納斯達克交易所 (NDAQ) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NASDAQ third quarter 2016 results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I will now turn the call over to your host, Ed Ditmire. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss NASDAQ's third quarter 2016 earnings results. On the line are Bob Greifeld, our CEO; Michael Ptasznik, our CFO; our Chief Operating Officer and President Adena Friedman; Vice Chairman Hans-Ole Jochumsen; Ed Knight, our General Counsel; and our other members of the Management team. After prepared remarks, we'll open up to Q&A.

The press release and presentation are on our website. We intend to use the website as a means of disclosing material, non-public information, and complying with disclosure obligations under SEC Regulation FD.

I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations, and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these projections. 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. I now will turn the call over to Bob.

Thank you, Ed. Good morning, everyone, and thank you for joining us today to review another quarter in which NASDAQ set several financial highs, as well as discuss progress on our key initiatives and our investments.

What is interesting and satisfying to me about this quarter is the balanced model we have created, and a strategy which focuses first and foremost on serving our clients' needs, and this continues to deliver. As we have proven quarter after quarter, when we serve our clients well, we are privileged to be able to invest in both our future and serve our shareholders well.

A principal way we achieve this is our focus on technology leadership, in which we can lever our expertise, our relative advantages, in a manner that benefits clients and creates real opportunities for growth across our businesses. I will focus my remarks today on these central points, and how they manifest in our results, and drive our efforts as a financial technology Company.

During the quarter, NASDAQ delivered net revenues of $585 million, non-GAAP operating income of $268 million, and non-GAAP net income of $154 million, which set all-time highs, while non-GAAP EPS of $0.91 tied our record high.

When you look at the quarter, to me what is most interesting about our performance is our continued consistent march in generating organic growth across our non-transaction business segments. Despite lower volumes in the transactional environment, the diversity, resiliency, and the complementary nature of our model continues to drive us forward.

Just to highlight for everyone on this call, again regarding the significance that our model plays in our results, post the ISE acquisition, over 75% of our net revenues during the third quarter of 2016 came from subscription and recurring revenues, a record $441 million, quite a remarkable testament to the evolution of this franchise.

During the quarter we saw 5% organic net revenue growth across the non-trading segments, which provide the vast majority of the subscription and recurring revenues, with the biggest contribution to our growth coming from the Technology Solutions segment, with 10% organic growth, truly outstanding. In addition to strong organic growth progress, we also continued to successfully integrate the four acquisitions made in 2016, which are right down the center of our bowling alley. We've already begun to deliver significant accretion to our shareholders from these acquisitions. I will come back to that in more detail later in my remarks.

As I mentioned, we are maniacally focused on the client, their problems and pain points, and what we can do to solve them and unlock new opportunities. Now I want to turn and highlight on how this focus is responsible for generating opportunities in our non-transaction businesses, and driving the growth we saw during the quarter.

As I pointed out early on, one of the great advantages NASDAQ has is in technology leadership, which provides us with a variety of options for responding to our clients' complex challenges, and offering new and better solutions. Clearly, one of the best examples of this in action is in our market technology business, where over the past several years we have shifted our strategy from a product-centric approach to a more wholistic solutions approach.

The investments we have made to strengthen our smart surveillance, post trade, and risk and compliance offerings have resulted in strong growth, and we continue to see strong up-tick across these businesses during the third quarter, as our clients continue to turn to us for these mission-critical solutions.

On the surveillance side, we clearly are the beneficiary of industry trends towards more transparency and regulation, especially in Europe, where the market abuse regulation, MAR, came into play at the beginning of July of this year. Importantly, we see also other regions are continuing to bolster the regulatory requirements with regard to surveillance and compliance; and also that the requirements on market participants are extending beyond the sell side to impact the buy side directly, something we've worked very hard to position the franchise for, with our new Buy-side Smarts offering.

Certainly fundamental to our approach in the market technology business has been the introduction of the NASDAQ Financial Framework. We announced this in May of this year. This Financial Framework is truly a game-changer. It provides a unifying framework for all our products, and importantly allows us to deploy innovative capabilities such as the Blog Chain. This is a leading example of how we are in lock-step in an integrated manner with the balance of our products as we integrate this NASDAQ Financial Framework.

Staying within our Technology Solutions segment for a moment, I want to highlight the progress we've made in our corporate solutions business during the quarter. When we look at corporate solutions, we have been on a mission to add greater levels of value for our clients through product enhancements, new technology, and scale. Key to our efforts are the integration efforts of the Market Wire and Boardvantage businesses, and our ongoing focus to provide our clients with more robust solutions like IR Insights. We have migrated 80% of our legacy platform's client base, with over 3,800 users on the new platform to date.

While we still have more work left to do, we do believe we have turned an important corner in making this business both more effective and now efficient. This is very encouraging, and certainly indicative of the dedication by this very talented team to our clients, and speaks well of our ability to deliver in the quarters to come.

Now clearly, one of the businesses that benefits from our success in corporate solutions is our listing services business. Growth in listing services during the quarter continued to be impressive. In fact, I would say that our listing franchise has never been stronger. This is evident in both our US and Nordic franchises.

