納斯達克交易所 (NDAQ) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NASDAQ OMX fourth-quarter 2010 results conference call.

(Operator Instructions).

As a reminder, this conference call is being recorded.

I would now like to introduce to your host for today's conference, Vince Palmiere, Vice President of Investor Relations.

Thank you, operator.

Good morning and thank you for joining us today to discuss NASDAQ OMX's fourth-quarter and full-year 2010 earnings results.

Joining me are Bob Greifeld, our Chief Executive Officer, and Adena Friedman, our Chief Financial Officer.

Following our prepared remarks, we will open up the line for Q&A.

You can access the results press release and presentation on the NASDAQ OMX Investor Relations website at www.nasdaqomx.com.

We intend to use our website as a means of disclosing material, nonpublic information, and for complying with disclosure obligations under SEC Regulation FD, and these disclosures will be included under the Events & Presentations section of the site.

Before I turn the call over to Bob, I would like to remind you that 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 the meaning of the Private Securities Litigation Reform Act of 1995.

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

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

With that, I will turn it over to Bob.

Thank you, Vince, and thank you, everybody, for joining us on this call this morning.

We certainly appreciate your efforts to get here on this rainy, icy day.

I will begin by spending a few minutes highlighting the fourth-quarter 2010.

Then I will update you on the progress we are making with some of our initiatives.

Adena will then walk you through the financial details.

On a non-GAAP basis, we delivered outstanding record results as non-GAAP diluted earnings per share came in at a record $0.55, 6% above our previous record and 20% above our fourth-quarter 2009 non-GAAP results.

Net revenues for the quarter reached $400 million, while net income grew to $110 million, an 11% increase over results from the fourth quarter of 2009.

This performance was driven by our global growth in derivatives and the strength of our European-based businesses and should be attributed to the diversification and globalization strategy that we embarked upon in 2007.

Over the last three years, we have made a successful transition from a US-based cash equities exchange to a highly successful, multi-asset global franchise with 37% of our total revenues now coming from outside the US and nearly 20% coming from derivatives, trading and clearing.

As I walk you through these results, it will become very clear that many of these new businesses, including derivatives in the US and Europe, Global Market Technology, Access Services and Corporate Solutions all provided strong and sustainable revenue success in the fourth quarter throughout 2010 and is positioned to be an engine of our growth in the years to come.

During the year, we continued to invest in diversifying and globalizing our business.

With the acquisition of SMARTS and FTEN, we can now provide a full suite of pre-trade and post-trade risk management solutions to broker-dealers, regulators and exchanges worldwide.

As the market access rules ramp up in the US and stronger risk management and compliance practices are implemented worldwide, SMARTS and FTEN are perfectly positioned to meet the needs of these rapidly growing market segments.

As an organization overall, we are well positioned to continue to experience growth across all our businesses, and we believe that our fourth-quarter results are a testament to the benefits of our model and our efforts over the past number of years.

Now turning to the details of the quarter.

In Market Services, revenue increased $24 million or 10% from the fourth quarter of 2009.

One significant milestone in the fourth quarter was the launch of the Genium INET trading platform, the world's fastest trading and clearing system in our Nordic equity derivatives market, as well as the launch of repo clearing and the Nordic clearing house.

Overall our Nordic derivatives business experienced a 23% increase in revenues over the prior year quarter.

In the US, NASDAQ OMX was, again, the number one market in options.

The combined market share of PHLX and NOM grew to 31%, while volumes jumped significantly.

This increased activity and marketshare drove our US derivatives revenue up an impressive 35% compared to the fourth quarter of 2009.

Finally, within Market Services, responding to customer demand in the post-May 6 environment, we successfully launched PSX, our innovative price size trading venue, which has captured approximately 1% of the market in a short period of time.

Moving on to our Issuer Services business segment, NASDAQ OMX signed 63 new listings during the quarter and a total of 220 new listings throughout 2010, including 100 IPOs.

NASDAQ OMX continued to dominate the greater China area with 43 new listings in 2010.

One notable Chinese listing in the fourth quarter was SinoTech Energy, which was the largest Chinese energy IPO of 2010.

We also captured the largest financial company that completed an IPO on a US market in the fourth quarter.

LPLA Investment Holdings based in Boston raised over $469 million in proceeds.

Finally, within Issuer Services, Corporate Solutions continues to deliver innovative product and services that enables issuers to meet the requirements of being a public company, while simultaneously deepening our relationship with these issuers.

That has resulted in strong revenue growth, up 29% year over year.

Our Global Index Group also had an outstanding year as revenues were up over 20% from last year, driven by increased demand for new license, ETFs and other financial products.

In our industry-leading Market Technology business, we finished the year strong as fourth-quarter revenues reached their highest levels ever.

The Australian Stock Exchange went live with the Genium INET platform, capping off a very strong quarter for the business.

In summary results for the quarter were very impressive as strong revenue growth drove our earnings higher.

What did not have much of an impact to our Q4 results was the 22.8 million share repurchase from Borse Dubai that we completed on December 21.

Since the transaction was completed so late in the quarter, the impact to our fourth-quarter results was negligible.

However, looking forward we are pleased with the ongoing benefit the buyback will provide to our 2011 results.

Adena will provide some insights into full-quarter impact of the buyback in her remarks.

Overall the increase in earnings certainly speaks to the strength of our business, the success of our diversification strategy, and the soundness of our capital management decisions.

During 2010 we took a number of steps in the execution of our corporate strategy to diversify into new asset classes, move into new geographies, develop new capabilities and attract new clients.

Let me quickly touch on some.

At the beginning of the year, we obtained investment grade status and refinanced our debt obligations, allowing us to launch a share repurchase program that we aggressively pursued.

By year's end, we had repurchased 37.8 million shares valued at $797 million.

Within our derivatives business, we became the number one US options market, and the Nordics realized strong growth in both volume and membership.

2010 also saw the launch of the repo and swaps clearing service in the Nordics.

In NASDAQ OMX commodities, we continue to grow our business by launching the UK power market, N2EX, and by acquiring Nord Pool ASA and NOCC, our US energy clearing business.

In cash equities, we launched PSX, our price-size marketplace and sold Genium INET in the Nordics, increased demand for co-location and access services, and as the year came to a close, acquired FTEN, a leader in pre-trade risk management.

