Nasdaq/NYSE: monopoly trouble

Back to the blackboard for Nasdaq’s chief

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Most American schoolkids could have guessed this deal might be blocked. OK class, name a US stock market. The New York Stock Exchange – very good! Does anyone know the other big one? Nasdaq – well done! The US Department of Justice also receives full marks on Monday for knowing the word monopoly. In its announcement that Nasdaq and IntercontinentalExchange had abandoned their bid for NYSE Euronext, the DoJ simply pointed out that the two companies “operate the major stock exchanges in the United States”.

So back to school for Nasdaq chief executive Bob Greifeld. But he done well, tripling revenues since 2005, partly thanks to eight sizable acquisitions. Sure, he will be teased for being chased away from America’s oldest bourse just three years after failing to win the London Stock Exchange. But Mr Greifeld can still point to 34 per cent earnings per share growth since 2007. Nasdaq shares have outperformed NYSE’s over the last five years by 25 percentage points.

Still, investors should be miffed. Nasdaq’s shares are trading at half the level they were at the end of 2007 and the pursuit of NYSE was a big distraction. Worse, the chance to bag a share of an estimated $740m in annualised synergies is off the table. That Nasdaq’s market capitalisation did not plummet on Tuesday shows that no one thought it had any chance capturing those synergies.

What next for Nasdaq? The most important thing is not to be panicked into action. The fear of missing out on all the exchanges deals happening around the world these days could lead to bad moves. Rather, Mr Greifeld should concentrate on growing Nasdaq’s equity options and derivative businesses and on improving returns – making the company an attractive target. There are two sides to the consolidation game.

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