In the US, I'm very pleased to report our competitive position continues to increase. Year-to-date, we've achieved an outstanding 74% win rate in IPOs, welcoming Nutanix, The Trade Desk, and talent in the third quarter. Additionally, in October this year the largest energy IPO of the year listed with NASDAQ, Extraction Oil and Gas. In switches, we've welcomed 16 companies thus far in 2016, with a combined market capitalization of $42 billion from our competitor, bringing our total switch market cap to $850 billion. $1 trillion is not far away, since regulatory changes opened this channel up in 2002.

In ETP listings, we've grown our issuer account 48% year over year.

The Nordics, in many ways, is even more impressive. We're very proud of the entrepreneurial companies which continue to choose NASDAQ as their listing home. There are 57 new company listings to date through September 30, the of most of any European financial center. For the first time in my memory, the Nordics have out-raised or out-listed London, certainly record performance. This does follow a great year last year where we had 91 listings. The Nordic market also continues to gain attention from companies domiciled outside the Nordics.

When you look at this together, it is evident that the platform we have built that addresses not only capital-raising needs, but also provides companies with mission-critical solutions and intelligent solutions that supports our companies through their entire life as a public company is resonating in the market place.

While the non-transactional business has continued at very consistent, healthy expansion, it should never be forgotten that our suite of leading trading market places are absolutely fundamental to our strategy. To that effect, looking into our most foundational trading business, US equities, we had a bit of a mixed trend in terms of share and capture in the third quarter. I am pleased to report that average capture, in particular in US equities, showed sequential improvement in the third quarter, but market share was marginally lower.

The biggest driver of changes was industry mix -- in particular, more off-exchange trading. In particular, in [Cave C] where NASDAQ listed securities, where we are obviously heavy overweight. In this relatively low volatility, low volume environment, we tend to see lower market share, but this is somewhat mitigated by a tendency to see an increase in capture. In addition, we tend to see increased revenue from our off-exchange trade reporting facility, the TRF. Our TRF serves over 90% of this market, which is currently around 35% to 40%. Those are mitigants to the decrease in the volatility and the volume in the market.

When we look at our performance, we continue to enjoy very strong lead in NASDAQ-listed Cave C securities, where in the third quarter, for example, we matched 28% of overall volumes, and we represented 64% of volumes, including our TRF off-exchange trade reporting services, which leaves only a combined 36% share for every other SEC-regulated exchange for Cave C.

We continue to see good opportunity to improve our share in the coming periods, especially given that our competitive position relative to the other exchanges remains strong, and we have important innovations in the pipeline, such as our extended life order, or ELO.

As I mentioned earlier, we have completed four acquisitions this year. What is most impressive is that our teams have done an outstanding job in incorporating the talent, resources, and technologies these companies bring to NASDAQ. Strategically, these acquisitions play to our core strengths, or down the center of our bowling alley, as I like to say. They maximize our chance for success. This is the first full quarter with all four of the acquisitions under the NASDAQ umbrella, and they are already delivering meaningful accretion to our shareholders.

Let me share with you some of the highlights on our progress. We closed the transaction of the International Securities Exchange, ISE, in June. This was significantly ahead of schedule, and since that time we have been executing on our objective to have ISE lever of the best technologies and features from both NASDAQ and ISE to serve our clients.

Our continued focus on our clients throughout this process is important to us, and I'm pleased that we've continued to earn from these customers market share at industry-leading levels, within 1 point or 2 of the roughly 40% share that NASDAQ and ISE separately totaled in the periods prior to the combination. In addition, we've been able to realize $15 million in run-rate synergies for both ISE and Nasdaq's CXC at the end of the third quarter, and these acquisitions are accreting to our shareholders ahead of schedule.

In our corporate solutions business, we closed Marketwired and Boardvantage in the first and second quarters, respectively. We continue to make strong progress integrating these businesses into our offering. These acquisitions are very appealing in that they both significantly expand our base of corporate customers, bringing our total corporate customer base to approximately 18,000 clients, and as we integrate them, will enable us to accelerate the depth and the breadth and the speed in which we innovate, and bring exciting new products to PR distribution, governance, and board portal space.

Overall, I'm very pleased with the progress made so far this year. There is still work to be done, but as I said, we have turned the corner in terms of you how we operate the business, and we are very well positioned to deliver meaningful organic growth in the future.

As you can see by the examples I have highlighted, our model, driven by a diverse mix of businesses, provides us with the flexibility and opportunity to both explore and execute on a variety of initiatives. To give you an example, year to date we have seen organic growth coupled with strong operational focus on expenses, synergy realization, and sound capital deployment.

Returns generated 8% non-GAAP EPS growth in the first nine months of 2016, in addition to significant growth in our dividends. This EPS and dividend growth in turn formed the foundation for an impressive 29% total shareholder return in the 12-month period ending September 30.

Now certainly when it comes to how we look at investing in our future, organic growth is our first priority and our preference. We have a robust process for vetting growth concepts internally at NASDAQ through our R&D program, and have a strong track record to date with our organic initiatives, some of which I will highlight now.

Clearly, one of the more outstanding initiatives we have undertaken, and something we're very proud of, is our launch of NFX in 2015. The increasing traction NFX has seen in the energy market over the past year represents a positive vote by market participants and our clients in a more efficient, cost effective, and responsible alternative was and is needed.

