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WIKI ANALYSIS
NYSE Euronext is an American corporation that owns and manages several stock exchanges, including the NYSE, Euronext (Europe), and NYSE Arca (formerly Archipelago). The company's revenue is generated through the number of listings (companies on the exchange) and the number of trades executed.
The NYSE is the largest exchange in the world; it has nearly twice the transaction volume as NASDAQ, it's main competitor, and approximately four times the combined market capitalization of its listed companies. However, its competitors have begun to take over its trading market share as they develop new trading technologies. NYX has begun to implement new technology platforms, such as a virtual trading platform and taking its derivatives trading in-house. In addition, NYX is affected by a number of macro-economic trends because they have a direct effect on the number of listings and trades executed, such as the overall financial health of the U.S. economy. Rather than waiting for organic growth, NYX has been aggressively investing in and acquiring other stock exchanges around the world.
Company Overview
NYSE Euronext's business revolves around the trading of all types of securities and services associated with it. 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.The main components of its revenue are[1]:
- The Activity Assessment is a typical fee that exchanges pay to the SEC 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 and do not have an effect on NYX's net income.
- Cash Trading is the fee charged for executing trades and accounts for more than half of NYX's revenue. It's effect on total revenue depends on the number shares and trades executed, which are subject to the volatility of the market.
- Derivatives Trading revenues are based on a per-contract basis. Revenue is dependent on the fees charged per contract and the number of trades executed.
- Listing: 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.
- 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.
- Software and Technology Services revenue is generated from customer fees to gain access to its SFTI Network (connectivity to an equities marketplace) ,software license and maintenance fees, as well as strategic consulting services.
- Regulatory fees are charges to all member organizations that are part of its exchanges.
Trends and Forces
Aggressive global exchange investment and acquisition strategy
NYX has actively pursued acquisitions and mergers and has invested in and partnered with the National Stock Exchange of India and the Tokyo Stock Exchange. Its landmark merger with Euronext made it the first company to attempt a 21-hour trading day. Furthermore, it gave the company to have access to European trading markets and to international firms that would rather become listed in Europe, rather than the U.S. They have also pursued agreements with European exchanges in the hope of expanding the company's reach.
The American stock exchange market is highly competitive and NYSE Euronext is pursuing an aggressive strategy of mergers, acquisitions, and strategic partnerships in order to continue to increase its domestic and international presence.
Impact of Government Regulation
Stricter regulatory environment
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[2]. 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.
U.S. Economic Cycles
NYSE-Euronext is very susceptible to the downturns and upswings of the U.S. and global economies. Although it is concentrated in the U.S. and the U.K., it's global investments across countries like Qatar, Japan, and India, have made it globally diversified. A weak economy means that initial public offerings, or new listings, are less likely to occur. In addition, trading activities tend to increase during period of economic decline.[3]
Acquisition strategy for growth
Rather than attempt to grow only organically, meaning to increase the number of IPOs that occur on its exchanges, NYSE Euronext has pushed to acquire a number of competitors. This includes the acquisition of Deutsche Boerse AG. Each of the group's national exchanges, including those in Amsterdam, Brussels, and Lisbon, will keep its name in its local market and all exchanges will continue to operate under local regulatory frameworks and supervision. This strategy allows NYSE Euronext to save money through scaled technologies. However, it also increase the complexity as the company must work to adhere to the various regulations that each region or country has in place.
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.
References
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