Investors in everything from the S&P 500 to soybeans to silver are sitting on handsome gains for the year-to-date, but the same can’t be said for anyone holding shares of the two best-known exchange operators.
Lower trading volumes for everything from stocks to derivatives to futures contracts are taking a toll on all exchange companies, but only the two most prominent names in the industry are bearing the brunt of the market’s displeasure.
Shares in NYSE Euronext (NYSE:NYX), operator of the iconic New York Stock Exchange, and Nasdaq OMX Group (NASDAQ:NDAQ) are having a bad year. NYSE’s stock is off 11% so far in 2012, while Nasdaq is down more than 1%. The broader market, meanwhile, has gained 12% in 2012.
And yet slumping volumes have hardly ignited an industrywide sell-off. As famous and venerable as the New York Stock Exchange may be (tracing its history back to 1792), with a market capitalization of $5.6 billion, it’s not the sector’s biggest publicly traded company by a wide margin.
That distinction belongs to CME Group (NASDAQ:CME) with a $18.4 billion market cap. CME Group is a powerhouse in futures and derivatives contracts. Formed by the 2007 merger of the Chicago Mercantile Exchange and Chicago Board of Trade, it also houses the New York Mercantile Exchange.
CME’s total volume is off about 20% so far this year versus the year-ago period, yet its stock has gained 12%.
Partly it reflects that by some measures, NYSE volume is near 14-year lows, but it’s also the case that all the growth is in more lucrative derivatives and futures products, where the newer all-electronic exchanges are taking market share.
IntercontinentalExchange (NYSE:ICE), which specializes in over-the-counter contracts, has seen its stock gain 9% for the year-to-date. CBOE Holdings (NASDAQ:CBOE), the largest U.S. options exchange perhaps best know for the VIX volatility index, has enjoyed a 15% gain in 2012.
True, at a time when the move to all-electronic trading has contributed to glitches, screwed-up quotes and full-on flash crashes, there’s something to be said for the New York Stock Exchange’s hybrid human-electronic model. After all, people are still working on the exchange floor to spot a bad bid or ask and notice that something ain’t right.
But the long-term tale of the tape is downright ugly for NYX and, indeed, for all of the exchange stocks. NYX lost as much as 85% of its value during the depths of the 2009 market sell-off and is still down almost 80% from its pre-crisis peak. Nasdaq OMX fared better, but still got slammed: It’s down 50% from it’s pre-crisis peak.
ICE is off by about a third over the same period, and CME is down 60%. Only CBOE has held up relatively well: It’s off about 8% since going public in mid-2010.
The bullish argument on these stocks is the gradual recovery in volumes of all products — from straight-up equities to futures, options and derivatives.
But with sweeping regulation having put the big banks’ proprietary trading desks, in-house hedge funds and private equity shops essentially out of business, that rebound in volume may be a long time in coming.
If it ever comes back at all.
As of this writing, Dan Burrows did not hold positions in any of the aforementioned securities.