Nasdaq Profits Surge on Gain From Sale

NEW YORK — Nasdaq Stock Market Inc., the nation's largest electronic exchange, said Wednesday its third-quarter profit surged from big gains on the sale of its 31 percent stake in the London Stock Exchange.

Nasdaq's better-than-expected results arrived the same day that Sweden's OMX AB reported stronger profits and the owner of the Chicago Mercantile Exchange said its earnings nearly doubled.

Nasdaq is attempting to acquire OMX.

Nasdaq's profits rose more than twelvefold to $365 million, or $2.41 per share, from $30.2 million, or 22 cents per share, in the year-earlier period. Results include $466.6 million in pretax gains mainly tied to the sale of the LSE stake and charges of about $26 million.

Excluding the items, earnings totaled $62.1 million, or 42 cents per share.

Net revenue, which excludes liquidity rebates, brokerage, clearance and exchange fees, rose 23 percent to $210 million from $171.2 million a year earlier. Including such expenses, revenue stood at $652 million, a 62 percent increase from $402.9 million a year earlier.

Analysts surveyed by Thomson Financial predicted, on average, that Nasdaq would post earnings of 39 cents a share on net revenue of $209.7 million.

"The company is gaining from a lot of initiatives that were put in place over the last couple of years, everything from moving all of their multiple trading systems to a single platform to client-services acquisitions," said Edward Ditmire, an analyst at Fox-Pitt Kelton. "All those things seem to be clicking at once."

Nasdaq raised its full-year forecast for net revenue to between $800 million and $810 million, from an earlier forecast of $775 million to $790 million.

The company also boosted its 2007 forecast. Nasdaq expects full-year earnings of $501 million to $507 million. Excluding items like the LSE sale, Nasdaq expects earnings of $199 million to $205 million, which compares to its earlier forecast of $171 million to $181 million.

With the sale of its LSE stake, Nasdaq was able to pay down debt — which helps explain the higher earnings forecast.

Nasdaq shares rose 44 cents to $42.52 Wednesday afternoon.

Bob Greifeld, Nasdaq's president and chief executive, credited fresh highs in trading volume and expanded market share with helping drive results.

Average daily share volume in Nasdaq securities surged to 2.18 billion from 1.85 billion a year earlier.

Nasdaq's profits illustrate the forces of consolidation that are reshaping exchanges around the world.

During the quarter, Nasdaq dropped its two-year attempt to acquire the LSE and announced plans to acquire OMX through a complex arrangement with Borse Dubai. The OMX acquisition would give state-owned Borse Dubai stakes in Nasdaq as well as the London Stock Exchange Group PLC.

However, a Qatar investment group also showed interest in OMX, buying just under 10 percent of the shares and seeking permission from regulators to boost that stake.

On Wednesday the Swedish news agency TT quoted OMX Chief Executive Magnus Bocker as saying he believes the Nasdaq-Borse Dubai plan will ultimately occur.

Greifeld said in a conference call that the tie-up with OMX had progressed "exceedingly well."

Ditmire said Nasdaq appears to be in "excellent position" to close the OMX deal.

"It appears that they're considering the next acquisition after that," he said, referring to reports that Nasdaq may be interested in the Philadelphia Stock Exchange.

"The company seems to be holding its large cash store very conservatively right now," Ditmire said.

Nasdaq struck a deal during the quarter to acquire the Boston Stock Exchange for about $61 million. That acquisition would give Nasdaq a foothold in the clearing business and allow Nasdaq to provide investors with a second quote for U.S. stocks.

Like its primary rival, the New York Stock Exchange, Nasdaq once could afford to look primarily at domestic competition. But technology has brought exchanges around the world in closer proximity, elbowing each other for market share.

OMX on Wednesday said earnings rose 30 percent on trade revenues. The Stockholm-based exchange said net profit for the July-September period rose to 223 million kronor ($34.6 million), from 171 million kronor a year earlier.

CME Group Inc., the financial exchange operator, said its third-quarter earnings rose 94 percent due to its acquisition of the Chicago Board of Trade. Earnings surpassed Wall Street's expectations and revenue more than doubled. CME, like Nasdaq, benefited from market volatility over the summer that boosted volumes.

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