Nasdaq Makes Tech Buy with OMX

“The deal should be finalized by the fourth quarter of this year,” says OMX CEO Magnus Böcker, who spoke during an investor-analyst conference call on Friday.

“The deal will be accretive in 2009, and expenses will be taken out in 2010 … so [integration will be complete] in that time frame,” adds Nasdaq CEO Bob Greifeld, who spoke during the same call. “But we will innovate with specific products before then and we will sort out the organizational structure in the days to come.”

“Neither CEO would reveal a definite end date for the technology integration of both exchanges.

“However, Greifeld and Böcker say that the new company will standardize on OMX’s Genium trading platform, which will integrate Nasdaq’s Inet trading engine.

“Inet will be integrated in the third generation of Genium,” says Böcker. “If we have it in there, we can exclude other ideas in this space,” he adds.

“Genium is a brilliant technology and an architecture that allows different best-of-breed applications to hook into its messaging bus. … [Genium will be] the combined blueprint for the enterprise … and the Inet platform would be the best-of-breed for cash equities within Genium,” adds Greifeld.

“There also will be a rationalization of market data products, but nothing has been decided yet, according to Greifeld. With the new company, “we’ll be able to slice and dice data independently of the country or market of origin … which will allow us to create custom market data products,” he adds.

“The new Nasdaq OMX Group plans to have a major presence in London, according officials from both exchanges.

“OMX already has a London presence and we’ll leverage that and add more management,” says Böcker, who says it is a better hub location than either the Nordic region or New York. “We were planning on this in any event, but it’s enhanced by this transaction,” he adds.

“A major question is how the merger will affect several key relationships: Nasdaq’s relationship with the London Stock Exchange (LSE), of which Nasdaq owns approximately 30 percent; OMX’s relationship with the International Securities Exchange (ISE), for which OMX provides the trading platform; or OMX’s EDX joint-venture with the LSE.

“We are not going to comment directly on the London Stock Exchange,” says Greifeld.

“This transaction should not affect OMX’s existing relationships, says Böcker. “The ISE has been honorable about the technology from its side,” he says. “We will continue to support it and hope the relationship will continue into the future.”

“Officials from both exchanges are confident that the transaction can generate considerable synergies of $150 million annually, with $50 million in revenue synergies and $100 million in cost savings. Each exchange also stressed its strong track record in merger integration as an important factor in attaining those synergies.

“We acquired Brut, we acquired Inet and combined the technology onto a single platform … delivered increased liquidity to our customers and lowered transaction rates. As basic as it sounds, there is only one other exchange on the planet that’s done that,” says Greifeld. “And that happens to be OMX,” adds Böcker. “Looking at what we’ve done in the last three years this is a natural continuation of our strategy,” says Böcker.

“The planned $100 million in cost synergies are expected to be realized over the next three years, largely driven by technology. “By far the largest part of the [cost] synergies will come from technology and auxiliary systems around technology,” says Böcker.

“We have datacenters, operational sites … [and] networks that we can share in a different way. OMX today has operational and datacenters—in the U.S., London, the Nordics and Asia—that we can share in a different way,” adds Böcker.

“The ability to leverage OMX’s expertise in derivatives trading technology was also seen as an important factor to help Nasdaq build its derivatives business. “Clearly, OMX has tremendous experience and success in the derivatives marketplace,” says Greifeld. “This experience and success will be an invaluable aid to Nasdaq as it looks to expand its derivatives operations domestically and internationally.”

“This won’t stop Nasdaq from building its own options exchange later this year, however, explains Greifeld. “[The new options exchange] will be augmented by this transaction in the days to come,” he adds Greifeld.

“Another potential revenue synergy was also cited as the ability to “improve linkages” between markets by increasing the visibility and trading of U.S. companies by Nordic investors and vice versa. “As a result of that you’ll see increased trading velocity in the market, which improves liquidity and obviously helps us on a financial basis,” says Greifeld. Whereas turnover—the percentage of stocks’ market capitalization traded in one year—is currently 250 percent on Nasdaq it is just 130 percent on OMX, adds Böcker

Staff Reports