Stable markets, subdued trading volume and concerns that the U.S. markets are too complex caused net income at NYSE Euronext, owner of the world’s largest stock exchange, to tumble 42% in the third quarter.
The New York-based corporation, which owns the New York Stock Exchange along with several exchanges in Europe, said it is trying to slash $250 million in expenses over the next few years.
The effort, called Project 14, resulted in NYSE Euronext reassessing some of its investments and cutting some staff during the quarter, trimming $82 million in costs.
But the Big Board owner still saw profit slide to $108 million, or 44 cents a share, from $186 million, or 71 cents a share. That’s without factoring in merger expenses, exit costs, discrete tax items and other elements.
Revenue slid 21% to $559 million, from $704 million. The company said it had benefited from “extreme market volatility ... driven by the European sovereign debt crisis and the U.S. debt ceiling issue” during the third quarter in 2011.
Since then, however, the instability has receded, creating a “current lackluster trading environment,” Chief Executive Duncan L. Niederauer told analysts in a conference call. Investor confidence at record lows also doesn’t help, he said.
Equity trading activity alone fell 39% in the U.S., according to the company. Exchanges make their money mostly through fees paid by listed companies as well as commissions from trader transactions.
“We are still facing strong macroeconomic headwinds, and our results for the third quarter reflect this,” Niederauer said.
Major exchanges such as the NYSE are also facing deep questions about their basic structure, especially as shifts in technology and electronic competitors threaten their market prowess.
“Markets appear too complex and fragmented to individual investors and there has been a dramatic rise in off-exchange trading, which we believe harms the price discovery process,” Niederauer said. “We believe the right thing to do is to engage in a holistic review of market structure with all participants to more closely examine some of the unintended consequences of the framework under which we operate.”
The NYSE closed for two days last week as New York City hunkered down for Hurricane Sandy. Niederauer said it was “a pretty challenging week” but that the shutdown “was the right thing to do.”