system.

It was a fine system but just a victim of numbers and within the context of our overall expenses there will be some decline in the support staff associated with that.

Okay, great.

Second follow-up question would be on IDCG.

Can you talk about how you're positioning that relative to incumbents like LCH, and do you guys anticipate clearing non-dollar denominated swaps?

Well, our focus clearly is on the dollar swaps at this point in time.

It would be reasonable to conclude that assuming success in the dollar currency we'll look to expand our viewpoint there but we want to build upon a solid platform, it's how we run these businesses through the years.

With respect to the competitive differentiation of IDCG, I think that it's important to recognize that we're looking at a new world so there's nobody really doing exactly what we're endeavoring to do at IDCG.

We're clearly trying to create on all to all market that allows more participants to be able to compete in this market while preserving the ability for the establishing incumbents to obviously provide value to continue to provide value to their customers, so we look at the competitive landscape today and there is nobody whose really doing what we're doing at this point in time that will change in time but we clearly have first mover advantage.

Okay, thank you.

Our next question comes from David Grossman of Thomas Weisel Partners.

Thanks, good morning.

How we doing David?

Good thanks.

Just a quick question, Bob, on Europe.

I think in your prepared remarks you said you were pleased with the progress you're making with the MTF.

Is there anything you're thinking about doing differently had that may in fact even accelerate your ability to gain share there or are you kind of looking at that as a very deliberate strategy where slow and steady kind of wins the race?

Well we certainly recognize that we're seeing as one of the players who have the ability to kind of ride out the competitive world and in terms of how we run businesses, it's hard to get too upset with the business that sets volume records on a regular basis.

We set two last week, we for the first time matched over a billion Euros and that represented I think in the span of 30 days almost a 40% increase in that record, so we obviously are continuing to gain traction.

We're not anywhere near where we want to be in that marketplace but the trend line is positive and we were focused, we've got a very capable team on the ground that's building very deep relationships with the customers and starting to bear fruit.

Okay, and actually I just wanted to follow-up one thing with you, Adena.

You mentioned on a run rate basis that the Fourth Quarter is a reasonable benchmark at least to start thinking about 010.

Is it basically a bunch of puts and takes that gets you to the same place or is just the base where it needs to be right now to support the revenue levels that you're thinking about over the next 12 months?

I think I would say that I didn't want to, I don't want to be abundantly clear, I do want to be clear, I didn't specifically say the Fourth Quarter is the run rate going into next year but what I did say is we've substantially achieved our synergies.

We have a couple of additional things that will continue to drive us forward particularly as we implement INET in the Nordics but generally there are going to be gives and takes as we go into next year.

We're also going to want to continue to be able to invest in growth initiatives and we'll continue to do that as we did this year but generally speaking, the expenses that we're seeing right now do reflect the vast majority of the synergies having come into our business at this point.

Okay, great.

Thank you very much.

Our next question comes from Edward Ditmire, Fox-Pitt Kelton.

Hi, guys .

just wanted to talk a little bit about the US equity dynamics.

Tell me, I think based on your guidance it looks like we're looking at getting from the $0.018 per hundred into something that rounds up to maybe back towards $0.03 per hundred next quarter, maybe somewhere between $0.025 and $0.03 per hundred, so overall, since you started this plan it looks like you're cutting pricing net about 20%, you have about 20-25% more market share, so just on the basis of transaction fees the moves are likely to be accretive and then you should have more US tape data revenue as well.

Any reason to think that the tape data or the US consolidated tape revenue plans shouldn't increase proportionately?

Maybe kind of add meaningfully to the revenue run rate that we saw in the

I think that it's important to note, as we gave the very explicit guidance on where we think the revenue will come out in the US transaction business, that was inclusive of positive pick up on the market data side.

Okay.

But I'd also direct you a little bit different place on the transaction business.

You saw in the third quarter that we had a tipping point where the fixed fee portion of the business exceeded the variable fee, so we grew the access services business from $32 million to $36 million.

