July 25 (Bloomberg) -- Nasdaq OMX Group Inc., the second-largest U.S. equity exchange operator, rallied the most since November after quarterly earnings beat analyst estimates and the company lowered its 2012 expense forecast.
The shares rose 4.8 percent to $22.87 today in the biggest advance since Nov. 30. The rally curbed the 2012 loss for Nasdaq OMX to 6.7 percent, compared with a 15 percent decline in the Bloomberg World Exchanges Index of 25 companies worldwide.
Second-quarter earnings rose to 64 cents a share excluding some items, exceeding to the 60-cent average estimate of analysts surveyed by Bloomberg. Net income rose 1.1 percent to $92 million, and the New York-based company lowered its 2012 core operating expense forecast to a range of $870 million to $890 million, excluding new initiative spending, acquisition costs and a compensation plan for brokers that lost money on the Facebook Inc. initial offering.
Almost $900 million was erased from Nasdaq OMX’s market value last quarter after Facebook’s debut in May burned investors, spurred losses on Wall Street and prompted lawsuits against the exchange. The bourse boosted its compensation plan this month for brokers that lost money on the IPO, the biggest share sale since General Motors Co. in November 2010, to $62 million cash.
“Nasdaq is showing the IPO-related malfunctions are not impacting their ability to return cash at outsized rates, a key part of Nasdaq’s strategy to turn relatively modest top-line growth into healthy EPS growth,” Ed Ditmire, a New York-based analyst with Macquarie Group Ltd., wrote after the release.
The plan Nasdaq unveiled last week to pay member firms that lost money in the IPO of Facebook represents the company’s “definitive statement” on restitution and no more reserves are planned, Nasdaq OMX Chief Executive Officer Robert Greifeld said on a conference call with analysts today. As an exchange owner, Nasdaq has substantial legal defenses, he said.
The company bought back 5.3 million shares for $125 million in the second quarter, bringing the total amount repurchased since January 2009 to $1.1 billion, according to today’s release. Nasdaq OMX paid its first cash dividend of 13 cents a share during the second quarter.
Revenue excluding rebates, clearing and other fees rose 2.2 percent to $424 million, exceeding the average analyst projection, data compiled by Bloomberg show. Access and broker services revenue increased the most, rising 12 percent to $66 million from a year ago. Market data, which accounts for 22 percent of net revenue, increased 8.4 percent to $90 million, Nasdaq said.
Higher sales for services offset lower trading revenue, as fees for handling stock transactions fell 12 percent to $52 million and derivatives trading and clearing slipped 6.7 percent to $70 million.
Average daily volume of U.S. exchange-listed securities during the second quarter fell 4.5 percent to 6.82 billion shares, according to data compiled by Bloomberg. Nasdaq gets about a third of its revenue from transaction fees for equities and derivatives, data from the company show. The exchange’s U.S. equity market share rose to 22.5 percent from 21.2 percent in the first quarter, Barclays data show.
Nasdaq OMX, which won the Facebook listing over its main competitor NYSE Euronext, has faced criticism for its handling of the debut, when the first public transaction took a half hour longer than planned. An error also prevented execution reports for the shares that entered the auction, and those that were ignored, from being sent immediately to brokerages.
Shares of the exchange dropped 12 percent during the second quarter. The stock is up 4 percent since the May 18 Facebook IPO, compared with a 23 percent slump for the social-networking service.
“We deeply regret the problems encountered during the initial public offering of Facebook,” Greifeld said in a press release on July 20. “We failed to meet our own high standards based on our long history of providing outstanding technology to our members and exchange customers. We have learned from this experience and we will continue to improve our trading platforms.”
Nasdaq OMX agreed to increase the compensation pool from $40 million and did away with a proposal to credit most of the money through reduced trading costs, according to a submission last week with the Securities and Exchange Commission. Member brokers who accommodated customers for losses will get paid first, it said.
“We suspect the fund is still unlikely to satisfy member firms that experienced trading losses,” Patrick O’Shaughnessy, a Chicago-based analyst at Raymond James & Associates Inc., wrote in a July 23 note. “Even at its increased size, the accommodation fund is still well below the $100 plus million in reported claims from member firms.”
NYSE Euronext, the largest U.S. stock-exchange operator, is scheduled to issue its quarterly report on Aug. 3. The average analyst projection is for 50 cents a share in profit, down from the 61 cents in the year-earlier period, according to data compiled by Bloomberg. Deutsche Boerse AG, the Frankfurt-based exchange, will post earnings results on July 26.
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