30/07/2009 NYSE Euronext Announces Second Quarter 2009 Financial Results

NYSE Euronext (NYX) reported a GAAP net loss of ($182) million, or ($0.70) per diluted share, for the second quarter of 2009, compared to net income of $195 million, or $0.73 per diluted …

share for the second quarter of 2008. Second quarter 2009 GAAP results include merger expenses and exit costs of ($1.21) per diluted share, primarily related to severance and a one-time termination charge for NYSE Liffe Clearing. Second quarter 2008 GAAP results include a net ($0.02) per diluted share negative impact from merger expenses and exit costs and the reversal of a litigation accrual. Pro forma non-GAAP diluted earnings per share excluding these items was $0.51 in the second quarter of 2009, compared to $0.75 in the second quarter of 2008.

“In the second quarter, we reported higher pro forma net revenue, operating income and diluted earnings per share compared to the first quarter of 2009 and continued to make significant progress with our new business initiatives that will diversify our business model and drive future growth,” said Duncan L. Niederauer, CEO, NYSE Euronext. “While the severance and termination charges resulted in a GAAP loss for the quarter, the launch of NYSE Liffe Clearing in Europe earlier today is expected to generate revenues in excess of $100 million annually and is anticipated to be accretive in 2009, and the staffing reductions we have made will result in significant future cost savings. Additionally, we announced a joint venture with DTCC to establish a new, innovative and capital efficient approach to clearing interest rate derivatives and we completed the roll-out of speed enhancements for NYSE, reducing latency to an average of five milliseconds. As we move through the second half of 2009, we will continue to invest in future growth, while at the same time reducing our fixed-cost base.”

The table below summarizes our pro forma non-GAAP results:

Michael S. Geltzeiler, Group Executive Vice President and Chief Financial Officer, NYSE Euronext, commented, “The positive impact from our ongoing technology and non-technology cost saving initiatives continued in the second quarter with fixed costs down 6% year-over-year. Excluding the impact of foreign exchange rates and investment in new businesses, our underlying fixed expenses were down $50 million, or 12%, compared to the second quarter of 2008. We now believe that we will exceed our cost savings targets for the year.”

Pro forma non-GAAP net income for the second quarter of 2009 was $132 million, or $0.51 per diluted share, compared to net income of $199 million, or $0.75 per diluted share, for the second quarter of 2008. Pro forma non-GAAP results for the second quarter of 2009 exclude ($442) million pre-tax, or ($1.21) per diluted share negative impact from merger expenses and exit costs, consisting of a $355 million contract termination charge for NYSE Liffe Clearing, which commenced operations today, and $87 million primarily related to the anticipated headcount reduction in Europe (approximately 230 employees) and a new voluntary resignation incentive program (“VRIP”) in the U.S. (approximately 60 employees). Pro forma non-GAAP results for the second quarter of 2008 exclude a ($38) million pre-tax negative impact from merger expenses and exit costs, primarily related to the U.S. VRIP initiated in the second quarter of 2008, as well as a $36 million positive impact from the reversal of a litigation accrual. In addition to excluding merger expenses and exit costs and one-time items, pro forma non-GAAP results also exclude activity assessment and Section 31 fees, as well as favorable discrete tax items. A full reconciliation of these non-GAAP results is included in the attached tables.

Financial highlights on a pro forma non-GAAP basis include:

• Gross revenues, excluding activity assessment fees, were $1,125 million in the second quarter of 2009, a 10% increase as compared to the second quarter of 2008. Second quarter 2009 gross revenues were positively impacted by structural changes to the NYSE U.S. cash pricing model, which significantly increased gross revenues with a corresponding increase in liquidity payments.
• Net revenues, defined as gross revenues less direct transaction costs comprised of Section 31 fees, liquidity payments, and routing and clearing fees, were $611 million, compared to $707 million in the second quarter of 2008, a decrease of $96 million which includes a ($57) million negative impact from foreign currency fluctuations. Net revenues were also negatively affected by net price reductions in both the U.S. and European cash markets, coupled with a decline in volume executed over our full-service LIFFE CONNECT platform in European derivatives.
• Fixed operating expenses, defined as operating expenses less merger expenses and exit costs, direct transaction costs, and excluding regulatory fine income, were $398 million, a decrease of 6% compared to the second quarter of 2008 and included a discrete $10 million curtailment benefit for changes implemented to certain U.S. retiree medical plans. Excluding the impact of currency translation, acquisitions and dispositions of businesses, and selected strategic initiatives, fixed operating expenses for the second quarter of 2009 decreased $50 million, or 12%, compared to the second quarter of 2008.
• Operating income was $214 million, compared to $282 million in the second quarter of 2008 and includes a ($27) million negative impact attributable to foreign currency fluctuations. Operating income in the second quarter increased 18% when compared to the first quarter of 2009.
• Headcount as of June 30, 2009 was approximately 3,500, down 9% from a year ago and down 5% from March 31, 2009 . As a result of the European social plan, a new U.S. VRIP and reduced technology staffing, headcount is expected to be significantly lower in the second half of 2009, compared to the first half of 2009.