We expect additional growth in the Fourth Quarter, as I said in my prepared remarks but that's been an important focus for us in 2009 and it will continue to be in 2010 and I think we as NASDAQ are uniquely positioned to bring those incremental services to bear and obviously then have a reduced reliance on the variable part of the revenue.

And one follow-up question.

Do you think that with your higher market share and also some of the pressures that the regulators seem to be putting on the non-displayed market that perhaps you guys will be better positioned with your own non-displayed products and maybe have some pricing levers there?

One, we believe the regulatory efforts will work I think to the benefit of the Lit Markets and that's probably all I want to say on that.

With respect to our reserve orders which you're getting at I think it's important to recognize that our reserve orders are only executed after the Lit Markets are extinguished so you've got to go through the Lit market to get to reserve order so we think that paradigm continues post whatever SEC review happens in 09 and 010.

Thank you.

We'll go next to Bob Napoli with Piper Jaffrey.

Thank you, good morning.

Just want to try to be a little bit more clear on the interest rate swap business and when you expect to start generating revenue and how you convert the shadow to live revenue.

Are you suggesting that Bob that when the Bill passes that the shadow clearing goes live and the 850 billion which is you're starting to generate near 1.8 million of revenue per month relatively quickly from the current levels or is that what you're suggesting?

Well, I would say just this.

I'm suggesting that the revenue comes when there's certainty about the legislative actions, so I don't think the market waits until the President signs the Bill into law.

I think the action comes when there's great certainty around that.

But you're anticipating what is being shadow cleared now converts to live immediately at some point no later than when the Bill is signed?

Well we certainly believe that the customers are putting the business into our shadow clearing environment are doing it with serious purpose in mind and that or some of the portfolio or old portfolios will be fair game for IDCG to be involved with.

And do you expect that business like the margins to be an investment business for a year or two or does it start being, is it dilutive to margins, accretive to margins, what are your thoughts around the profitability of that business?

Well I'll say this.

Right now we have a full staff that we've been funding for 2009 and we don't have any revenue so any revenue would be welcome but to give you a direct answer, this business will become positive to the bottom line very quickly once it goes life.

My follow-up is a little more color on the access services.

What is the if you could give a little more color on that business and the margins on that business and isn't co-location something that maybe is being targeted under regulatory as maybe has some pressure on the co-location business?

Well co-location services is part of the access services number and it is a large part of the growth to the access services number.

We believe that co-location services properly managed represents a positive for the industry and as we've said before, we've run this business insuring fair access and we're going to take it to the extreme level where any customer will get the same experience.

That is a customer who is five feet from the matching engine versus a customer who is 250 feet from the matching engine will have the identical response time.

We're calling it the virtual 100-foot cable.

We communicated to the regulators that we're running this service so we feel very comfortable with it being an enduring product for us.

Our next question comes from Jonathan Casteleyn of Susquehanna.

Hi, good morning.

Was just looking for an update on your OMX trading velocity.

I think you were running 100% recently on the 500 billion market cap and at one point investors were thinking about a 300% multiple on trading in Europe.

Is that still a relevant target and how do you get there?

Are there any catalysts to increase the trading multiple?

I certainly believe it's a worthy budget goal.

I clearly, we see upside in the velocity, I think it's apparent to all and as we go to '010 I think more people will focus on it and I would again direct you to the fact that we're building the necessary infrastructure for that velocity to increase quite dramatically.

The team and the community in the Nordics did a tremendous job moving to central counterpart it just last month, we're completing it in Finland later this month.

That allows all international players to transact in the Nordics environment with a greatly reduced cost of post rates so that was the first effort.

The second is in December we go live with the INET technology, we're aiming to complete that by the end of the year and that will allow all our international customers who are very familiar with obviously our fix to plug into the wall.

We have co-location services available for them and in Stockholm where they're obviously welcome to put their computers where we have a double win where we make revenue on co-location and obviously have incremental volume from what matches against that so a great growth opportunity for us in 2010.

