LONDON/NEW YORK Investor confidence in U.S. equity markets is at an all-time low due to worries over the global economy and greater market complexity, NYSE Euronext's NYX.N chief executive said on Tuesday after the company reported a 42 percent drop in quarterly profit.
With equity trading levels at their weakest in years - down in the latest quarter by 31 percent in Europe and 39 percent in the United States - the parent company of the New York Stock Exchange has focused on cost reductions to help offset lost revenue.
"I feel about NYSE Euronext the way I feel about the U.S. economy: well positioned to grow under the right conditions, but for the moment, we are still facing strong macro-economic headwinds," NYSE CEO Duncan Niederauer told analysts on a call.
NYSE has cut $82 million in expenses so far this year, easily surpassing its 2012 target of $63 million. The trans-Atlantic exchange operator has pledged to cut $250 million by 2014 and now expects to reach $100 million by year-end.
Even with the sharp drop in expenses, net revenues for the three months ended September 30 tumbled 21 percent to $559 million. Analysts had expected $568.5 million.
Shares of NYSE were down 5.1 percent at $24.30 in New York on Tuesday afternoon.
The move by investors to the sidelines is not a structural shift, but a reflection of concerns over the global economy, Niederauer said.
A series of high-profile market snafus, such as the software error that nearly bankrupt Knight Capital Group (KCG.N) and Facebook's (FB.O) glitch-ridden market debut, have added to the negative sentiment, Niederauer acknowledged.
"Markets appear too complex and fragmented," he said.
"We believe the right thing to do is to engage in a holistic review of market structure with all participants to more closely examine the unintended consequences of the framework under which we operate."
One of NYSE's big concerns has been the move by many traders to less-regulated, off-exchange venues, where customers can trade anonymously. Gone are the days when Nasdaq OMX (NDAQ.O) was NYSE's only competition. There are now 13 U.S. exchanges and at least 50 alternative trading venues.
"We continue to be frustrated with this trend and are troubled that the U.S. equity market has gotten more opaque, while the value of the public markets continues to be diminished," Niederauer said.
WIDESPREAD TRADING SLUMP
NYSE reported third-quarter net income, excluding merger expenses and other items, of $108 million, versus $186 million a year earlier, largely due to the weaker trading levels at NYSE's main equities and futures markets in New York, London and Paris. Earnings per share came in at 44 cents, versus 71 cents a year earlier.
Analysts expected earnings of 41 cents a share, according to Thomson Reuters I/B/E/S. The beat was due to a lower-than-expected tax rate and expense cuts, said Ed Ditmire, an analyst at Macquarie Securities.
Many analysts expect NYSE rival the London Stock Exchange (LSE.L) and interdealer broker ICAP (IAP.L) to report lower profit next week due to the slow trading environment.
Analysts expect the LSE to post a 7 percent drop in first-half net income to 120 million pounds ($192 million) on November 16, according to Thomson Reuters Starmine data.
ICAP is expected to report first-half net income down 8 percent to 117.5 pounds on November 14.
"Low overall trading levels are a challenge for the LSE and ICAP, though at least in this period the LSE should be cushioned thanks to earnings from non-volume-related businesses like information subscriptions and treasury income from its clearing house," said Berenberg Bank analyst Richard Perrott.
Deutsche Boerse (DB1Gn.DE), the exchange with which NYSE tried and failed to merge earlier this year, last week was forced to cut its 2012 revenue target as lower market volatility caused a dip in third-quarter trading.
Some of the world's top investment banks have also reported lower third-quarter equity revenues, including UBS UBSN.VX and JP Morgan (JPM.N).
($1 = 0.6260 pound)
(Additional reporting by Sarah White; Editing by Erica Billingham and Leslie Adler)