To highlight our progress, we set the following records in September. Monthly average daily volume was 151,000 contracts. We set new Brent and WTI volume marks, each over 70K. Open interest reached a new high before the September roll of 1.2 million contracts, truly impressive.

Perhaps more importantly as we look forward, our client on-boarding backlog, including merchants and utility end users, is at a record level. Good days to come. While we don't consider that NFX has achieved success yet and certainly isn't guaranteed to do so, we can see clearly how continued growth in the coming periods could establish it firmly as a very important and valuable asset.

Another significant investment we have made which has fulfilled a previously untapped need in the marketplace is our effort to transform the private market. Overall, we are pleased with our progress, with a 175% year-over-year increase in the number of liquidity events facilitated. This is a great example of how we are exploring ways to apply disruptive technology like the Blog Chain and market expertise to support our clients.

Our future depends on how well we see around the corners, and apply technology in innovative ways to the benefit of our clients. To this end, we currently have a number of use cases in our pipeline across all our businesses, and we're excited about the opportunities that leveraging these technologies represent for our clients and our businesses.

For example, in September a new data product suite called NASDAQ Trading Insights, designed to help traders better understand how they perform in the market, how the market behaves, and how they can adjust their strategies to be more successful. It combines proprietary data with advanced analytics and machine learning to provide insights, and is the first commercial solution to come out of our information services innovation lab, which brings together inside and outside technologies, data scientists, software engineers, and business experts.

It is a great example of the kinds of solutions that we're developing today that will harness disruptive technologies, and the kind of innovation that you will certainly see more of from NASDAQ in the months to come.

In closing, I've talked a lot today about the progress we are making to serve our clients through strategic acquisitions, organic growth initiatives, and through the effective use of capital. But in reality, we view our job as much simpler than that. Our job is to listen to our clients, and respond to them and to market stimuli. This quarter is really a testament to our ability to do that effectively on the multitude of levels across this franchise.

I have no doubt that the strength of our model, coupled with our ability to apply technology to benefit our clients, will certainly drive this franchise forward for the remainder of this year and into the future. Now I will turn the call over to Michael to review the financial details.

Thank you, Bob, and good morning everyone, and thanks for joining us today. My commentary this morning will focus on our non-GAAP results. Reconciliations of US gap to non-GAAP results can be found in the attachments to our press release, and in the presentation that's available on our website at IR.NASDAQ.com.

I will start by reviewing third-quarter revenue performance relative to the prior-year quarter, as shown on page 5 of the presentation, and organic growth from page 6. The 11%, or $56 million, increase in reported net revenue of $585 million consisted of $58 million in net revenues from our 2016 acquisitions of ISE, Marketwired, Boardvantage, and Nasdaq CXC, and organic growth in the non-trading segments of $17 million, or 5%.

This was partially offset by an organic decrease in market services net revenues of $20 million, or negative 10%, resulting principally from the exceptionally strong multi-year highs in industry volume in the prior-year period.

I'm now going to go over some highlights within each of our reporting segments. All comparisons will be to the prior-year period unless otherwise noted. Information services on page 7 saw $2 million in organic revenue growth, and a $3 million increase related to the ISE and Nasdaq CXC acquisitions. Data product revenues increased 6%, including organic growth in proprietary data product revenue, the inclusion of revenue associated with the ISE and Nasdaq CXC acquisitions, as well as higher audit collections.

Index licensing and services revenue saw a $1 million decline, primarily due to a decrease in the value of underlying assets associated with non-ETP NASDAQ licensed products, and lower fees on derivative products that license NASDAQ indices, due to lower volumes.

The operating income margin declined modestly in the third quarter to 71%, from 73% in the prior year, due principally to certain temporary expenses, including those associated with new product initiatives.

Technology Solutions revenue, as shown on page 8, increased $36 million, reflecting a $22 million contribution from the acquisitions of Boardvantage and Marketwired, and a $13 million, or 10% organic increase. The operating income margin was 18%, up from 15% in the prior-year period.

Corporate solutions revenues increased due to the impact of the two acquisitions. Organic revenues were unchanged, which is an improvement from modest declines in recent quarters. Market technology revenue increased $14 million, or 24%, primarily due to increased revenues from software licensing and support contracts, as well as surveillance products. New order in-take was $49 million in the third quarter, and the period end backlog finished at $738 million, unchanged from the prior year.

Listing services on page 9 saw a $2 million, or 3%, organic increase in revenues, driven primarily by an increase in Nordic listing revenue, due to new company listings. Market services net revenues on page 10 saw a $33 million increase from the acquisitions of ISE and Nasdaq CXC, partially offset by a $20 million organic decline, due mostly to the tough industry volume comparable in the prior-year period, netting to a $13 million increase. Market services operating income margin totaled 54%, versus 55% in the prior-year period.

Equity derivatives trading and clearing net revenues increased 31%, primarily due to the ISE acquisition and higher US market share at legacy NASDAQ markets, partially offset by lower industry trading volumes. Cash equity trading net revenues decreased 12%, primarily due to lower matched market share, industry volumes in US average capture, partially offset by the inclusion of revenues from Nasdaq CXC. Fixed income in commodities trading and clearing net revenues decreased 22% from the prior year, due primarily to declines in US fixed income and commodities revenues, as well as the impact of trading incentives on NFX revenues.

