New York-based NASDAQ OMX Group Inc. (NDAQ) is currently in discussion with London-based LCH.Clearnet to divest its International Derivatives Clearing Group (“IDCG”). The acquisition of IDCG is consistent with LCH.Clearnet’s strategy of enhancing its presence in the US market. However, the financial terms remained undisclosed.
Following the completion of the deal, a likely exchange of shares between NASDAQ and LCH.Clearnet will take place. However, in a separate development, London Stock Exchange (“LSE”) is gearing up to buy a majority stake (approximately 60%) in LCH.Clearnet for $1.08 billion by the end of this fiscal.
In 2008, NASDAQ acquired a majority stake in IDCG, but it became operational only last year and remained a dormant player in the interest rate swaps market with very little success even in the emerging markets. Last year, NASDAQ opted to acquire minority stake in LCH.Clearnet in order to free up some portion of its capital to utilize it for other business operations.
The recent deal provides LCH.Clearnet, the largest global clearing house for bank-to-bank swaps clearing, an opportunity to expand its SwapClear clearing services further in the US market with a US clearing house that is licensed to clear swaps and futures trades. However, it is uncertain whether LCH.Clearnet would hold on to IDCG's process of converting swaps into futures.
Standard and Poors’ (S&P) had assigned 'A+/A-1' counterparty credit ratings on the LCH group. The rating agency maintained the rating on CreditWatch with negative implications when LCH.Clearnet called to sell a majority stake to the London Stock Exchange. S&P stated that if the deal materializes, it would have no impact on the counterparty credit ratings.
Nevertheless, the rating agency also stated that they might affirm the long-term rating on LCH.Clearnet or reduce it by a couple of levels following the completion of the deal. But if the deal doesn’t materialize, then S&P would reaffirm the current ratings.
In a separate development, NASDAQ launched NASDAQ Commodity Index Family to provide decent coverage for all major commodity sectors to the investors. NASDAQ Commodity Index Family will provide different types of investment strategies to the investors using five separate versions.
NASDAQ Commodity Index Family will focus on energy, industrial metals, precious metals, and agriculture and livestock sectors. It will be monitoring U.S. dollar denominated commodities traded on 10 U.S. and U.K. exchanges.
Pursing the strategy of a continued growth, NASDAQ signed a deal with Africa’s second largest exchange Nigeria's Stock Exchange (“NSE”), where it would trade on the NASDAQ X-Stream platform. NSE also intends to go live in the second quarter of 2013.
Yesterday, NASDAQ reported its first quarter results before the bell. Its operating earnings per share of 61 cents fell shy of the Zacks Consensus Estimate of 63 cents, but were in line with the prior-year quarter’s earnings. Total net exchange revenue edged down 0.5% year over year to $411 million, also lagging the Zacks Consensus Estimate of $421 million.
The downside was primarily attributable to reduced revenue from market services, weak volumes and continued sluggishness in cash equity and derivative trading. These were partially supported by modest growth in market data, issuer services and market technology revenues.
We retain our long-term Neutral recommendation on NASDAQ. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
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