< Return to Bulls pageIncreasing volumes the key to success for NDAQ
Nasdaq is minting cash out of recession fears in the form of transaction fees from record share volume. In January 2008, Nasdaq CEO Bob Greifield announced “At the moment, our business is doing better than it ever has because the volumes have been incredibly high.. So, it’s (the recent period of high volatility) been very good for us.” And don’t be distracted by the hubub over the potential reduction in IPOs that has caused some to worry; initial listing fees accounted for less than 1.5% of Nasdaq’s record 1.7B in 2006 revenue. The success and growth of Nasdaq comes down to three simple words: volume, volume, and volume.
And the long-term growth of trading volume is one trend that we can count on. The World Federation of Exchanges has some great data showing the incredible growth of exchanges since 1990. Just for illustration, the value of shares traded on the Lima Stock Exchange (Peru) has increased 55-fold, while the Tokyo Stock Exchange has increased 600% despite a lackluster economy. Even oou own mature financial market grew overall volume by 25% in 2007 alone. And if that’s not enough to juice growth, new exchanges in emerging markets like Vietnam, Colombia, and even some African countries are beginning to take hold.
The opportunity for the largest exchanges like Nasdaq and NYSE Euronext to consolidate this fast-growing and fragmented space is obvious. Economies of scale are especially valuable in the exchange business, where trading is done by computer networks that require large fixed costs. Consolidation can lower trading costs, which attract more traders and listing companies. Larger exchanges also create increased liquidity, helping share prices move more quickly and efficiently.