And finally, within Market Technology, we launched the commercial offering of Genium INET, which quickly realized success though new contract wins at Singapore, the Singapore Exchange and the Australian Securities Exchange, and acquired SMARTS technology, a world leading provider of market surveillance.

We are very pleased with the progress we made in 2010, and we feel that our hard work paid off in the form of improved business performance and truly strong growth in earnings.

As we look into 2011, our goal is to continue to execute our corporate strategy by utilizing many of the new products and services we launched last year and by pursuing new initiatives that are products of our innovative culture here at NASDAQ OMX.

Chief among them is our goal to provide FTEN pre-trade risk management software to clients looking for solutions to comply with the new market access rules.

We firmly believe that we can achieve significant synergies by leveraging our customer relationships and offering FTEN's pre-trade products, alongside the post-trade market surveillance products that have been developed by SMARTS.

Within Market Technology, we intend to realize continued success within Genium INET as the business moves forward with its growth plans in the Middle East and Asia.

Additionally we plan to continue to expand our capabilities within options and just yesterday introduced enhancements to the complex order system at PHLX, thereby expanding the market for orders in which we can compete.

Also, within the options market, we have plans to offer trading in our Alpha Indexes early in the second quarter.

In the Nordics, we intend to improve our infrastructure by launching the Genium INET platform for fixed income and commodities, and expand our business through the growth of repo and swap clearing services.

And at N2EX, we launched our financial derivatives products just this week, and we did our first trades yesterday, certainly a milestone in our development.

In the US, with IDCG, we continue to deepen our relationships with leading members of the industry as financial institutions progress in their preparations to clear interest rate swap products in the second half of 2011.

In Issuer Services, we expect to launch our BX venture market, which will be a venue for venture-backed companies that aspire to list on NASDAQ, while simultaneously expanding the reach of our Corporate Solutions product offering.

Before I turn the call over to Adena, I want to touch again on the quality of our record earnings this quarter.

When compared to the third quarter of 2010, revenues were up 8%, while earnings grew 10%.

We were able to achieve this growth on the strength of our global business.

This strong growth reflects successful execution of our corporate strategy, which is to lever our core technology while continuing to diversify geographically into new products and services.

I will now turn the call over to Adena and thank you.

Thank you, Bob.

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

Our GAAP net income for the fourth quarter of 2010 was $137 million or $0.69 per diluted share.

These results include $9 million of expenses associated with workforce reductions, merger and strategic initiatives, and other items offset by $37 million of tax benefits associated with these items and the restructuring of NASDAQ OMX subsidiaries.

When excluding the impact of these items, our non-GAAP earnings-per-share for the quarter reached a record high of $0.55, an increase of 10% when compared to the third quarter and an increase of 20% when compared to the fourth quarter of 2009.

Our net income reported on a non-GAAP basis was $110 million, an increase of 9% when compared to the third quarter of 2010 and an increase of 11% when compared to the fourth quarter of last year.

Reconciliations of GAAP to non-GAAP results can be found in the attachments to our press release and in the presentation that is available on our website at ir.nasdaqomx.com.

Our growth in earnings was driven by the strength of our diversified business as increased revenue drove our EPS growth.

Of the $0.05 increase in earnings when compared to the third quarter of 2010, nearly all of the increase was driven by stronger business fundamentals, while only $0.01 of the increase was due to our share repurchase program.

Turning to our strong Q4 operating results shown on slide eight of our presentation, you can see that net exchange revenues were $400 million for the quarter, an increase of $28 million or 8% when compared to the third quarter of 2010 and an increase of $31 million or 8% when compared to the prior year quarter.

Market Services revenues were $265 million, an increase of $16 million or 6% when compared to the third quarter and an increase of $24 million or 10% when compared to the fourth quarter of last year.

Cash equity revenues for the quarter were $60 million, down $3 million or 5% when compared to the third quarter, but up $8 million or 15% when compared to the fourth quarter of 2009.

Lower US trading volumes and market share were the primary drivers behind the decline from last quarter, while modified fees are responsible for the increase in revenues when compared to the same period last year.

Net derivative trading and clearing revenues were $74 million for the fourth quarter, up 23% when compared to $60 million in the third quarter of 2010 and up 30% when compared to the $57 million from the fourth quarter of last year.

Increases when compared to both the third quarter of this year and the fourth quarter of last year are due to higher volumes and market share and US options and increased activities in the Nordic derivatives.

Also contributing to the increase was the October 2010 launch of repo clearing in the Nordics.

Overall our derivatives business exhibited strength in each of the instruments that we trade and clear.

Included in Nordic derivatives revenues for the quarter are $12.1 million from cleared energy and carbon products, $12.7 million from trading and clearing of stock and index derivatives, $6 million from the clearing of fixed income products, and approximately $1.2 million from other revenues and fees.

In Access Services, revenues were $48 million for the quarter, up from $45 million in the third quarter and up $7 million or 17% from the fourth quarter of 2009 on continued demand of our services and modifications to our member-oriented fees.

Within market data, revenues were $79 million for the fourth quarter, up $3 million when compared to the third quarter of 2010, but down $5 million compared to the fourth quarter of 2009.

The increase when compared to the third quarter is primarily due to modified fees for European market data products, and the decline, when compared to the fourth quarter of 2009, is due to lower US pay plan and European market data revenues, offset by somewhat higher revenues associated with our US proprietary data products.

In Issuer Services, revenues were $89 million for the quarter, up $4 million when compared to the third quarter and up $6 million when compared to the prior year quarter.

Driving growth in revenues when compared to the third quarter is increased demand from listed companies for our Corporate Solutions.

The growth in revenues when compared to the fourth quarter 2009 is due to increased demand for Corporate Solutions, as well as higher Global Index Group revenues.

And turning to Market Technology, revenue was $46 million for the quarter, up from $38 million in the third quarter and $44 million in the prior year quarter.

These increases are due to seasonality in our advisory practice and short-term development projects as we work with clients to complete enhancements and other requests prior to year-end, as well as a full quarter benefit from the SMARTS acquisition.

By quarter-end, total order value, which represents a cumulative value of all signed orders that have not yet been realized into revenue, was $495 million.

And finally, within Market Technology, for the first quarter of 2011, assuming current FX rates, we expect our revenues to be approximately $42 million.