Market and Business Summary

U.S. Cash Equities

• U.S. cash equities net revenue of $68 million in the second quarter of 2009, increased $14 million from the first quarter of 2009, but decreased $19 million from the second quarter of 2008. The increase in net revenue from the first quarter of 2009 was driven by accretive NYSE Group pricing changes.
• In the second quarter of 2009, average daily volume (“ADV ”) of 3.6 billion shares for NYSE Group across all U.S. equity markets was 24.9% above the second quarter of 2008, but 9.5% below the first quarter of 2009. Year-to-date, NYSE Group handled ADV of 3.8 billion shares was 19.4% above the same period last year. NYSE Group matched share of all U.S. equity volume in the second quarter was 30.2%. NYSE-listed (Tape A) matched market share in the second quarter of 2009 was 39.3%, compared to 41.5% in the first quarter of 2009.
• NYSE reduced the time it takes to execute an order to five milliseconds from 105 milliseconds, with the implementation of the new NYSE Super Display Book system (“SDBK”), which replaced the SuperDOT system. NYSE SDBK is a server-based system on NYSE Arca’s industry-leading trading engine, providing much greater throughput, flexibility and scalability as well as lower operating costs compared with the previous mainframe platform. This completes a systems re-design known as Project X that NYSE initiated just 18 months ago. Since then, NYSE has completely replaced its order entry, order database and routing systems, market data systems and components of its post-trade system. To accomplish this, NYSE leveraged leading technologies gained through recent mergers and acquisitions, including systems from NYSE Arca, TransactTools, Wombat (now part of NYSE Technologies) and Euronext. The NYSE SDBK implementation also closely follows the successful implementation of enhancements to the NYSE market model, including incenting the provision of greater liquidity from a broader array of market participants. Later this year, NYSE Euronext’s Universal Trading Platform (“UTP”) – already successful in the company’s European equities and fixed-income markets – will be rolled-out to all U.S. markets, bringing yet another boost to transaction speed.
• Trading volume on The New York Block Exchange (“NYBX”^SM), the joint venture between NYSE Euronext and BIDS Holdings L.P., in the second quarter increased 181% from the first quarter of 2009. The NYBX is an innovative platform designed to maximize access to liquidity and improve execution quality in the U.S. equity block trading market. Institutional investors and other market participants can execute block trades on NYBX^SM, the first venue of its kind to allow non-displayed liquidity to anonymously access both the displayed and reserve liquidity of the NYSE order book.

European Cash Equities

• In the second quarter of 2009, ADV of 1.5 million transactions was 6.1% above the second quarter of 2008 and 5.8% above the first quarter of 2009. Year-to-date ADV of 1.4 million transactions was 6.6% below the same period last year.
• NYSE Euronext’s new integrated transaction pricing structure, which simplified and reduced trading fees for customers across its pan-European cash equity markets was implemented on April 1, 2009, improving the company’s overall competitive position in Europe. NYSE Euronext’s European customers have also benefited from reduced clearing fees from LCH.Clearnet effective July 1, 2009.
• The client migration to NYSE Euronext’s next-generation UTP continued in the second quarter of 2009 for our regulated markets resulting in dramatically reduced latency for clients of 150-400 microseconds, as compared to 1.5 milliseconds before the UTP migration. The speed improvement for NYSE Arca Europe has been even more pronounced, with latency measured as low as 60 microseconds (roundtrip) with an average latency of 140 microseconds (roundtrip). In addition, NYSE Euronext is now offering Sponsored Access for all its European markets, making low latency, highly efficient trading available to non-members via brokers.
• NYSE Arca Europe, NYSE Euronext’s European Multilateral Trading Facility (“MTF”) which provides customers with low-cost, high-speed access to the most actively-traded pan-European blue-chip stocks not already listed on its European cash regulated markets, has continued to expand since its launch in March. Thirty firms have signed up for membership, including leading financial services firms from the UK and Continental Europe, as well as a number of high frequency trading firms. Beginning in the fourth quarter of 2009, in addition to EuroCCP, NYSE Arca Europe will also offer clearing through LCH.Clearnet Ltd., giving customers a choice in clearing arrangements.
• SmartPool, the neutral dark liquidity pool created by NYSE Euronext in partnership with J.P. Morgan, HSBC and BNP Paribas announced that 14 leading investment firms have become members of SmartPool. As a result of this new participation, activity on the trading platform in the second quarter of 2009 increased by over 90% compared to the first quarter of 2009.
• BlueNext, NYSE Euronext’s majority owned environmental trading exchange, signed an agreement with the China-Beijing Environmental Exchange to establish an international carbon-trading related information platform. Areas of cooperation include cross-marketing, information sharing on clean development mechanism projects, training and market intelligence. With over 100 members and 95% market share of the spot market in Europe , BlueNext today operates the world’s largest market for Certified Emissions Reductions.