You'll note that we've renamed Access and Broker Services to Trade Management Services to better reflect the broader nature and scope of services these revenues represent. Revenues here increased 17% due to the inclusion of revenue from ISE, as well as increased demand for connectivity solutions.

Turning to page 11 to review expenses. Non-GAAP operating expenses increased $41 million. This increase included $29 million in expenses from our acquisitions, and $13 million or 5% in organic growth, excluding $4 million to $5 million in the quarter of acquisition synergy benefits.

Bearing in mind that Q-over-Q expense comparisons often have significant volatility due to things like changes in the performance-based compensation accruals, or non-recurring items that don't meet the qualifications for non-GAAP exclusion, I'd note through the first nine months of 2016 organic expense growth has been approximately 3%, in line with the same organic expense growth rate we saw in the full year 2015 period.

Turning to slide 12, our revised 2016 non-GAAP operating expense guidance has been narrowed to $1.22 billion to $1.24 billion, or a 4Q range of $323 million to $343 million. This is above the 3Q 2016 level, but please keep in mind that there are typically seasonal differences in the 3Q and 4Q expense run rates. For example, the third quarter typically features marketing, professional -- lower marketing, professional services, and travel expenses, and some seasonal benefits in compensation.

Non-GAAP operating income increased 6% in the third quarter of 2016, and decreased 6% on an organic basis. Net interest expense was $36 million in the third quarter of 2016, an increase of $9 million versus the prior-year period, reflecting the additional interest expense from our recent bond offerings. The non-GAAP effective tax rate for 3Q 2016 was 34.2%, and within our unchanged 33% to 35% full-year guidance. Non-GAAP net income attributable to NASDAQ for 3Q 2016 was $154 million, or $0.91 per diluted share, compared to $151 million, or $0.88 per diluted share, in the third quarter of 2015.

Now moving on to cash flow and capital, please turn to slide 16. We repurchased $55 million in stock during the third quarter of 2016, bringing our total buy-backs to $100 million in the first nine months of 2016. As of September 30, 2016, there is $429 million remaining on the Board repurchase authorization. Through dividends and repurchases, NASDAQ returned nearly $250 million in capital to shareholders year to date in 2016.

Finally, while we don't have Ron on the call with us today, I'm sure he is listening to what -- I'm sure he is listening. I just want to thank him for the great team I've inherited, and for the immense support he's provided me as I've transitioned into my role here at NASDAQ. With that, I thank you for your time, and I turn it back over to Bob.

Thank you. Operator, I believe we're ready for questions.

Thank you.

(Operator Instructions)

Our first question comes from Rich Repetto with Sandler O'Neill. Your line is open.

Good morning, Bob. Good morning, Michael. Congrats on the quarter and the record performance in the non-trading segments.

Thank you, Rich.

The first question is on the expense, I see the seasonal increase. I've been looking at expenses all morning on this. The only question I would have is that you're well ahead, or aggressively started, on the synergies. Do you expect -- how do you get the rest of the -- I think it's 23 of the total 60. How should we think about your achievement of those over the next year to 15 months?

Well, I would say, one, Rich, is compared to when we announced the deal, we obviously have increased confidence that we're going to get there; but we're not prepared to be more granular with respect to the exact timing. We're well under way. We still expect to have both positive and negative surprises as we move along, but we know we're going to get to the end state.

Okay. Then my one follow-up would be, Bob, you addressed a lot on the equity market share. It's still just slightly up in 3Q, and volatility has improved. Turning also to options, as well, when you look at the ISE's market share, that I think is at a low or record low. Then you have the CBOE-Bats pending merger. How do you think -- the market share's been drifting off there. I know it's, again, a small part of your revenues, but maybe more detail -- the steps you're taking to address the share issue?

I would say this. One is I said on the prior call, we're managing the market share on a consolidated basis. We have a number of licenses that are real important to us. We'll definitely take certain actions which have to have a positive impact on one of the license, and a partially negative on the other. I would direct you to look at the combined market share, and I made reference to that in my comments there.

I'd also make mention of the fact that we certainly have seen with the OCC changes fewer dividend trades, strategy trades, so I think that has had a one-time impact on the market share going forward. In terms of where we are, we certainly believe that complex order flow is an increasing part of the market going forward. We have the leading position. We're going to continue to invest in that. We feel we will benefit from that trend line.

Okay, thank you.

Our next question comes from Chris Harris with Wells Fargo. Your line is open.

Thanks. Hoping you guys might be able to talk to us a little bit about how you think the CBOE for Bats deal will impact the industry, and in particular what you plan to do with ISE?

Yes, good question. Certainly we think the deal makes industrial logic, makes sense. I think it will certainly provide them synergy opportunities. I think it represents a return to their investors. We think strategically it doesn't change much. We're tough competitors with both CBOE and Bats today, and we think that will continue there.

We're happy, obviously, to have Bats and CBOE in a public forum, and represent a rational competitor. We run an efficient market place. The way we look at it, the competition against different players where efficiency's important is something we welcome. We also know strategically we have the scale, so we have the ability to lever more flow against our highly efficient platform, so we feel good about that.