Now turning to slide 14, our total non-GAAP operating expenses for the fourth quarter were $216 million, representing an increase of $13 million from $203 million in the third quarter and an increase of $12 million from $204 million in the fourth quarter of 2009.

The increase in expenses, when compared to the third quarter of 2010, was driven by higher compensation and depreciation and amortization expenses, partially due to the inclusion of the SMARTS-related expenses, which was acquired in the third quarter.

Also contributing to the increase was the impact of changes in the exchange rates of various currencies as compared to the US dollar, which had the effect of increasing expenses by $5 million when compared to the third quarter of 2010.

The increase in expenses from the fourth quarter of 2009 is primarily due to higher compensation expenses, including those associated with SMARTS and Nord Pool ASA, increasing -- I'm sorry, increases in professional and contract services costs, and changes in the exchange rates of various currencies as compared to the US dollar, which had the effect of increasing expenses by $2 million.

The impact of foreign currency fluctuations on our results is summarized on slide 15 of the presentation.

Now looking forward to 2011, for the full year, we expect total expenses to be in the range of $920 million to $940 million at current exchange rates.

Our 2011 guidance includes $33 million of new expenses from the acquisitions of FTEN and Zoomvision, in addition to the full-year impact of the acquisitions of SMARTS and Nord Pool ASA.

All of the 2010 acquisitions are expected to deliver profits to the enterprise in 2011.

Also impacting 2011 guidance is the strengthening of other currencies against the dollar.

For instance, the Swedish krone has appreciated by 3% against the dollar in the last quarter alone.

Lastly, our guidance includes approximately $25 million of nonrecurring items.

Excluding the nonrecurring items, we anticipate that our total operating expenses will be in the range of $895 million to $915 million.

Overall results for the quarter yielded -- I'm sorry, overall results for the quarter yielded non-GAAP operating income of $184 million with operating margins coming in at 46%, up from 45% in the third quarter and prior year quarter.

Now turning briefly to Investments in New Initiatives on slide 13 of the presentation, we provide a summary of returns on our investments, which continue to drive growth in our revenues and margins.

Spending on all initiatives, including those launched in 2009 and 2010, is expected to be in the range of $85 million to $95 million in 2011 with revenues projected to be in the range of $112 million to $122 million.

And moving on to net interest expense, in the third quarter, it was $24 million, an increase of $1 million from the third quarter of 2010 and an increase of $2 million from the fourth quarter of last year.

At year-end 2010, NASDAQ OMX raised $367 million in net proceeds from the issuance of seven-year bonds with a coupon rate of 5.25% to provide funding for the repurchase of our shares from Borse Dubai.

Beginning with the first quarter of 2011, incremental interest expense associated with this issuance is expected to be approximately $4.9 million per quarter.

Throughout 2010, we've repurchased a total of 37.8 million shares for a total cost of $797 million at an average price of $21.08 per share.

Our share repurchase in December occurred very late in the quarter and, therefore, had a negligible impact on the quarter EPS results.

However, for illustrative purposes on slide 15 of the presentation, we provide a calculation of the full-quarter benefit of the share repurchase net of incremental interest expense.

Specifically the December buyback would have resulted in an additional $0.04 of EPS growth on top of our strong results of $0.55.

Looking forward into 2011, we can expect to enjoy significant full-year EPS net benefit from all of our 2010 buyback activity.

And finally, on the income statement, the non-GAAP effective tax rate for the quarter was 31%, while the effective tax rate on the reported GAAP basis was 9%.

The lower than normal GAAP tax rate is primarily due to the permanent tax effect of restructuring certain NASDAQ OMX subsidiaries.

This results in a one-time reduction of deferred tax liabilities due to our revised effective tax rate and a one-time tax deduction for our capital loss.

Contributing to the lower non-GAAP effective tax rate are higher earnings from our European-based operations.

As we look at 2011, we expect the normalized tax rate to be in the range of 31% to 33%, down slightly from where we were in 2010.

Now turning briefly to the balance sheet on slide 17, cash and cash equivalents and financial instruments at quarter-end were approximately $733 million.

Of this amount, approximately $494 million is reserved for regulatory requirements and other restricted purposes.

During the quarter, we used $10 million for capital spending purposes, bringing the total for the full year to $42 million and used $130 million of cash to complete the December buyback.

We also used $35 million of cash in the quarter for debt repayments associated with the mandatory payment of our term loan.

This brings our repayments for the full year of 2010 to a total of $146 million.

We ended the quarter with total debt obligations of $2.3 billion, the details of which can be found on slide 18.

And finally, due to the launch of the repo clearing service and as legal counterparty for these transactions, this quarter we began to recognize the gross market value of repurchase resale agreements net of customer positions on our balance sheet.

The balance at the end of the fourth quarter was $3.4 billion in both assets and liabilities.

In closing, let me say that we are extremely pleased with our results this quarter.

They capped a year in which we were able to grow revenue and earnings while successfully launching a plan to return capital to shareholders.

And, as we look at 2011, we are excited about our prospects.

Our goal this year is to continue to grow our business and manage our capital effectively as we focus on investments in new initiatives and debt retirement.

Thank you and I will now turn it back over to Vince.

Thanks, Adena.

Operator, we can now open up the call to questions.

(Operator Instructions).

Rich Repetto, Sandler O'Neill.

First congrats on a great quarter.

I think you are one of the few that are going to increase earnings -- revenue and earnings not only from 3Q but from 2Q as well.

Well, that would be the tougher bar.

Thank you for the compliment.

The first question, market share.

So it is moving around a little bit, and we know volatility has declined.

The TRF for the internalized volume is now up to about 33%.

I guess the question is, is there anything that can be done?

It seems like more is moving into the internalized of the dark.

Is this a situation we are going to see a remedy in, or is this just an end result of low vol?

Well, I think it is also two things, the volatility and volume.

So when we look at our market share over time, we do best in a volatile high volume environment.

So when you look at the fourth quarter, it was the exact opposite of that.

So it is facing significant headwinds.

So sometimes those headwinds will turn in our favor, but it is obviously our job to maneuver in both good and bad times.

And what I think we are proud of is certain things that were launched in the fourth quarter.

The ISP program right now has about 200 million shares coming into our market's center.

And it is important to recognize that that program is targeted to what I will call good natural order flow, which then will attract other order flow into the market center.