Exchange Traded Products and Global Indexes

• In the second quarter of 2009, NYSE Group matched exchange-traded funds ADV increased 80.5%, compared to the second quarter of 2008, but decreased 14.3% compared to the first quarter of 2009. In the second quarter NYSE Group matched volume for ETFs represented 16% of all matched volumes traded by NYSE Group. Year-to-date, matched exchange-traded funds ADV was 68.2% above the prior year period. The second quarter of 2008 did not include the former Amex Exchange Traded Products business.
• In the second quarter of 2009, consolidated Exchange Traded Products U.S. dollar volume traded represented approximately 32% of all consolidated U.S. dollar volume traded.
• As of the second quarter of 2009, NYSE Euronext had issued over 690 index licenses to various exchange traded index tracking products, compared to approximately 509 licenses as of the second quarter of 2008.

European Derivatives

• For the second quarter of 2009, European derivatives products ADV was 4.9 million contracts, 10.2% above the 4.4 million contracts recorded in the second quarter of 2008. The 4.9 million in futures and options contracts ADV in the second quarter of 2009 consisted of 3.2 million contracts executed through our full-service LIFFE CONNECT trading platform and a total of 1.7 million contracts processed through Bclear, NYSE Liffe’s trade administration and clearing service for OTC products. This compares to 3.3 million contracts executed through LIFFE CONNECT and 1.1 million contracts processed through Bclear in the second quarter of 2008. Clearing fees related to Bclear are significantly lower than our other European derivatives products traded through our full-service offering, LIFFE CONNECT, and have fee caps. Year-to-date European derivatives products ADV of 4.3 million contracts was 3.6% below prior year levels.
• The 53.1% increase in volumes processed by Bclear in the second quarter of 2009 compared to the second quarter of 2008 was driven by a 55.8% increase in individual equity futures processed by the service. Bclear has now processed over 500 million contracts since its launch in 2005.
• Total interest rate products ADV for the second quarter of 2009 of 2.2 million contracts was down 5.0% compared to the 2.3 million contracts in the second quarter of 2008, but increased 8.8% from the first quarter of 2009. Year-to-date, total interest rate products ADV decreased 17.6% compared to the prior year period.
• Total equity products (including Bclear) ADV of 2.7 million contracts in the second quarter of 2009 was 26.7% above the second quarter of 2008.
• NYSE Liffe Clearing was launched on July 30, 2009 and now acts as central clearing counterparty for the London derivatives market and manages its own London clearing operations directly. NYSE Liffe Clearing will continue to outsource the existing clearing guarantee arrangements and related risk functions to LCH.Clearnet, which will remain responsible for applying its rules and resources to resolve clearing member defaults.
• NYSE Liffe launched FTSE 100 Index Dividend futures during the quarter. Over 280,000 contracts have already been traded, generating over 100,000 contracts in open interest. NYSE Liffe also introduced premium-based tick sizing in its Dutch market which has nearly halved the average spread, making trading cheaper for customers, and helped achieve a 67% rise in volumes from May to June.
• In June, NYSE Liffe’s Euribor and Short Sterling futures registered their strongest performance so far this year. Several improvements made to meet changing market conditions have boosted volumes: the three month Eonia Swap Index is now averaging over 1,000 contracts per day, and trading activity in the longer-dated futures contracts has continued to grow. Gilt options were also re-launched at the end of June, trading over 9,000 contracts on the first day.

U.S. Derivatives

• In the second quarter of 2009, U.S. equity options ADV was 2.6 million contracts, a 71.3% increase compared to the second quarter of 2008, which did not include trading activity from the former Amex options business acquired in the fourth quarter of 2008. U.S. options market share in the second quarter of 2009 was 18.2%, up from 12.3% in the second quarter of 2008 and up from 17.4% in the first quarter of 2009. Overall U.S. equity options industry ADV increased 15.7% during the same period. Year-to-date, U.S. equity options ADV of 2.4 million contracts was 41.4% above the prior year period.
• NYSE Liffe U.S. precious metals futures ADV in the second quarter of 2009 was 14 thousand contracts, for a total of 876 thousand contracts traded during the quarter. Year-to-date, a total of 2.2 million contracts have been traded.
• NYSE Euronext and The Depository Trust & Clearing Corporation (“DTCC”) agreed to create a joint venture for clearing U.S. fixed income derivatives. The new clearing house, New York Portfolio Clearing, will combine the industry-leading capabilities of NYSE Liffe U.S., NYSE Euronext’s U.S. futures exchange, and DTCC’s Fixed Income Clearing Corporation (“FICC”) to offer innovative risk management, clearing and settlement efficiencies for U.S. fixed income securities and derivatives. The initiative is expected to be operational in the second quarter of 2010, subject to definitive documentation and approvals.
• NYSE Liffe U.S. announced that it has signed a license agreement with MSCI Inc., a leading provider of investment decision support tools worldwide, to introduce a suite of domestic and international index futures products built on a range of MSCI Equity Indices. The new products, to be rolled-out in the third quarter of 2009, will initially be based on the MSCI US, EM and EAFE indices.