The options market is something we believe in. We think it's going through a down cycle with respect to overall volume trends, but we see that growing in the future. As previously highlighted, we think complex is going to be an increasingly important part of the market place.

Certainly our job with ISE is to get through the transition as quickly as we can. As I've said, we've made great progress on it. We got a lot of work to do, but we've got a very talented team focused on it. I think you'll see us achieve that in a rapid pace.

Thank you.

Our next question comes from Ashley Serrao with Credit Suisse. Your line is open. Ashley, your line is open. We'll move on to our next question from Dan Fannon with Jefferies. Your line is open.

Thanks. Can you expand upon some of the strength in tech solutions? Certainly in the quarter, we've had a couple quarters in a row of that being the primary source of growth, and then we're heading into the seasonally typically stronger period of the year. Any little guidance in terms of thinking about the fourth quarter, as well, would be helpful?

Sure, this is Adena. The market technology business continued to have a very strong quarter in terms of new sales in our surveillance business, in our TRC solutions to the corporate, as well as continued growth on the core business. Some of that is coming from the full-quarter effect of the (inaudible) deal, but some of it's also just other contracts coming on line, and some short-term what we call CRs or short-term development revenues that we had in the quarter.

As we look at the fourth quarter, you're right, the fourth quarter tends to be our seasonally strong quarter, both in terms of sales as well as short-term revenue. We would anticipate that seasonality would continue to occur. We just are seeing really good strength across the business right now.

Great. Then I guess just a follow-up on that. Also, the margin in that segment looks like flat quarter over quarter. Do you still anticipate that to continue to grind higher, and what's a reasonable framework to think about when you -- or targets for that segment?

Sure. The Technology Solutions business, as a reminder, includes both corporate solutions and the market tech business. You're right, we are seeing that we've had a nice lift in the margin year-over-year quarter. Quarter over quarter from Q2 to Q3 is relatively stable.

We are continuing to find opportunities to grow the margins across that segment. As we've mentioned before, we do have a 20% target, and we gave that target out around a year ago. We are marching towards that target, and we continue to see progress there.

I'd also would highlight the fact, and I mentioned it on the prepared remarks, the fact that Adena and the team are completing the integration of IR Insights to simplify their mission, and certainly will narrow their focus, and I think also help contribute to margin expansion as we get into 2017.

Great, thank you.

Our next question comes from Ken Hill with Barclays. Your line is open.

Hi, good morning.

How we doing, Ken?

Doing good. A question here on the data side I was hoping you guys could touch on. Specifically, hoping you could provide an overview of some of the recent changes on the SIP, and then also your ability to charge for premium services like Ultra alongside of that? It seems like the upgrade definitely has implications for the industry from a speed perspective. But then also the read from some of the industry folks, it seems like they're starting to take a little bit more issue with some of the premium charges associated with things like Ultra longer term as market data costs move higher for them. I'm hoping you could walk through how you're seeing that area right now?

Let me start by complimenting the team in that the performance of the SIP is beyond what we had on the drawing board. We're significantly below 50 microseconds, you might say 20 or 30. That represents really I think the top technological achievement in the industry right now, so we're proud of that. I think it's better for the industry.

It's also important to recognize that our proprietary data feeds are first and foremost about content. Speed was always a secondary concern. There was unique content in our proprietary feeds that you do not have in the SIP.

Yes, I would echo that. I think we look at the proprietary feeds as providing additional value in terms of the depth of market. That's really the primary reason why people buy those feeds, in addition to the speed. They're able to get it in a machine-readable format that allows them to make complex order routing decisions, algorithmic decisions, in terms of their interactions with the markets that go beyond what the basic feed provides through the UTP feed. We are very pleased with the performance of the SIP, and we think it is a great benefit to the industry, but we also see it as complementing the proprietary offerings that we have.

Yes, and with respect to whatever controversy you're speaking to, it's important to know that the SIP, while we're providing technology, is not governed by NASDAQ. It's an industry initiative. The pricing associated with the SIP is not a NASDAQ decision. It's a SIP committee decision.

Got it. Okay, appreciate all the color there. Thanks very much.

Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Hi, good morning folks, thanks. Maybe Bob, if you can talk a little bit about the NFX strategy once again, in terms of how you feel that's progressing, and what the EPS drag is. I know the incentives are I think up a little bit. If you can, remind us as what point do you want to see more progress in that before you curtail the strategy?

Okay. I would start by saying with respect to NFX, it's important to recognize that we get the publicity, it has our name in it, but this is an industry effort. This was customers coming together, saying they want to do something to change the duopolistic or monopolistic practices of vertical monopolies. We responded to that. We have been down the road before, so it's important for us not to just be engaged with happy meetings, but the customers had to put real skin in the game to launch this thing. They've done that, and they have come through.

As we stand here today, our progress is certainly more significant than we would have planned for at this point in time. As I mentioned in my comments, on-boarding of new customers is at a record level. What I didn't mention is we have additional large industry participants who want to become part of the partnership, and I think the partnership will expand to allow them in.

We're living in happy times where there's a lot of in-bound. Our success today is very strong. The in-bound as a forward indicator would say there's more success to come. But we remain quite focused. We know that while we've had great success, we need to get a higher level of success in order to have what I call a definable asset.