So we expect the benefits from the ISP program to start to accrue to us in some significant way in this quarter, and we are excited about the progress there.

We do expect volume volatility to come back.

PSX is something that is obviously a new concept for the industry.

We are clearly educating a number of people.

We clearly are getting set up where the buy-side through their sales side sponsorship can come in in size, and I think every day we make some progress with it.

So we are operating, I think quite successfully.

Okay.

Thank you.

And, Adena, thanks for doing the calculations on the buyback and the earnings pro forma.

I guess with the model throwing off a significant amount of cash still, I guess the question is, CapEx for next year and then what is your preference to use the strong cash flow that we expect next year?

Is it debt repayment, or where would you lean given the cash flow?

I think on CapEx, I think that we would expect CapEx to be pretty much in the range of 2010 with maybe some slight growth due to the acquisitions in terms of some of the technology that we have acquired.

So I don't think -- I would not expect a significant increase in CapEx.

I think that in terms of capital returns and how we use our cash, we really did accelerate the 2011 buyback in December with the acquisition of shares from Borse Dubai.

So I think this year we are going to be focused on using our cash on investing in our new initiatives and on debt repayment.

And, in general, I think that we have -- Bob and I have been looking at how -- where we get comfortable with looking at continued returns to shareholders.

And I think as our debt gets down to about a 2.5 times total debt to EBITDA ratio, we start to say that it's time for us to really consider and contemplate additional capital returns.

Got it.

And very last question, Bob, I paid attention to your words.

The soundness of the capital management strategy, I think that is certainly impacting earnings and the stock price.

So I guess the question is, consolidation, big opportunities.

You got at least some of your peers, the larger exchanges saying, hey, we are not seeing anything big on the front.

There may be smaller acquisition sort of like what you have been doing to add to the model.

But what do you see as the bigger picture and to give some comfort to investors on how you are looking at consolidation, I guess?

Well, what we have said before and I will continue to say is acquisitions are episodic.

They cannot effectively be planned.

It is our job to understand the different assets across all geographies and all asset classes and have a point of view with respect to what value it would provide to us and our shareholders.

And to the extent that you get the perfect alignment, then it is time to move.

We obviously look at a lot more things than we move upon.

I mean the order of magnitude probably increases year to year in terms of what we evaluate doing what we bid on or actually secure the deal on.

So I think it's just hard to make any other blanket statement.

Okay.

Thanks and congrats, again, on the strong quarter.

Chris Harris, Wells Fargo Securities.

The growth you are seeing in Nordic cash obviously continues to be very strong.

Is there any way you guys could provide us with a little bit more granularity of the drivers of that?

And I guess maybe I'm curious as to how much is attributable to the higher frequency traders you are getting there versus maybe some of the technology improvements that have occurred or retail flow?

Then, as a follow-up to that, have you seen any uptake in high frequency in your Nordic derivatives business?

Maybe you can comment a little bit on the progress there.

Yes, let me touch back to our Analyst Day.

We said we were on basically a multistep march to bring the Nordic cash equity business in line to what I would say is pan-European and eventually US norms.

And we had a lot of work to do.

One is we introduced central clearing.

Two is we upgraded the platform to the INET-based platform.

And three is we started offering co-location services and fixed protocol.

So that is all working.

It has taken longer than we wanted, but, as you can see from the numbers, it is working.

So that clearly is a higher level of higher frequency trading in the Nordic environment.

I would also say it is early days, and we expect the co-location and the high frequency to be a driver of our growth in 2011.

So if in a nine-inning game, our Nordics market, equity market, is in inning four or five, the derivatives market is probably in inning one or two in that we just recently put in the Genium INET technology there, giving us the ability to attract a new class of traders in the marketplace.

So we expect to make progress in that in 2011.

That is helpful, Bob.

Thank you.

And then a quick follow-up on that.

If I could maybe tie you down to kind of an inning guidance, what inning do you think we are in for growth in Access Services revenue?

You know, we kind of reset the game there as we acquired SMARTS and, in particular, FTEN.

So we clearly have expanded the suite of products we offer.

So I would say we are obviously in the early stages.

FTEN has got wonderful products, and we are going to lever that with our distribution, our footprints, and our data centers.

So it is early days.

Niamh Alexander, KBW.

Congrats from me, too.

If I could, can I touch back onto the expenses, Adena?

The expense guidance, I guess it was little higher than we had expected.

Now you had said on your prepared remarks that $33 million of that was attached to FTEN, the Zoom [and FTEN].

Was that also SMARTS?

Because I thought SMARTS would have been in the run-rate by now.

Right.

So I actually thought I would do -- let me just go through our quick buildup.

If we look at our 2010 full-year results of $827 million of expenses, and then you add the $33 million from FTEN and Zoom, then you also have to add a full-year effect of SMARTS and the Nord Pool ASA acquisition, which should bring in another about $15 million of expenses.

And then on top of that, we have seen a continued strengthening of the Swedish krone in particular against the dollar, which as well as other currencies.

So if you do about a 5% increase in the currency rates, you could look at another $10 million to $15 million of expenses coming from the strengthening of those currencies.

So you are really talking about a base of around $890 million, just taking the full-year effect of some of the acquisitions in FX.

So I just want to make sure that we give you kind of a buildup to a baseline number, and then, of course, there is always some minor structural changes that occur year over year, particularly in compensation.

That is helpful.

Thanks.

I appreciate it.

I would just tell you also when you think about the [33 from then] and then from SMARTS and you said you expect them to be profitable, our goal there should be kind of equal if not more revenue attached to those expenses, right?

Yes, I think that's exactly right.

So I'm glad that you brought that up.

There is, of course, revenue attached to all of those, and as we said, each of the acquisitions is expected to be profitable this year.

And so we are very pleased to see that we are going to be providing accretion to our shareholders as the year goes forward against those acquisitions.

Okay, that is helpful.

Thanks for clarifying.

I wonder if I could touch on the derivatives because that is, I guess, where you are really plowing ahead on the transaction line.

Can you help me understand from the European side where you are seeing most growth, and how we should think about the growth potential from there?

And then just on the US side, have they heard murmurings of maybe thinking about re-neutralizing that business?

It has been doing so well.

I know one of your competitors are in the process of doing that.

Okay.

