Nasdaq OMX core profit falls; shares lower

NEW YORK (Reuters) - Nasdaq OMX Group Inc (NDAQ.O) said core earnings fell in the fourth quarter due to sluggish trading, and its shares dropped 3.4 percent after the exchange operator projected higher-than-expected costs this year.

But the Nasdaq Stock Market parent company also boosted its share of the U.S. equities market for the second straight quarter and is on track for another rise in the current quarter.

Nasdaq OMX, which runs equities and derivatives venues in the United States and Northern Europe, said revenue from cash equity trading tumbled 43 percent from a year earlier in the fourth quarter, reflecting a drop in volume and market share compared with the end of 2008, when the financial crisis sparked a market selloff.

The company's U.S. equity market share was 24 percent in the quarter, up from as low as 21 percent in the previous two quarters, and held firm in January, suggesting Nasdaq OMX is holding its own against alternative venues and traditional rival NYSE Euronext (NYX.N).

"We're happy with the (market) share gains in the fourth quarter and with what we have done in the first quarter," Nasdaq OMX CEO Robert Greifeld said on a conference call. He said he did not expect the overall industry price reductions of last year to continue in 2010.

Eroding market share in both the United States and Europe has hampered Nasdaq OMX and other traditional exchange operators for years as upstarts have launched rival trading venues.

Edward Ditmire, analyst at Macquarie, said the recent market share trends were encouraging for Nasdaq OMX. "There was a bit of a setback in December and early January, but that has seemingly passed and in recent weeks we're seeing a continued uptrend in their market share," he said.

The success of Nasdaq OMX's interest rate swap clearing unit, the International Derivatives Clearing Group, or IDCG, hinges on the progress of a regulatory push on both sides of the Atlantic to run more over-the-counter products through exchanges and clearinghouses, Greifeld said.

"We certainly believe that the interest rate swap market is the largest untapped market for us to try to gain traction in," he added. "It's almost hard to comprehend in 2010 that a market that large really doesn't have any basic organization."

Derivatives trading and clearing now represents more overall revenue for Nasdaq OMX than equities trading. The market share of its U.S. options business rose to 22 percent in the fourth quarter from 19 percent a year earlier.

Nasdaq OMX shares were down 64 cents, or 3.4 percent, to $18.16 in midday trade. The shares are off 8 percent this year and plunged last month when the Obama administration proposed a crackdown on bank proprietary trading.

SLIM BEAT

Excluding one-time items, fourth-quarter profit was 46 cents per share, down from 53 cents a year earlier but a penny above analysts' average forecast, according to Thomson Reuters I/B/E/S.

Revenue slipped 8 percent to $369 million but topped analysts' expectations for $365 million.

Net income rose 23 percent, to $43 million, or 20 cents per share, from $35 million, or 17 cents per share, a year earlier. The 2008 results were hurt by a range of one-time losses.

Nasdaq OMX said it expects operating expenses of $865 million to $885 million this year, up from $850 million in 2009.

The forecast "was somewhat higher than we were expecting," Credit Suisse analyst Howard Chen said in a note.

The company is sensitive to planned changes in market regulation, which are mostly expected to give it a boost in coming years.

A U.S. Securities and Exchange Commission probe of high-frequency trading and proposed new rules for alternative venues known as dark pools are expected to benefit Nasdaq OMX.

The company said its recent debt restructuring, which included $1 billion in new fixed-rate notes and a $950 million loan facility, gives it flexibility to use cash to buy back shares, pay a dividend or do acquisitions.

"There are definitely opportunities out there, things that we consider, but our discipline will always guide us," Greifeld said of possible acquisitions.

On Monday the company launched its so-called INET trading platform in the Nordic countries in which it does business, meant to makes trading faster and cheaper and boost volumes by 25 percent this year.

(Reporting by Jonathan Spicer; Editing by John Wallace)