I believe it just has not been recognized by the investment community, it is now clear and present and I do appreciate your question.

So I'm sorry, is the 300% multiple still relevant do you believe or is there a way to adjust it?

What I want to say is that we have the opportunity to dramatically increase the velocity in the market.

We've done the right things in 2009 to create the proper ecosystem for that to happen but I'm not going to put an exact number on it.

Great and just my follow-up, the several undefined aspects of forthcoming US legislation, can you just fill it down to what could be the most impact full and does it affect your new swaps business or the core equities business?

Well, the legislation part of it affects the swaps business and it's fundamental to it and as I said I believe that the market will move as soon as they feel there's legislative certainty.

It won't require the President signing the Bill into law.

On the regulatory side that's more a US equities issue so when you think about regulation it's about US equities right now the swaps is about legislation.

Got it.

Thank you very much.

Our next question comes from Justin [Shack] of Rosenblatt Securities.

Good morning everybody.

Good morning.

I guess I'll take one more shot at asking the regulatory question slightly a different way.

With respect to the SEC proposals on dark pools, Bob, I know you said you think those are going to be a net positive but do you see it as a positive as more hindering the future growth of what happens in the dark or do you think it will be a meaningful transfer of activity from dark to Lit?

Well I don't want to make any predictions on that.

One is we don't want to get in front of what the SEC is going to do but I think there's an increasing awareness that Lit Markets provide a value to the community as a whole in the development of price formation and to the extent that too much of the market is dark then you have the ability to have a negative impact on the common good of public price formation so that's the general trend line.

I think it's positive for us and clearly the elimination of Flash Orders is positive for us, the elimination of actionable IOIs is positive for us and we just don't know for sure what it will do.

And I guess as a second question or a follow-up with respect to the pricing you talked about the assumptions you made for IDCG, where are you getting that dollar for hundred thousand notional?

Is that some estimation of what the market will bear or should we think about that as what you're going to charge and will that be any color on maybe differentials between sell-side and buy side as well.

Sure.

With regard to the dollar per side per hundred thousand dollars, we actually do have a pricing schedule that we provide to our clients that gives a different price for the different durations of the swaps and so it can be as low as $0.19 or as high as $2.80 and I think depending on how long a duration of the swap is, in terms of the dollar it's really kind of an average if you look at both the pricing that we're putting into place and also kind of our expectation of where and the duration, the majority of the activity will be so that dollar for contract is really just an average based on the pricing sheet we have provided to the customers.

And our next question comes from Mike Carrier of Deutsche Bank.

Thanks.

Just one real quick follow-up.

Just on the expense guidance, just want to make sure the businesses that you exited during the quarter when we look at that new run rate, that's going to be included in that to like the $7 million reduction?

Well, the first thing to realize is we closed on those deals at the end of October so we don't have a full quarter impact from those exhibitions but they were essentially breakeven businesses so and what I provided you, I basically said that it's a partial quarter impact from the sales of the businesses and so it's something less than $7 million.

And it's important to recognize that we give as been our practice expense guidance beginning of next year, so we're in the middle of developing the budget for 2010 so we sitting here not knowing where it's at.

So we'll be happy to give you detailed guidance as we get into 2010.

Okay, thanks a lot.

Having no further questions in queue I'd like to turn the conference back over to Bob Greifeld for any additional remarks.

Well I do thank everybody for joining us today, as I've said during my opening remarks, we are certainly pleased with our positioning in each of our established businesses.

We're happy to welcome BX and NOM to the stable of established businesses.

We are incredibly optimistic about our organic growth opportunities and look forward to reporting on that progress in the time to come and also obviously look forward to moving those organic activities into core activities in the not too distant future so thank you for your time and welcome to the call Adena, and we look forward to talking to you as the days wear on.

Thank you.

Thank you.

That does conclude today's conference, Ladies and Gentlemen.