The first I will say is we are glad you asked about the revenue question because Adena was being -- had the notes to bring it up, so you made it easy for her.

Bring up the revenue; not just the expenses.

On the derivatives side, let me just cover something that I mentioned in passing.

That is our commodities effort, which we completed Nord Pool ASA, and that has worked out very well for us.

And then, as we said last year, we were focused on the UK power market.

We launched the spot market last year, and we really could not launch the derivatives market until we had enough activity and confirmation of pricing in the spot market.

So to the fact that us and the community said it is time to go with the derivatives market on Monday and we did some trades yesterday, speaks to the progress we made.

And when we talk about our derivatives business, we have a number of different irons in the fire, and myself at the CEO level and Adena at the CFO level certainly tend to look at these things collectively because they are many different cylinders.

Right now when you look at the N2EX opportunity, we certainly feel excited about that.

We covered on a previous call the basic growth we have in our delisted derivatives as we bring it into what I will call is an Eurocentric clearing model and state-of-the-art execution technology.

So we are very early days with that, so that will continue to drive our business.

With respect to the PHLX, there are no plans -- and I make this hopefully very clear -- to [mutualize] that business.

It continues to do well.

As I mentioned in my prepared comments, complex orders are just becoming available.

That opens up -- I am looking at Mr.

[Noel] -- almost 10% of the market to us that we have not been able to compete, and we launched PIXL.

So that has just been a lot of steam behind it and the same with NOM as we put NOM into the same distribution network as PHLX is today.

So we just obviously feel very good about that derivatives business.

And nobody has mentioned it yet, but if you've obviously looked through the numbers, it is interesting that the derivatives revenue is higher than cash equities revenue.

So clearly we are a business that has been able to successfully diversify.

Matthew Heinz, Stifel Nicolaus.

So we have talked a little bit about the volume trends we have seen in Europe both on the cash side and the derivatives side.

If I could just hit on the pricing a little bit, it looks like your pricing revenue capture picked up pretty nicely, much better than we had expected in the quarter.

I'm just wondering if you could comment on the trends you are seeing there?

Is that sustainable, and how much -- maybe is the contribution in the Nordic pricing a function of the commodities business?

Well, one, with pricing, it is a daily debate with respect to what the pricing should be, so I hate to draw any long-term conclusions to it.

We have a commitment to be competitive in all aspects while not blindly seeking market share just for market share's sake.

We clearly do look to get the proper balance.

So I would say when you look at the pricing that we have in place across our various transaction businesses in the fourth quarter, they represent I think a reasoned approach to the markets, and we don't see any dramatic changes as we go into 2011.

They obviously will be giving and taking across the different businesses, as I say, on a daily basis, but on a net corporate level, no big moves one way or the other.

Okay.

Great and then just expanding on that.

You have clearly had a trend of improved net capture in US cash at the expense of a few points of market share.

Now trending around 18%, 19%, what level of US cash share do you feel comfortable with before you start to revisit the pricing strategy?

Well, we certainly think the pricing strategy in 2010 was well-founded.

As I said, I think in the last quarter call in reference today with the ISP, I think the pricing strategy has to be about, how do you incent those people who give you order flow that results in follow-on or knock-on effects?

And that is where the focus is.

So I think the overall capture rate is a solid plan.

Right now we just want to have more targeted pricing in the time to come.

Howard Chen, Credit Suisse.

Bob, just a high-level question.

You've historically been a really good prognosticator of overall market volume.

I'm just curious one month into the new year where your mind is at right now for overall activity levels?

I don't feel that way there, Howard, but I will take the compliment.

Yes, one of the things we look at is net inflows into the marketplace, and we clearly saw a strong reversal of trendline in Europe in 2010.

And in the US, we saw that reversal trendline at the very end of 2010.

We see it continuing.

So we think that is a positive tailwind for us, so we clearly think that the volumes this year will be higher.

Again, what is important about the inflows is speaking back to the last question in a certain way is the natural flow coming into the market generates significant subsequent flow.

So it is kind of at the head end.

And so, as we see increased activity in the head end, we know it will ripple through the system.

So that is one way that drives volume, and that is volume over a long period of time.

And then it is a question of, is there any short-term volatile impacts in the market?

We had that for two months last year, enjoyed the benefits of the volume associated with that.

So we think volatility -- not so much a spike in volatility, but volatility will increase in the market during the course of the year.

We are seeing some of that now, and we think the natural flow will increase.

So we are what I will say is cautiously optimistic.

Okay.

Thanks, Bob.

And then Adena, is it fair to say that the 2011 expense guidance is based on the achievement of that 9% revenue CAGR you laid out at the Investor Day?

And so my question would be, what is the flexibility and appetite to pull back on that if you're not seeing that 9% in 2011, or should we think of some of these investment [bay] initiatives as a bit more longer-term?

I mean I definitely think that you should look at the variability in our expense based generally by the fact that we have, as I laid out in my comments, we have a fair amount of money going into new initiatives, as well as initiatives that we launched in prior years.

So we have some flexibility there if we really find that the growth in our revenue is not being achieved as we expect.

And also, I think that our general philosophy, as we always say, is all fixed costs are variable over time.

So if we really find that we have had some challenges -- we have some challenges, we can always look at our expense base.

But we are certainly -- this expense guidance is based on a growth forecast for us, and both in our new initiatives, as well as in our core business.

Roger Freeman, Barclays Capital.

Going back to Bob, your comments there on Howard's question about market volume levels.

Back at the Analyst Day, when you gave some goals for a number of your businesses, I think the base assumption was that US market volumes, equity market volumes, would be something like 9 billion to 10 billion (inaudible) a day.

I would probably say over the next couple, three years.

But we are obviously running well below that.

I heard your comments around potential vol spike, etc.

But I mean other than that and taking the flows into account, I mean it seems like we are in a fairly normal market environment.

I mean, to get to the 9 billion, is that just sort of growth in market levels and then the flows over the next couple of years that get us back there?

Because it seems kind of hard to get there from -- (multiple speakers).

Let me speak to the fourth quarter where we experienced what we think is depressed volume levels, right, averaging 7.4 billion shares a day here in the states.

And we produce $0.55.

So hopefully it clearly reveals the diversification of the business across asset classes and across geographies.

That being said, we certainly don't believe 7.4 billion is what we will experience through 2011.