I would say this, Brian. There is zero, and I mean zero, thought with respect to the last part of your comment of us thinking about curtailing it. This is a thing that's expanding, and we here and our customers are very excited about what's being created.

Brian, the EPS effect is just $0.02 on the quarter.

$0.02, okay. That's a good run rate for future quarters in this project?

I think you'll see in 2017 that has a good opportunity to narrow. What we have is a what I'll call policy, but a loose policy is when we have double-digit market share in a given instrument, then we tend to work with our market committee, and decide what is a proper price at that point in time. As we've said, our target rate as we get fully established is in and around $0.60 a contract.

Okay, great. Then maybe just a question for both Bob and Michael. If you can, talk a little about what you're thinking for the longer-term strategy in Canada with the Chi-X acquisition in that market? Is that something you -- is Canada a market where you think you might in a variety of ways get much better penetration and focus longer term?

I do like the fact you directed it to Michael, as our Canadian sitting here at the table. I'll start, then Adena can help, and Michael's always free to chime in.

I would say this, and it's not specific just to Canada. Our brand value in the listing game is a global brand. We see it having pull in the Nordics for countries in the rest of Europe and outside Europe, and you see that same attraction in Canada.

Our listing franchise is incredibly strong, and certainly I think you can reasonably see that there's ways we can use that not just in Canada, but in other parts of the world. That's certainly part of our plans going forward, but we have to do that intelligently. What I like about what's happened in Nordic, it's grown organically as people realize how good the NASDAQ market is in the Nordics, and we plan to move along.

We are very happy with the progress of our Canada operation today. We realize it's early innings, and our plans will become more comprehensive as time marches on.

I'll throw in, especially because I know that there will be -- my Canadian friends still listening in on this call. The only comment I would add to what Bob said, he talked about the brand and the capabilities. What I've seen here is the numerous capabilities in the different products and services that we have here at NASDAQ. Whether it's in the corporate solutions area or in the multiple areas that we have from a technology capability standpoint, I think we'll be very effective and be welcomed by Canadian customers and the Canadian market place.

Do you plan on getting traction in some of the corporate solutions products in Canada, as well?

With the acquisition of Marketwired, we do have a large group of Canadian clients at this point. It was their primary market. Therefore we have the opportunity to cross-sell other services into those clients. It has become a larger part of our strategy. Even before that, we did have a lot of Canadian clients working -- just using our investor relations services. We have a nice presence in Canada now. We have a larger office there. We certainly see opportunity to continue to grow the Canadian market place for corporate solutions.

Great. Thanks so much for the color.

Our next question l comes from Chris Allen with Buckingham. Your line is open.

Good morning, everyone. I wanted to ask a little bit more about market data. I might have missed it. I was wondering if you could give any color in terms of audit fees in the quarter? Then there's been some recent worries about the trajectory of market data. [Faxet] noted on their call lower this number of US screens as some hedge funds have gone out of business. I was wondering if you could give any color in terms of what you're seeing from client usage perspective, and how to think about the trajectory moving forward?

I'll answer that second question first. In terms of the general usage of our data, we see that being relatively stable. Remember, we receive fees both in end users, as well as in distribution fees and machine usage of our fees. We have the ability more generally to have a stable revenue stream associated with overall industry use of our data.

We continue to see very good demand for our new NASDAQ basic feeds that are -- or not new, but it's been around less time than others -- and we continue to see growth there. We also interestingly have seen increased demand and sales of our data into Asia. We have put a salesperson into the Asian region, and it's been a nice year in terms of new opportunities that have come from Asia. I think that we are continuing to find that there is healthy demand for our service. It's relatively stable.

With the new Trading Insights product, we continue to find opportunities to find new insights in our data that we can sell to the clients. We launched that product in September. We already have several firms using it, testing it, and one firm already said yes, this look great, and they're now buying it. We're really pleased with how the data business is going in general.

The total other revenues in the quarter were $4 million, up about $1 million from the same period last year.

Got it. Then any metrics you can provide in terms of sales of IR Insights? I know you've talked about it a little bit in the past, in terms of it's starting to pick up a little bit. I know it's a longer sales cycle, three to six months. I'm just wondering if you're seeing progress on that front right now?

We are actually seeing progress. We don't give specific statistics, but we are seeing more head-to-head wins and fewer head-to-head losses with our competitors, in addition to clients picking up additional seats.

But it is a relatively mature business. There's not a ton of new IR directors who don't have some sort of intelligence service. We are making sure they're using this to compete much more effectively against the key competitors, in addition to finding new ways for them to use the product within the franchise, whether it's at the CFO level, or other parts of the C-suite organization. We definitely are seeing really good progress there.

We did also, I should mention, launch a new service within IR Insight called IR Analytics, which is essentially a machine-readable way of -- or I should say an automated way of delivering out some of the advisory services that we deliver. There's more intelligence and integration of that data and information into the rest of the IR Insight suite. We're continuing to add really nice value into the platform, as well.

Got it. Thanks a lot.

Our next question comes from Patrick O'Shaughnessy with Raymond James. Your line is open.

