April 6 Concern over fallout from Michael Lewis'
new book "Flash Boys: A Wall Street Revolt" led investors to
slam shares in exchange-related companies last week, but fears
about Nasdaq OMX Group look overdone, according to an
article in the April 7 edition of Barron's.
In "Flash Boys," released Monday, Lewis argues that the
markets are rigged in favor of high-frequency traders, who use
their speed advantages to "legally front-run" other investors.
The U.S. Attorney General said on Friday that the Justice
Department is investigating high-speed trading for possible
insider trading. Other regulators, and the FBI, have also
confirmed they are looking into potential wrongdoing by
high-frequency stock traders as well as other market issues.
Shares of exchange operators CBOE Holdings and CME
Group, as well as online brokers TD Ameritrade
and E*Trade Financial, were hit on concerns that
revenue and profits could be clipped if certain practices were
curtailed or banned, Barron's said.
Nasdaq's stock ended the week down 1 percent, though
intraday moves were fairly volatile.
The company estimates that just $12 million of its around $2
billion in annual sales could be at risk if high-frequency
trading (HFT) were eliminated. But Nasdaq uses a narrow
definition of HFT, and one analyst put the potential hit at
around $150 million, Barron's said.
Still, any potential pain is arguably already reflected in
Nasdaq's share price, the financial newspaper said. The exchange
operator's shares trade at 12.2 times this year's estimated
earnings, which is a steep discount compared to CME, at 19.8
times prospective earnings, and NYSE-owner
IntercontinentalExchange, at 17.8 times, it said.
Just 27 percent of Nasdaq's sales came from order execution
during the fourth quarter, down from 29 percent a year earlier,
while other, more consistent businesses such as technology
services, market data, listings and licensing of indexes for use
in exchange-treaded products have been growing, Barron's said.
"Sure, concerns about high-speed trading aren't likely to
fade. But instead of wringing their hands, Nasdaq investors
ought to consider the good news, too," it said.
(Reporting by John McCrank in New York; Editing by Bernard Orr)