Our budget numbers for 2011, based upon the experience towards the tail end of last year, obviously have come in lower.

But we would certainly believe that 8 billion to 9 billion, I mean 9 billion to 10 billion is a number that we should witness given equity inflows and some reasonable level of volatility.

We have been through a time, as I like to say, the equity asset class essentially lost to zero.

Investors said, should I put money in equities, or should I put it in a money market fund or a fixed income fund that is paying near to zero?

So we have a fundamental belief that risk appetite will return.

We are seeing clear signs of that, and that will drive volume.

Okay.

Fair point.

In options, two things.

One is, what was the percentage of dividend trades in the 4Q versus 3Q, and how much of an impact did that have on the net pricing?

I don't have that number today.

We look at it, but the key thing is dividend trades have been part of the [Philly] business for certainly as long as I have been involved with them.

And that number has not changed in a dramatic way, but clearly our baseline marketshare has improved quite dramatically.

Okay.

And then just in sort of more macro on options, is there a role for the exchanges used specifically to I guess on the education front to try to drive -- and you have been doing this obviously in the Nordic region, but it seems like in the US, options penetration particularly among institutional investors, is still in fairly early innings.

And from what we are hearing from dealers that as they are spending a lot of their efforts from a sales perspective trying to just drive it into the institutional accounts.

Is that something that is a focus for you, too, because it seems like there is some significant untapped potential?

You could not be more right.

And one of the reasons the US options market is successful in the US as compared to other countries is through the education effort that some of the founders of the industry set up years ago.

And that effort is clearly reaching out to the institutional community at this point in time in an educational way.

And, as you can see by the growth in the volumes, it is working, and I think it will continue to work in the years to come.

Okay.

Last question.

On IDCG, do you have -- can you talk to any kind of a refined strategy around the approach of the guaranteed [pool], like if they have tried to make it more accessible to smaller clearing members through lower initial guarantee of funds, but it has had a harder time attracting larger dealers.

Is that being revised at all?

Well, I would say the key thing to focus on is that IDCG offered in the fourth quarter of 2010 a swap alternative for interest rate swaps, and I think that is very appealing to the large dealers.

Jillian Miller, BMO Capital Markets.

Just following up on one of Roger's questions I guess asked slightly a different way, the net options revenue is quite a bit stronger than we had modeled, and we had presumed the higher dividend trading during the quarter will translate to a lower capture rate at Philly.

I just want to make sure there were not any pricing changes during the period that might have helped support your average fee?

No, we just really outperformed in the market gain share, and the volume was strong.

Okay.

Fair enough.

And you guys alluded earlier to plans to roll out some enhanced functionality with NOM [2.0] in April.

And I was hoping you could run through what exactly the changes are going to be, whether you expect any meaningful impact on the trading activity?

We certainly do.

Just at a macro level, what we are doing is allowing NOM to access the broad range of customers that PHLX has.

So NOM was de novo development, and it attracted certain the new entrants to the marketplace, and the number of entrants and members we have in NOM is a relatively small subset as compared to what we have in PHLX.

So we wanted to make it seamless for all of PHLX's members who now start trading in NOM, and that will happen towards the end of April.

And then just one more.

I was hoping to get your thoughts on the potential MTF consolidation in Europe, and just, you know, whether lower operating costs and potentially a more concentrated liquidity might make [Triex] and BATS as a combination a more formidable competitor for OMX?

In the Nordic market?

Well, I would say that we certainly compete with all the MTFs today, and whether there is more or less MTFs, you can argue whether that is good or bad.

I probably change my mind on that depending on the day.

So I would say that we have to focus on what we do in the Nordics, and I think the team there, literally Hans-Ole and Bjorn, have done a good job certainly relative to our established exchange of peers in coming up with pricing and services that make it attractive.

And, as I said previously, what is most important to me is the classical users of the MTFs are definitely eager to be part of our co-location datacenter strategy and become more active players on our Nordic markets.

So we have to be on the offense, offer products and services, make sure we get the customers what they want, and I think we will do well.

Michael Carrier, Deutsche Bank.

It looks like in two of your businesses, in the Market Data and Access Services, some of the pricing has changed to the upside.

So I guess one is that you are more one-time in nature, or are you seeing in some of the businesses that you do have more pricing power, and if so, which businesses do you see the best opportunities?

Well, one is I think the pricing you see is definitely sustainable, but I would not attribute it to pricing power, but more we are providing product and services that people recognize value for and pay us on.

Okay.

And then just one follow-up on the options business.

I would say you could take it more broadly, but the whole equity ownership whether it is in options or clearinghouses, I just wanted to get your view.

It seems like it is pricing pressure in a different form.

But obviously there is benefits in terms of, are we seeing increased marketshare?

So I just wanted to get your thoughts on how you balance that option when you weigh the economics of the business?

With respect to US options?

Yes, that in particular, but then just broader, like looking at other areas of the business if that option came up, like what your thoughts are?

Well, one with respect to US options, what I would say to Eric and Tom and the team is keep doing what you are doing.

It has clearly been a remarkable success over the last 12 months or so.

And it shows that if you offered the right products at the right prices based on the right technology, you can do well.

That being said, we understand the re-mutualization effort and what that can mean, and we certainly recognize that ownership is a illiquid form of payment for order flow in a way.

There is a time and a place for it.

So we would consider things like that where we think it is appropriate.

We don't see it in the US options marketplace right now.

Alex Cram, UBS.

Just a couple of follow-ups actually.

In terms of the guidance, thanks for all the color.

That was great.

And you just said Adena that the $33 million from the acquisitions is profitable.

Can you actually give us a little bit more detail?

I mean what is the margins in the business, or what was the run-rate last year of those businesses, and are there actually any cost cuts coming through, or is the $33 million number something that you are already expecting next year?

Well, we don't give out the specific margins associated with every acquisition.

I think that what we are giving out in terms of the expenses associated with those acquisitions does include synergies that we can extract from the businesses, but recognize that these businesses are really meant to be opportunities for us to grow and expand our business.

So they are certainly revenue growth opportunities for us.

We do believe that we can do more with them as part of NASDAQ OMX than they could do alone.

And I think our distribution capabilities, our managements, our technology expertise can really take all of those acquisitions and take them further along in their growth path.