Global Listings

• In the second quarter of 2009, a total of 18 IPOs listed on NYSE for total proceeds of $3.3 billion. Among the IPOs were 8 closed-end funds, 3 REITs and 7 operating companies including Bridgepoint Education, Rosetta Stone, DigitalGlobe, SolarWinds, IESI-BFC, Chemspec International and Duoyuan Global Water.
• Through June 30, 2009 , there were 165 global IPOs that raised $16.0 billion, down from 625 IPOs that raised $91.1 billion in the same period last year. NYSE Euronext raised more capital through IPOs than any other exchange in the world with 22 IPOs for a total of $4.6 billion. The U.S. was the most active country for corporate IPOs, raising a total of approximately $4.4 billion.
• The Board of Directors of Thomson Reuters announced a plan to unify its dual listed company structure and consolidate their listings on the New York Stock Exchange and the Toronto Stock Exchange. If approved by shareholders, Thomson Reuters will no longer be listed on the London Stock Exchange and Nasdaq.
• NYSE-listed international mining company, Cliffs Natural Resources, listed on the NYSE Euronext Paris Market via a Fast Path cross-listing in April. Cliffs, North America ’s largest supplier of iron ore, became the first NYSE-listed company to take advantage of the streamlined, cost-effective Fast Path process in 2009 and the sixth NYSE-listed company to do so since the facility was made available in 2008.
• NYSE Euronext and Liquidnet announced a partnership to bring Liquidnet InfraRed^TM, a proprietary desktop application accessed through NYSE’s ‘NYSEnet’ system to the IROs and CFOs of NYSE’s listed companies. Liquidnet InfraRed^TM aggregates institutional demand, news sentiment and block trading data.

NYSE Technologies

• On June 19, 2009, NYSE Euronext and Qatar Holding, the strategic and direct investment arm of Qatar Investment Authority, announced the signing and closing of binding agreements to form a major strategic partnership which will establish the Qatar Exchange, successor to the current Doha Securities Market. With the closing, NYSE Euronext made an initial $40 million payment as part of theQatar .

  agreement to contribute $200 million in cash to acquire a 20% ownership interest in the Qatar Exchange. The remaining $160 million will generally be paid over the next four years. NYSE Technologies has been chosen to provide managed services to the Qatar Exchange, as well as the latest software and technology to develop a modern exchange in

• NYSE Euronext launched its Secure Financial Transaction Infrastructure (“SFTI®”) in Europe with over 100 customer contracts in place. In addition, NYSE Technologies and Marketcetera launched a new “software-as-a-service” trading platform on SFTI”® designed for high frequency traders which provides a high-performance hosted infrastructure with the agility of an open source platform at a fraction of the cost of on-premise proprietary trading systems.

• NYSE Technologies launched its next generation market data infrastructure, Market Data Platform V5. This revolutionary ticker plant technology is designed specifically for high-volume and latency sensitive markets, delivering data in microseconds rather than milliseconds. It offers 10-times the overall performance of previous generation market data platforms while allowing customers to reduce their hardware footprint by as much as 80%.

• NYSE Technologies is working with leading technology providers to develop state-of-the-art solutions for its new data centers in the greater New York and London metropolitan areas. Juniper Networks, Inc., a leader in high-performance networking is designing a state-of-the-art, ultra-low latency core network for NYSE Euronext. Ciena^® Corporation, the network specialist is implementing the first 100G network that will enable NYSE Euronext to provide both the speed and ultra-low latency to facilitate unparalleled execution of equities quotes, trades, options data and other financial transactions in the U.S., Europe and globally. Voltaire Ltd., a leading provider of scale-out data center fabrics, is working to deliver an end-to-end, standards-based messaging solution that speeds performance of automated trading environments and financial market data applications. NYSE Euronext’s two new data centers will be the primary operational infrastructure supporting several billion daily transactions and quotes across diverse asset classes and geographies.

Source: ETFWorld.co.uk – Nyse Euronext