Following up on some of this corporate solutions discussion, can you talk about some of the puts and takes why the revenue was flat versus the second quarter? If I recall correctly, there's typically some seasonality, but you also added a month of Boardvantage. It sounds like the things you're talking about, you're making a lot of progress with a lot of the key initiatives you've got under way. Talk about the puts and takes, and why that was flat quarter over quarter?

Sure. No, that's a good question. We did have the benefit of the full-quarter effect of Boardvantage. Marketwired has already been in there from the prior quarter. With regard to the webcasting business, it's been an area of weakness for us throughout the year. There have been some budget tightenings within some of the sectors that we're strong in, and we continue to see clients potentially trying cheaper options. We actually have seen a few clients returning to us after saying the cheaper options don't provide the security and the service they were expecting. But we are seeing some weakness there.

Then the legacy PR business, not Marketwired but the legacy PR business, had some downward trend in Q3, but that's often seasonal. Those two things, the webcasting and the legacy PR business, offset the benefit of the full-quarter effect of Boardvantage, and general strength in the board portal sales that we are seeing.

I also add that with webcasting, I think Adena and the team have identified really the customers we should be addressing. We provide a high-end service, we'll call it a white glove service, and that's where we're going to go. We're not so much chasing the last dollar of revenue, but making sure we get revenue where it makes sense, and it's integrated into the other suite of products. I think in the past it's just been about getting any order. We're going to continue with that philosophy -- higher margin, better revenue.

Got it. Then for my follow-up, if ISE has to divest Tradeport, is that an asset that you guys would be interested in, and do you think the regulators would let you buy it?

Well, I would say this. We haven't spent too much time thinking about Tradeport. Clearly, when it came for auction we were there to decide whether we were going to bid on it. We chose not to. I would say that our position is unchanged with respect to that asset.

Thanks.

Our next question comes from Rob Rutschow with CLSA. Your line is open.

Good morning.

How are you doing?

Good, thanks. I wanted to ask about expenses. Obviously you guided fourth quarter up. I'm wondering if the third quarter would have been seasonally lower versus the first and second quarters, or whether that's more consistent level? Thinking about next year, would this be a good run rate for the first and second quarters, as well?

The third quarter came in pretty much in line with the second quarter from an organic basis. The increase we saw was due to the acquisitions. With respect to the future years, we're not going to providing that guidance yet. We will -- typically, we'll give that -- we'll do the report at the end of the year.

I would say the only things we can point to you, and I covered them in my remarks, was so far year to date we've had about a 3% increase in organic expenses, which is consistent with what we saw last year, as well. You'll also have to think about obviously the remaining synergies, $37 million that will come in -- not all through -- for the full year, obviously, because they're going to come in through the year next year. Those are some of the key factors that I'd take into account as you consider next year.

Our next question comes from Michael Carrier with Bank of America-Merrill Lynch. Your line is open.

All right, thanks guys.

How are you doing?

Good. Maybe first on fixed income, on the legacy speed business. I think you made a strategic hire in the quarter. I just wanted to get your take on that business, the outlook, maybe what you're re-tooling in terms of where you see that heading over the next year or so?

Sure, great question. One, with respect to overall industry volumes, we certainly watch closely as the banks reported good FIC income. It's important to recognize that those metrics typically are not indicative of the Treasury business. Our reference points are more the Fred primary dealer Treasury bond volumes, which were flat to down; or the CME government bond futures contracts; or you look at the inter-dealer fixed income platforms. They're all flattish to down. We're still dealing with a somewhat difficult -- I should say difficult macro environment.

With respect to our execution, clearly John Shea coming on board brings I think a lot of skills and talents and experience in relationships to that effort, so we're proud to have him there. I'd also state that the efforts that are in place today with respect to E-Street Elect is I think something that we're going to continue to work on and see great progress with it. We also reference the fact that there are in fact dark pool capabilities that we can lever in the space.

I'd also make the general longer-term comment, Mary Joe White's comments with respect to implementing a right ATS kind of regime in the Treasury market would be seen I think as a positive for our efforts in the space.

We like our internal efforts between the two things we have in place today, and we like the general direction of the industry. I think John will continue to add value, and certainly will I think augment and hopefully improve the strategy going forward.

Our next question comes from Alex Cram with UBS. Your line is open.

Hi, good morning. Maybe more wholistically, can you give us an update on your M&A outlook? Obviously I guess (inaudible - accent) out there. I think you've been more focused on the market technology, non-trading side. What are you seeing out there? Where do you think you still need to add capabilities, and what are prices doing, considering maybe the weakness in the end market?

I would say this. We look for opportunities across the range of businesses that we're in. The largest acquisition we've done this year by several orders of magnitude is ISE, which is clearly in our trading services business. We have a number of different assets in our portfolio. We have a very clear view of the playing field, and what other assets that are out there that might be of value to us in time.

As I said, M&A has to be a slow-moving game, and you have to have a prior view of the attractiveness of each of the assets. A compliment to the Management team here. We have that. We pay attention to many things, and obviously 90%-something percent or 98% of the things we think about don't happen.

We were fortunate that really five deals including second market, after looking at them for a long period of time, came into play. We were able to then execute, and you see the results on our efforts today. Those results will have a more material impact as we go forward into 2017.