So while we do have some operating synergies associated with them, it is really -- and that is incorporated into the guidance we have given -- we really see this more as a revenue play.

Okay.

So just to ask again, but can you at least compare it to your base business or the technology business in very round numbers in terms of the profitability?

Yes, we really are not going to give out details on specific margins associated with each acquisition.

I'm Sorry.

Okay.

Then, second, on the Access Services, I don't know if you mentioned this already, but I think you said with the growth in co-lo in Europe, we are going to see more showing up in there.

Can you break this out at all?

Or maybe coming back to Bob's inning reference, where are we in terms of co-lo and revenue showing up in that line item?

Well, I can certainly stay with the inning reference.

Adena will not answer your question on their part.

Certainly with co-lo in the Nordics, we are at the first inning, maybe the second, but I would probably say the first.

And I will repeat again what I said on Access Services.

With the acquisition of FTEN and SMARTS, we have kind of reset the game, reset the clock.

And we obviously look forward to successfully integrating and executing upon our strategy with those acquisitions in 2011.

All right.

Good.

And then just lastly, on regulation in the US cash equities business and obviously you answered this to Rich to some degree here that you see that innovation taking a bigger share, and I think regulators obviously have been concerned about this a little more, and they have commented on it, and they have maybe started looking into what they need to change in terms of market structure.

But regulators have a lot of things on their minds right now, and a lot of things to do without (inaudible).

Do you think that there is any chance that we get any help from regulators that maybe strengthens the incumbents again in the US cash equities market, or is this basically something that is a 2012 or later event if even?

Well, I will say a couple of things.

I think everybody can agree on the fact that if 99% of the market traded in the dark and that 99% of the market referred to the 1% in the lit market for price discovery, things could be a little out of whack.

Anything beyond that probably gets a little more difficult.

The SEC going back to the concept release has teed those topics up for the industry to comment upon.

It is probably impossible for me to forecast when they may or may not move on that.

So I cannot say too much more than that.

But I will say and repeat that volume and volatility can help us absent any regulatory change.

So what we saw in the fourth quarter was historic low volumes and volatility, and internalization and dark trading will go up in that kind of environment.

So we can certainly experience a double plus as we get volatility and we get volume, then we will do better.

Chris Allen, Evercore Partners.

The new initiatives and the acquisitions are going to drive about -- it's going to factor into the expense guidance of $60 million to $80 million.

The slide for the new initiatives implies positive operating leverage, and Adena, you just mentioned potential synergies with some of the acquisitions you have done.

I mean should we think about improvement in operating margins as we move through 2011 toward your goals just given the opportunities on both of these fronts?

I certainly think that we view our overall business as having scalability to it.

So, as we grow the businesses, we should be able to achieve some scale.

I think that the new acquisitions, as well as the new initiatives, as you can tell, the new initiatives are providing us a positive return, but not at the same level as our overall business.

So we do see progress against those initiatives in terms of driving margin into the business, but they will have to continue to grow and succeed to be able to achieve the same level of margin opportunity as our overall organization.

I think that certainly when we look at the acquisitions, we look at them in the context of them ultimately driving scalable growth to our business.

And we do believe, we really are really excited about what we can do with SMARTS and FTEN in particular on a global scale both in terms of providing services to broker-dealers but also to exchanges and regulators.

So I think that we have -- there is a very big market opportunity for us.

They are scalable businesses, and they will be able to drive margin into the business overall.

In terms of them getting to the helping us grow our 46%, I think that overall the entire business has that opportunity to do that with the acquisitions and new initiatives helping along the way over time.

And then just on the $2 billion revenue target you laid out at the Investor Day, it seems like a decent amount -- a nice first step this quarter's results.

Are there any of the opportunities within that goal that are really standing out in terms of where you are right now, and other things that are maybe just a work in progress?

I'm just trying to think about next steps.

Sure, sure.

Well, I certainly think that the derivatives revenue had a standout quarter.

And if you look at the fact that every asset class in the derivatives business both in the US and Europe grew quarter over quarter and as we projected in our Analyst Day, we set ourselves a long-range target, particularly for the European derivatives.

And I think that you can see that we are making progress towards that target out into 2013.

So I think derivative certainly is showing that it is going to have the growth path that we hope it should have.

I think in terms of where we are just at the beginning, we also set growth targets for the Market Data and the Index businesses.

And I would say that we are really just starting down the path for those two business units, and you will see hopefully some acceleration of that in the quarters and years to come.

Brian Bedell, ISI Group.

Congrats on some good progress on derivatives.

I wanted to drill in on it a little bit more granularly, especially in Europe.

As we think about how 2011 will play out and volume from the fourth-quarter levels, obviously your cleared energy business went from $9 million to $12 million 3Q to 4Q.

If you can talk about the trajectory of that, how you see it coming through as we move through 2011, and then same thing for repo clearing and any impact that Genium INET will have, that you think it will have, on the Nordic derivatives business?

Sure.

Okay.

So, with the derivatives business in Europe, we have a number of different levers, and I think it is impossible for us to predict which one will accelerate the fastest.

But each and every one of them has kind of unique growth opportunities.

Listed derivative is the last thing you mentioned, and I covered this a little bit before.

We have a couple of ways to grow.

One is our clearinghouse is becoming Eurocentric, and it has been Nordic-centric, and it makes it easier for global players and European players to become members and to fully participate in the clearinghouse.

At the same time, we are making the trading platform industry standard Genium INET with industry-standard interfaces with world-leading performance.

So that is all good stuff for the existing products we have, and with the innings metaphor, we are early days with that.

So we don't have really I think -- we have co-lo customer for our listed derivatives business, and that will be a different state of being 12 months from now.

In addition to that, we have this clearinghouse, we have this trading platform, and we have to have an innovative culture.

So we need to put more product through that derivatives clearing house, and that certainly is our intention.

In terms of new initiatives, you have got repo and interest rate swaps had the early most important progress in 2010.

We expect the repo business to contribute some significant revenue to us in 2011.

Interest rate swaps we think will lag that by a little bit, but we did do some trades with the government debt office and some major Swedish banks, and we expect that to accelerate in the second half of the year.

We move over to the power market.

I covered N2EX.

We are certainly excited about that.

As we have said previously, that market is essentially as large as our Nordic market is, and we've got an exciting opportunity.

