Wall Street is expecting this summer's global credit crunch and liquidity crisis to boost third-quarter earnings at
The New York Stock Exchange,
Nasdaq Stock Market
and derivatives exchanges like the
Chicago Mercantile Exchange
have gained as market volatility has risen following this summer's credit crisis.
Analysts expect the exchange to earn 72 cents a share when it reports earnings on Friday, up 75% from the year-ago third quarter.
"Generally I think results should be pretty good on a linked quarter and year-over-year basis," says Rob Rutschow, an analyst at Deutsche Bank. "You had very strong volume both in the U.S. and Europe. The derivatives business in Europe should be good on a linked-quarter basis. Euronext has a big interest rate
derivatives business. With the turmoil in the market all of the interest rate contracts showed really good volume."
During August, when the credit crisis was at its worst, NYSE reported new all-time records in daily, weekly and monthly trading volumes. Its U.S. cash equities trading operations reported that a combined volume of more than 22 billion shares were traded during the week ending Aug. 10 -- its highest ever, the exchange said.
NYSE recorded the most active trading day ever in its U.S. cash equities trading on Aug. 16, with 5.4 billion shares changing hands, it added.
Shares of NYSE have rebounded from its 52-week low in mid-August amid the credit crunch that put stocks in the financial services sector into a free fall. The stock is up 46% since then.
Under CEO John Thain's watch, NYSE is also in the midst of integrating its April merger with the European exchange operator Euronext. The newly formed company encompasses the Big Board, its smaller listings exchange, NYSE Arca, and the various equities and derivatives exchanges under the Euronext brand.
Rutschow says he will be listening for more detail on how the exchange plans to integrate the NYSE's hybrid market, NYSE Arca and the Euronext cash platform.
"A little more detail in terms of the market structure ... going forward would be helpful," he says. "You still have the Arca platform and hybrid platform running separately and you still have the Euronext cash platform. The plan is to combine the three into one. At this point -- at least to me -- it doesn't seem clear that there is a coherent plan to make that happen." He has a hold rating on the exchange.
As much progress as NYSE has made from a floor-based member-based exchange to a for-profit global exchange operator, it is still dealing with intense competition from other exchanges, electronic communication networks and alternative trading platforms. NYSE has had to implement a number of cost cuts, including the closing of three of its five trading floors. It has also recently cut fees on certain stock trades in order to beat back the onslaught of completely electronic competitors.
As of the second quarter, its "matched" volume of NYSE-listed shares fell 11% from the year-earlier period to 63.7%. NYSE's matched volume of Nasdaq-listed shares fell 4% to 16.6% in the same time period.
"They do need to maintain a certain level of market share to help augment the listings business," Rutschow says. "If all their trading activity is elsewhere competitors may be able to argue successfully that people should list with them. That said, they do have the strongest brand name in the business and I do not see that going away anytime soon."
Investors will also be looking for an update on NYSE's strategic priorities and future deal-making opportunities.
NYSE has already said that it is interested in expanding its derivatives business as well as getting more into options trading. NYSE has reportedly had at least initial conversations with the
New York Mercantile Exchange
. Its name has also come up as a possible buyer of the Philadelphia Stock Exchange. (According to reports, the Philly exchange is now in exclusive talks with Nasdaq.)
"Any commentary on strategic priorities is always a key area for investors," says Roger Freeman, an analyst at Lehman Brothers. "There are a lot of things going on in the global stage. There will inevitably be questions around that." Freeman has an overweight rating on the company.
It also wouldn't be surprising if least one participant on NYSE's earnings conference call were to ask about chief executive Thain's future career intentions.
Thain has been mentioned frequently in the media recently as observers speculate who will replace
ousted CEO Stan O'Neal. O'Neal reportedly "retired" from the brokerage firm earlier this week amid $8 billion in losses primarily from Merrill's collateralized debt obligation business as a result of the credit crunch. The company reported a loss of $2.2 billion, or $2.85 a share, for the third quarter -- nearly six times the size of the loss O'Neal had projected earlier in the month.
But don't bet on getting any answers. Thain isn't usually on earnings calls. NYSE COO Duncan Niederauer and CFO Nelson Chai will likely take the helm.