February 5, 2013 12:26 pm

Exchange groups ramp up cost cutting

Two of the world’s largest exchange groups have stepped up cost cutting in a sign of the pressure on bourses from low trading volumes.

NYSE Euronext, the transatlantic exchanges operator, said on Tuesday it would cut more costs ahead of its planned $8.2bn sale to US rival IntercontinentalExchange, slated for this year. It said an extensive cost reduction programme was far ahead of targets, with $115m last year compared with a forecast of $63m.

Duncan Niederauer, chief executive of NYSE, said: “The lacklustre trading environment continues to impact our results.” He said it was too soon to tell if a pick-up in trading for US equities in January, which has been accompanied by inflows into mutual funds, would continue.

“While one month doesn’t make a trend, we’re hopeful that this is an indicator of the re-emergence of the retail investor and the resurgence of interest in the US equity markets,” he said.

Deutsche Börse, whose planned merger with NYSE was blocked by the EU last year, said preliminary annual net revenues fell 9 per cent to €1.9bn and outlined plans to reduce costs by €70m annually through voluntary redundancies and other cuts.

The steps would help it grow in Asia and other emerging markets, Deutsche Börse said.

The results come as the US exchange prepares to take a planned deal with US rival ICE, predominantly a commodity and derivatives exchange, to antitrust authorities in the US and Europe.

The cash-and-shares deal, in which the 12-year-old ICE will purchase the 220-year-old owner of the New York Stock Exchange, will create a rival to CME Group and Deutsche Börse as one of the world’s largest derivatives exchanges by contracts traded.

NYSE said revenues for the three months to December 2012 fell 11 per cent to $562m while net income for the period fell from $110m to $28m year on year as it took charges for writing off investments in its European clearing house, unwinding its stake in BlueNext, the carbon-trading exchange, and other merger expenses.

“Our fourth-quarter results reflect both the beneficial actions we took to refinance our debt and rationalise our clearing plans for Liffe in connection with the announced move to ICE Clear,” said Mr Niederauer.

Alongside the ICE deal in December, NYSE agreed to move clearing of contracts traded on its Liffe derivatives exchange to ICE’s London-based clearing house, rather than build its own operations.

The move will allow NYSE to compete for business as new rules around derivatives markets come into force over the next 18 months. Bourses are looking to exploit a push by global regulators to move more of the vast over-the-counter (OTC) derivatives market on to exchanges and through clearing houses.

Exchanges will be able to earn profits from managing the risk on open-ended derivatives contracts. NYSE was planning to spend $20m on its European clearing operations last year.

Deutsche Börse said operating costs would rise overall because of greater investment. It said most of the costs of the efficiency measures would be between €90m and €120m, with the majority of the total to be incurred this year.

Trading volumes in the German group’s cash equities business fell 18 per cent last year while derivatives volumes were down 23 per cent. Deutsche Börse said adjusted net income would be €660m, compared with €833m last year.

Shares in NYSE rose 0.4 per cent to $35.01 in New York. Deutsche Börse gained 0.6 per cent to €48.26 in Frankfurt.

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