And it definitely was a cause for celebration to get the derivatives market launched and some trades that happened yesterday.

So we are excited about that.

And the core business in the Nordics for power, we think we will track in some general way GDP growth, and we are happy to see that the Nordics as compared to the US and most of Europe is obviously in a good position, and we think that business will continue to do well.

And on the energy carbon, do you think that $9 million to $12 million should we think of that growth trajectory linked-quarter as being sustained as we move into and through 2011?

Well, I think that it is important to recognize that there is cyclicality to the energy business, and the fourth quarter tends to be the strongest quarter for the year.

The fourth and the first quarters tend to be the strongest quarters in the year with the second and the third being a little bit less strong.

So if you are looking at a quarter-over-quarter nine to 12, I think that projection is a little bit strong.

Now quarter four 2009 was $10.2 million versus $12.1 million in quarter four 2010.

So I think that you can see good progress even against the fourth quarter of last year.

But there is certain seasonality in the business.

Right.

That is helpful.

And then same kind of analogy and a couple of things you mentioned earlier about the US options business, Bob, on the complex order system that you're instituting at PHLX and also the Alpha Indices in early second quarter, what kind of trajectory do you think we will see from those in the second quarter through the fourth-quarter 2011?

Well, our thought is that you will have expanding volume and expanding market share.

And so basically the success we saw in 2010 should continue.

Great.

And then just on expenses, Adena, the $25 million of nonrecurring, how should we think about what makes up that $25 million, where it hits the P&L?

Well, I think that generally we do have a few items that we can look at in terms of technology changes that we are making during the year, and that would then accelerate some depreciation, as well as an office move that we have during the year that could have some impact on that.

But I would say that there is nothing large or sizable that we can point to right now as to what would drive the nonrecurring.

But we do tend to have nonrecurrings during the year, so we have projected those through the year.

That is great.

And then just lastly on the year, what is your FX forecast that you are using in your budget for 2011?

Well, I think the Swedish krone right now is at SEK6.5 to the $1.00.

I think if you look over the last month, it was around SEK6.7, which is a very strong level.

And I think that if you -- in terms of my comments around FX, that is the rate that we were looking at in terms of it trending higher than 2010.

Okay.

So a little higher than SEK6.7?

Yes.

Jonathan Casteleyn, Susquehanna.

Bob, you just mentioned some confidence in continuing to gain market share in US options.

I guess I'm trying to understand what exactly about your functionality your technology allows you to have a forward bias to your option marketshare gains in 2011?

Well, two things I am highlighting for this call.

One is the fact that NOM will be accessible to the broader world come the end of April.

And there is pent-up demand for people wanting to get the NOM, and we needed to make it a seamless effort for them.

So we will accomplish that at the end of April.

The second is that there is a segment of the market that we have not been able to compete for.

We have been lacking the functionality, and that functionality is coming online.

Okay.

That is helpful.

And then to Adena, can you remind me of your debt to EBITDA covenants in the OMX credit facility?

I think there was some limitation when you took out that debt piece.

I'm just wondering exactly can you just refresh my memory as to what it was?

Sure.

So the debt covenants we have currently on our term loans is we have a 3.5 times total debt to EBITDA ratio covenant in the loan agreement today.

And in terms of looking at buybacks and other capital return activities, we are at a 3 times total debt to EBITDA before it goes into a basket.

But the total debt to EBITDA calculation with our term loan is slightly different than how the rating agencies tend to calculate it.

So they do give us some credit for our cash, and our EBITDA is calculated without some of the non-cash items such as equity comp.

So it is a little bit of a different calculation than it is with the rating agencies.

Right.

And that three times, is that trailing, or is that forward, or do you --

Trailing.

It is trailing.

So do you have a forward EBITDA estimate for the firm?

No.

No, and we don't provide that.

That would be a trailing total debt to EBITDA ratio.

(Operator Instructions).

Rob Rutschow, CLSA.

I realize it is pretty small, but I think you guys provide technology for several of the Middle Eastern exchanges.

Can you just confirm that that is maybe 10% to 15% of technology revenues and just give us any thoughts there?

Yes, I don't know.

I'm looking.

Do we know off the top of our heads?

(multiple speakers).

No.

We do provide that technology, so I think there (inaudible) changes in the Middle East.

So we are very active there and very successful, and we have Kuwait being a significant client who is going to be coming online hopefully pretty soon.

And we have been working very closely with them to finalize the technology implementation for them.

But I would also say since we have not received any questions, while we are on Market Technology, I would highlight their outstanding fourth-quarter performance.

And obviously Genium INET is in a strong part of the product cycle, and the addition of SMARTS and FTEN gives them additional products.

So they enter into 2011 with record level backlog, but also the most competitive product set that I think we have ever had.

I guess to follow up on that, in thinking about the Market Technology business, is there any way to size the global market and what your marketshare might be?

Well, I would say the key thing for you to focus on right now is with SMARTS and FTEN, in a certain respect, we have redefined the market.

We have been focused on exchanges as really our customer base.

And now with these acquisitions, you can also state that regulators on a global basis and aspects of the broker-dealer operation are part of our defined market.

So our defined market in 2010 increased dramatically.

And one separate question.

With you bringing some of the repo contracts onto your balance sheet, does that impact your required cash at all?

No.

I mean generally speaking, as we look at the restricted cash, we always do a regular calculation associated with all the activity in the clearinghouse.

But the fact that the repos are showing on a gross basis on the balance sheet does not have a material impact on our cash needs for the clearinghouse.

At this time I would like to turn the call back over to our speakers for any closing remarks.

Good.

Well, thank you, everybody, for your time today.

I would like to just close by in a sense repeating what I have said.

This represents I think the fruits of a multiyear effort to diversify our business, one, from an asset class and, two, from a geography point of view, and we hit on many cylinders last quarter.

The Global Index business we did not speak to, but they also had an outstanding 2010 and are positioned to grow into 2011.

So we feel, as we look across the different aspects of NASDAQ OMX, we enter 2011 with great confidence.

We would like some tailwinds as opposed to headwinds, but we produced $0.55 per share dealing with a lot of headwinds.

So we are proud of that, and hopefully the investors recognize that the strategy is working.

So thank you and look forward to talking to you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program.

You may all disconnect.

Everyone, have a great day.