Barclays on Financial Services U.S. Brokers, Asset Managers & Exchanges: Exchanges: Riding the Volatility Wave

Barclays on Financial Services U.S. Brokers, Asset Managers & Exchanges: Exchanges: Riding the Volatility Wave

Barclays analyst says, "Given the recent market selloff we highlight companies that we view not only as trading at depressed values, but that benefit from some of the recent volatility and subsequent elevated trading volumes in the market. We believe our exchange names - CBOE Holdings (Nasdaq: CBOE), CME Group (NYSE: CME), IntercontinentalExchange (NYSE: ICE), NYSE Euronext (NYSE: NYX) and Nasdaq (Nasdaq: NDAQ) - have seen a positive impact on 3Q11 earnings from the recent instability in the market. While clearly we do not expect volumes to run at recent levels through the remainder of the quarter, we do believe that the recent volatility and subsequent uptick in volumes provide a boost to what is normally a seasonally weak quarter of the year for the exchanges (given the August vacation schedule). Most importantly though, we believe the exchanges are better positioned to capitalize on the favorable operating environment now, more adeptly redistributing capital to operations or activities that provide shareholder value over the longer term."

"Given the recent spike in volumes, coupled with underlying trends, our favorite
tactical names over the short-term, ranked in order, are: CBOE, CME, NDAQ, NYX, and ICE. Over the longer term we continue to like NDAQ and NYX given NDAQ's strong free cash flow and potential for share repurchases, and NYX's proposed merger with Deutsche Boerse, which we believe provides solid accretion over time."

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