Nasdaq OMX Group 3Q profit rises on cost cuts

FILE - In this Oct. 24, 2008 file photo, a man watches stock prices at the ...

Global exchange operator Nasdaq OMX Group Inc. said Thursday its profit rose as it cut costs and recorded fewer special charges during the third quarter.

Amid an increasingly competitive marketplace, Nasdaq OMX's revenue dipped 10 percent. However, it was able to offset some of that decline by reducing costs.

The New York-based exchange operator also recorded fewer special charges during the quarter which helped its profit rise about 3 percent.

Nasdaq OMX earned $60 million, or 28 cents per share, during the quarter ended Sept. 30. It earned $58 million, or 27 cents per share, during the year-ago period.

Adjusted earnings, which exclude special charges tied to a debt conversion, asset retirement, severance costs and merger expenses, totaled $89 million, or 42 cents per share, during the most recent quarter. Nasdaq OMX's adjusted earnings during the same quarter in 2008 totaled $108 million, or 51 cents per share.

Analysts polled by Thomson Reuters, on average, forecast earnings of 42 cents per share on revenue of $354.9 million. Analysts do not typically include special charges in their estimates.

Nasdaq OMX's total revenue after liquidity rebates and fees fell to $349 million from $399 million, during the year-ago period. A sharp decline in revenue tied to U.S. cash equity trading was the main reason for the overall decline in revenue.

Net revenue from U.S. cash equity trading fell to $24 million from $66 million during the third quarter last year. The revenue fell because the volume of trading handled by Nasdaq OMX continues to slip as the number of brokers using exchanges to handle trades declines.

In recent years, smaller liquidity providers and market-making firms have been making inroads into gaining trading volume at the expenses of the primary exchanges like Nasdaq OMX and NYSE Euronext.

The added competition has also driven fee revenue down on top of the decline in volume. Lower average net fee per traded share also attributed to the decline in Nasdaq's U.S. equity-related revenue during the third quarter.

Acknowledging the declining revenue and market share of U.S. equities trading, Nasdaq OMX CEO Bob Greifeld said during a conference call with analysts, "we have taken actions to address these issues and as we exited the third quarter, we saw noticeable improvements in many of the drivers of our cash equity business."

Nasdaq OMX made some changes to trading fees that are expected to increase revenue by as much as $15 million in the fourth quarter, assuming the exchange operator maintains the market share and volume it saw in October for the remainder of the quarter, Greifeld said.

Greifeld noted improvement at Nasdaq OMX's BX market, which it launched earlier in the year. It was the second U.S. cash equity market Nasdaq launched in 2009 as it tries to regain market share. BX's market share of U.S. cash equities was 2.7 percent in the third quarter, but rose to 3.7 percent in October, Greifeld said during the call.

Revenue for European equity markets also dipped during the quarter as the value of shares traded declined and because of currency exchange rates.

Nasdaq OMX was able to offset some of the declines in revenue by reducing costs. The exchange operator cut costs by 4 percent in the quarter. Operating expenses totaled $218 million. Declining expenses was primarily the result of lower compensation and benefits payments and a cut in marketing and advertising spending.

Shares of Nasdaq OMX lost 13 cents to close at $18.07 Thursday.

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