I think we still live in a time where valuations tend to be higher than they should be. You have a number of companies who want to be bought at growth Company valuations, when in fact they're not growing. We do not stomach that kind of disconnect, and we pay attention. The same story always. We look at a lot of things, and we only move when we have basically perfect alignment.

Our next question comes from Kyle Voight with KBW. Your line is open.

Hi, good morning. One more follow-up on the corporate solutions business, if I could. It sounds like you've made good progress on the IR conversions. I believe last quarter's call you stated that you're on track to complete those conversions this year. Could you just confirm whether that's still the case? Then sorry if I missed this, but if you could also help us think about the difference between the year-on-year organic revenue growth rates between the corporate solutions and the market technology businesses in the quarter? Thanks.

Sure. With regard to the IRI migration, it is still on track to be competed at the end of this year. The clients have been very collaborative and excited about the platforms, so it has been a smooth transition over to the new services, and they're seeing a lot of benefits from them.

With regard to the year-over-year quarter results on an organic basis, we look at the third quarter of last year to the third quarter of this year with our corporate solutions business, it was flat. With regard to the market tech business, it's 11%. I'm sorry -- I just want to make sure --

No, it's over 20%.

20% up, I was thinking quarter over quarter, sorry, sequential quarters. But yes, it's about 20% up year over year, for our market technology business, and that's organic.

Our next question comes from Vincent Hung with Autonomous. Your line is open.

Hi, can you talk about --

How we doing?

Good. Can you talk about you how some of the components of the index revenues trended this quarter, just given I think revenues were up 4% sequentially and the average AUM is up 6%?

Sorry, can you repeat the question? Sorry. Can we hear that question again?

If you could give us a bit of color on how components of the index revenues trended in the quarter?

Sure. The index business, we've had a nice recovery of AUM from the beginning of the year, where we had a major dip as a result of some of the market volatility. Our AUM generally is a little bit above where it was at the beginning of the year, so we're pleased with that. We've seen recovery there. The futures volumes were off a little bit in the quarter versus prior-year quarter, because there was a lot more volatility in volumes in the third quarter of last year. That has created some downward pressure in the revenue, and therefore it's essentially flat year over year quarter.

Okay, and just a follow-up on NFX. How many of the 118 firms that have traded since last year, how many of those are active users?

I think in a given day you see around 40 firms that are active. I would say of the firms who are active from the beginning, the vast majority of them continue to trade with us. But 40 is a number. That number obviously is growing on a month-by-month basis.

Thank you. Our next question comes from Ashley with Credit Suisse. Your line is open.

Good morning. Apologies for the earlier difficulties. First question is just on your plans to become bigger in the governance risk and compliance space. I know surveillance has been a strong suit over the recent years. It's been an area of strength in recent quarters. Does that have a long runway for growth? What are some of the other adjacent capabilities that you would explore adding that you don't have today?

I would start. Certainly on the surveillance side, we see an incredibly long runway for growth. It's a product set that we're investing in a quite aggressive fashion. I think we just approved further investment in it. When you think about where it came from the time we acquired the product to where it is today, it's a startling set of progress, but we think we have more to come.

If we look across the GRC space, most notably starting with surveillance, I completely agree with Bob. There are a couple of new things we have done. We made a minority investment in a machine intelligence company called Digital Reasoning which has natural-language processing capabilities specific to the compliance space for brokers. We are working with Digital Reasoning and with broker clients to create a holistic solution that matches up e-comm's compliance with their surveillance technology. That's a new capability we'll be delivering into 2017, and a growth area for us, an investment area for us.

Then additionally, we continue to look at how we can get bigger across the spectrum of trade surveillance, trade supervision, and compliance. We continue to work with our broker clients to understand where their biggest pain points, and how can your technology continue to serve them well. We see a long runway of opportunity there.

With regard to the corporate GRC business, which is really more enterprise risk management, operational risk management, we call that B-wise. That's been going through a revenue shift. While we continue to see strong sales, as well as good opportunities to expand what we provide to our clients, and we are investing in new capabilities. For instance, we recently launched an IT GRC module for that.

We are moving that also to more of a recurring revenue model from a perpetual license model, so that's been going through a little bit of a revenue shift. We expect that to come out of that in the next couple of years, so that we can continue to see growth in that business, as well.

This space is ideally matched what I referenced in my comments. We have leading positions in both of those, really in all those segments; but we're not complacent, and we recognize the technology change is coming. We're in front of that, and going to integrate that in a very aggressive fashion. We always like the fact when we compete against companies that call themselves technology companies, but are not in fact that. They're more sales companies. We have the technology muscle, the development muscle, to reinvent ourselves in this space. This is a dramatically growing space. We expect to see great growth from it in the decade to come.

Thank you. That concludes the Q&A session. I will now turn the call back over to Bob Greifeld for closing remarks.

Great. Well, I thank everybody for their time today. As we've said numerous times, this quarter again shows the resiliency and the diversity of our business model. We had an incredibly strong transaction revenue in August of 2015. We reverted to the norm in this August -- in some ways reverted below the norm. But in spite of that, you see us deliver record results -- great business model, great execution by the team. I appreciate your time today, and look forward to getting together with you again. Thank you.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and everyone have a great day.