On Monday, NASDAQ OMX Group Inc. (NDAQ - Analyst Report) announced the acquisition of one quarter of Amsterdam-based The Order Machine (TOM) – Dutch cash equity and equity derivatives trading platform. The company has been offered an additional 25.1% to acquire a majority stake in TOM.
TOM is partly owned ABN AMRO, IMC (a high-frequency trading firm), Optiver (an electronic market maker) and BinckBank (an online discount broker and bank that also provides order flow to the trading venue). However, the acquisition is unlikely to have any material effect on the financials of NASDAQ. Additionally, the financial terms of the deal remain undisclosed and it is expected to culminate upon the receipt of regulatory approvals.
Accordingly, the 8-year strategic alliance between the two parties entails NASDAQ to provide its Genium INET technology to the trading platform in London. On the other hand, NASDAQ will benefit from the TOM’s presence in the European markets through the one-fourth acquisition of TOM, thereby enhancing the company’s global expansion strategy.
Additionally, the association with TOM brings in upgraded technology and market expertise, as well as extended opportunity to NASDAQ, enabling it tap the single stock options markets, where the former holds a significant share. This should be helpful given the rising demand for a variety of derivative products.
These factors will also accelerate NASDAQ’s ability to improve price discovery and reduce its trading costs. Consequently, NASDAQ will also reap benefits of flexible connectivity, thereby ensuring low latency processes.
Gaining Edge in Europe
NASDAQ’s latest part-acquisition of TOM also elucidates its strategic move to attain competitive edge in Europe, where derivative giants including NYSE Euronext Inc. and Deutsche Boerse AG share majority of the market share. Other dominant market players such as CME Group Inc. (CME - Analyst Report) are also seeking to greener pastures in Europe, given the regulatory challenges faced in the US lately.
Expanding its derivative index in Europe, in June this year, NASDAQ had also announced its plan to build a new interest rate derivative trading platform – NASDAQ NLX – in London. The trading platform is scheduled to debut by the first quarter of 2013. NASDAQ NLX will operate as a separate entity within NASDAQ.
Further, in July 2012, NASDAQ purchased NOS Clearing ASA, a Norwegian commodities clearing house, adding another operating arm in Europe. Nevertheless, we cast a neutral outlook on the company’s attempts to expand given the global economic volatility and currently remain on the periphery to assimilate the future developments.
NASDAQ carries a Zacks Rank #3 that implies a short-term Hold rating, while the long-term recommendation stands at Neutral.