NYSE Euronext is an American corporation that owns and manages several stock exchanges, including the NYSE, Euronext (Europe), and NYSE Arca (formerly Archipelago). Its April 2007 merger with Euronext moved it a step close to creating a worldwide securities and derivatives exchange, resonating with the trend of global stock exchanges consolidation. Its primary competition is Nasdaq, which itself acquired OMX (Sweden/Finland) and formed an alliance with Borse Dubai (United Arab Emirates).
The NYSE is the largest exchange in North America and the world; it has nearly twice the transaction volume as Nasdaq and about four times the combined market capitalization of its listed companies. By virtue of this scale, the company depends heavily on macro-economic trends underlying financial services industry, including:
Unlike its all-electronic competitors, the NYSE remains the last major American exchange to use a hybrid exchange (both trading floor and electronic trading) rather than an all-electronic exchange.
[edit] Company Overview
NYSE Euronext's business revolves around the trading of all types of securities and services associated with it. The main components of its revenue are:
- Transaction: Transaction-based fees constitute the majority of this company's revenue. A change in fees as well as how they are paid dramatically increased the transaction-based revenue. Companies pay the lesser of two fees: either $600,000 monthly based on trading volume and frequency, or 2% of net commission it earns by trading on the trading floor[1].
- Listings: Companies pay an initial fee in order to become listed in one of the company's exchanges. After that, companies pay a yearly listing renewal fee.
- Data Processing: NYSE Euronext provides communication, data processing services, and systems development services primarily to broker-dealers.
- Market Data: The company provides data on the securities listed its markets. Subscribers include professional data analysts as well as other individuals. It also receives revenue for providing data to financial news networks.
- Activity assessment: Exchanges pay fees to the SEC in order to recuperate the costs of having to monitor the securities industry. The cost of these fees are passed down to the companies which are listed on NYSE Euronext's exchanges. Because of this, the amount of fees do not have an effect on its net income.
[2]
An increase in the transaction fee helped increase transaction-based revenue in 2006; however, the volume of listing fees have remained fairly stagnant for the past three years. Furthermore, the large jump in revenue from 2005 to 2006 was due primarily to its acquisition of Archipelago Holdings.
[edit] Trends and Forces
Note: Listings represented do not include listings gained through the acquisition of Euronext
[3]- Increased presence via global exchange consolidation: The American stock exchange market is highly competitive, while many international trading markets are much less developed. NYSE Euronext is pursuing an aggressive strategy of mergers, acquisitions, and strategic partnerships in order to increase its international presence. Aside from its landmark merger with Euronext, it has purchased a 5% stake in the National Stock Exchange of India and has created an alliance with the Tokyo Stock Exchange[4]. Its merger with Euronext added $2.9 trillion in securities and is the first company to attempt a 21-hour trading day, as well as $1.6 billion in revenue. Furthermore, it allows the company to have access to European trading markets and to international firms that would rather become listed in Europe as opposed to in the United States. As the graph to the right shows, the number of foreign listings have been flat/decreasing since the Sarbanes-Oxley Act of 2002. The merger with Euronext may allow the company to recapture some of its lost market share as well as gain entry into new markets. (It is important to note that the chart to the right does not include the listings gained through the acquisition of Euronext).
- Stricter regulatory environments: The Sarbanes-Oxley Act of 2002 imposes a strict set of regulations on companies listed on American exchanges. These regulations include independent auditing, frequent reporting, and changes to corporate governance[5]. The funding required to follow all regulations may not be available to all international companies. This, combined with the perception of rampant litigation in the United States deters many foreign firms from filing with an American exchange.
- Threat from private equity markets: Investment banks and other financial institutions are creating their own private-label equity markets to trade privately owned companies; for example, Goldman Sachs Group (GS) has an offering called Tradeable Unregistered Equity (TRuE). The key benefit to private equity markets is that they allow corporations to sidestep the regulatory hassles involved in listing with a traditional exchange[6]. An increase in such a trend could severely hurt NYSE Euronext's business for public stock offerings as well as transaction and listing fees, which account for 43% of its revenue.
- U.S. Economic Cycles: NYSE-Euronext is very susceptible to the downturns and upswings of the American economy, which have been affected by macro-economic conditions such as subprime lending earlier in 2007. New listings are less likely to occur while the economy is in a downturn. While listings as a percentage of revenue has decreased in recent years, it contributed 15% in 2006.
[edit] Competition
NYSE Euronext faces fierce competition from both within and outside the United States. While its merger with Euronext has helped offset some of the decrease in the rate of increase of new listings, it must now compete with other local stock exchanges on an international level.
Locally, NYSE Euronext faces increased competition from Nasdaq Stock Market (NDAQ) as it purchases privately-held exchanges such as the Boston Stock Exchange and the Philadelphia Stock Exchange (both privately held) in order to diversify its product portfolio.
[edit] References
- ↑ 2006 SEC 10-K Filing p. 57: Sources of Revenue
- ↑ 2006 SEC 10-K Filing
- ↑ 2006 SEC 10-K Filing
- ↑ 2006 SEC 10-K Filing p. 26: Risk Factors
- ↑ Sarbanes-Oxley Act of 2002 Section 201
- ↑ Wall Street Journal: Goldman Takes 'Private' Equity To a New Level
- ↑ NYSE Euronext: NYSE Equities
- ↑ Nasdaq: Daiy Market Activity
- ↑ Chicago Board of Trade: Exchange totals
- ↑ Chicago Board of Trade: Transaction Fee schedule
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