Exchanges doing robust business, but shares droop

NEW YORK (Reuters) - The major financial exchanges have spent much of the last year acquiring smaller rivals, both in the United States and overseas, in a continuing wave of industry consolidation designed to shore up their market dominance.

But while many of them are reporting robust profits and record trading volumes, shares of the major exchange operators have fallen significantly so far in 2008. The NYSE Euronext Inc (NYX.N: Quote, Profile, Research), NASDAQ OMX Group (NDAQ.O: Quote, Profile, Research) and CME Group Inc (CME.N: Quote, Profile, Research) have all lost more than 22 percent, underperforming the KBW Capital Markets index .KSX, which includes exchanges, which is down 16 percent for the year.

"The exchanges have traditionally been monopolies and now are facing competition," said Larry Tabb, president of New York-based consulting company TABB Group. "Investors are beginning to get nervous," he added, pointing to the relative ease with which alternative trading systems, off-exchange electronic trading venues, have emerged.

Many of these systems are being built by the major Wall Street brokerages, the exchanges' biggest clients.

Executives from leading exchanges, including NYSE Euronext, the CME and NASDAQ, as well as several competing trading systems will discuss the fast-changing industry and the issues it faces at the Reuters Exchanges and Trading Summit from May 5 through 9 in New York and London.

Among those are the need to diversify across asset classes and the extent to which that need will continue driving their mergers and acquisitions.

Nasdaq's purchase in December of the Philadelphia Stock Exchange, set to close by summer, was designed to help it strengthen its position in the red-hot, high-margin options trading business.

In the first quarter of 2008, the acquisitions continued unabated as NYSE bought out longtime rival the American Stock Exchange in January. The move was aimed at helping NYSE expand into the trading of exchange traded funds (ETF), securities that mirror index mutual funds, and stock options.

CME's purchase of NYMEX (NMX.N: Quote, Profile, Research), meanwhile, will give it a foothold in energy derivatives trading.  Continued...