• WSJ
  

• DEALS & DEAL MAKERS
• FEBRUARY 10, 2012

How NYSE Will Go It Alone

Niederauer to Lay Out Strategy Now That Deutsche Börse Is Out of Picture

By JACOB BUNGE

Duncan Niederauer on Friday will have his first chance to lay out NYSE Euronext's stand-alone strategy following the collapse of its blockbuster merger with Deutsche Börse AG, though for once looking back might be more appetizing than the challenges that lay ahead.

NYSE chief Duncan Niederauer will outline the exchange's strategy following the collapse of the merger with Deutsche Börse AG, Jacob Bunge reports on Markets Hub. (Photo: AP)

The chief executive of the Big Board parent faces the toughest task among peers redrawing their lines after 18 months of deal making produced precious little change among the platforms that handle stock and derivatives trading.

NYSE's share of U.S. stock trading fell to a record low last month, derivatives volumes were down sharply and the company faces currency headwinds when returning profits from its existing European business.

Mr. Niederauer also confronts a potential tax on some European trading and will look to dust off projects set aside while NYSE Euronext tried to push through a deal that would have formed the world's largest stock and derivatives exchange operator. For all the strength of the NYSE brand, the company is only the third-largest U.S. exchange operator by market value after CME Group Inc. and IntercontinentalExchange Inc., and the global No. 6.

"After having just 'lost' a year on the [Deutsche Börse] deal, we believe management is now under pressure to deliver something for investors," said Alex Kramm, an analyst at UBS AG.

The stock has slid 27% since news of the proposed merger first emerged a year ago, the worst performer in the sector.

NYSE Euronext last week took the first step in regaining ground, resuming a $550 million share-repurchase program that analysts view as the first step toward a broader focus on capital management. Cost cuts also are seen on the agenda.

The move offers some salve for investors who would have shared a $900 million special dividend with Deutsche Börse shareholders if the deal had been consummated, and some analysts see room for more payouts. "Investors have been patient and supportive and it's time to reward them for that patience and support," Mr. Niederauer said in an interview on the day the European Commission announced it would block the deal. "The investors can look forward to hearing a lot of details on our go-forward plan on our earnings call next week, which will include the post-trade space and technology business," he said. "People can also expect us to talk about our capital management strategy going forward."

Bloomberg News

NYSE Euronext CEO Duncan Niederauer Friday will lay out strategy of life without Deutsche Börse.

NYSE Euronext enjoys an advantage in its balance sheet, which carries the least amount of debt since NYSE and Euronext-Liffe sealed their combination in 2007.

Simple fixes to some of the company's main challenges are outside Mr. Niederauer's control, however.

The euro-zone crisis and capital constraints on banking clients have seen some investors disengage from financial markets, slowing trade in stocks, options and futures across the industry. Rivals feel pain, too, but NYSE Euronext feels it all over. The company's share of U.S. stock trading fell to 23.9% of the market in January, which Raymond James Financial said was a record low. As volatility tapered off, more trading moved to private electronic markets.

Easing market turmoil also has played into reduced stock-options trading. NYSE Euronext remains the biggest U.S. equity-options-market operator by volume, but overall activity last month slowed by 11% compared with prior-year levels, according to industry clearer OCC.

NYSE Euronext experienced a sharper decline in its London-based futures market, which had been the linchpin of its merger with Deutsche Börse. Volume in fixed-income futures contracts tumbled by 30% year on year in January.

—Doug Cameron contributed to this article.